Table of Contents
1. Overview of the Shareholder Proposal Rule
1.01
Introduction
8-20
1.02
Purpose of the Shareholder Proposal Rule
8-20
1.03
The Shareholder Proposal Rule Process
8-20
1.04
How the Shareholder Proposal Rule is Used
8-21
1.05
Future of the Shareholder Proposal Rule
8-22
2. Proposal Submission & No-Action Processes
2.01
Submission of Proposal to Company
8-22
A.
Eligibility Requirements
8-22
B.
Deadline for Submitting Proposals
8-23
1.
How to Draft a Proposal
8-23
2.02
Submission of No-Action Request & Rebuttal to Staff
8-23
A.
Company Responses
8-23
B.
Deadline for No-Action Request
8-24
C.
What to Submit to the SEC Staff
8-24
D.
How to Make Arguments to the SEC Staff
8-25
E.
Copy of No-Action Request to Proponent
8-26
F.
Timetable for Rebuttal
8-26
G.
Proposal Revisions
8-27
H.
Withdrawn Proposals
8-28
I.
Third-Party Letters Permitted But Not Required to be Considered
8-28
J.
SEC Posts Incoming No-Action Requests
8-29
2.03
Staff Processing Procedures for Proposals
8-29
A.
Staff’s Workload Heavy
8-29
B.
Internal Staff Processing
8-29
C.
Staff Response Letters
8-31
D.
Types of Staff Responses & How Sent
8-31
E.
Single Basis Cited
8-32
F.
Lack of Precedential Effect
8-32
G.
No-Action Letters Provide Limited Protection
8-33
H.
Seeking Court Approval for Exclusion Rather Than SEC Staff
8-33
I.
Proponents Filing Lawsuits to Compel Inclusion
8-33
2.04
Post-Ruling Role of Staff
8-34
2.05
Inclusion of Proposal
8-34
A.
What Company Must Do to Include Proposal
8-34
B.
Seeking to Change the Proposal’s Language
8-34
C.
Companies Can’t Change Proposal Title Nor Mangle Proxy Card Description
8-35
D.
Disclosure of Opposition to Proposal
8-35
3. Defining a Proposal
3.01
Background
8-35
3.02
Mere Expression of Views
8-36
3.03
Request for Information Not Automatically Excludable
8-36
3.04
Determining Whether Communication is a Proposal or Suggestion/Complaint
8-36
3.05
Determining Whether Communication is a Proposal or Nomination
8-37
3.06
Sometimes Difficult to Distinguish Shareholder Proposals & Shareholder Communications
8-37
4. Deadline for Seeking No-Action Relief
4.01
Deadline for No-Action Request
8-38
A.
History of the Deadline
8-38
B.
Purpose of the Deadline
8-39
4.02
Obtaining a Waiver of the Deadline
8-39
A.
Identifying the Key Issues
8-39
B.
Delay Caused by Proponent’s Tardiness
8-40
1.
Grant of Waiver and Exclusion Allowed
8-40
2.
Grant of Waiver But No Exclusion Allowed
8-40
C.
Delay Caused by Company’s Tardiness
8-40
1.
Decline to Waive Deadline But Address Other Bases
8-40
2.
Decline to Grant Waiver and Exclusion Not Allowed
8-41
4.03
Exclusion Without Staff Relief
8-41
4.04
Practice Pointers
8-42
5. Appealing a Staff Decision
5.01
Introduction
8-42
5.02
Reconsideration of Staff Decisions
8-43
5.03
Commission Appeal of Staff Decision
8-43
5.04
Litigating Against the Company
8-44
A.
Staff Guidance is Non-Binding
8-44
B.
Staff Expressing “No View”
8-45
C.
Attorneys’ Fees
8-45
5.05
Lawsuits Against the Commission or Staff
8-46
5.06
Practice Pointers
8-46
6. Statements In Opposition
6.01
Background of the Provision
8-48
A.
History of the Provision
8-48
B.
Purpose of the Provision
8-48
6.02
Application of the Provision
8-49
A.
Identifying the Key Issues
8-49
B.
Staff Review of Proposal Disclosure
8-49
C.
Company Not Liable for Proponent’s Disclosure
8-49
D.
No Word Limitation
8-49
E.
Advance Copy Must Be Provided to Proponent
8-50
F.
Making Statement Changes After Already Provided
8-50
G.
Inability to Meet Advance Copy Deadline
8-51
H.
Proponent’s Belief that Disclosure Is False and Misleading
8-51
I.
Revising Statements in Opposition
8-52
J.
Who Has Standing to Challenge Disclosure
8-53
K.
Excluding Statement from Preliminary Proxy Statement
8-53
L.
What is a “Statement in Opposition”?
8-53
M.
Seeking to Change Proposal’s Language
8-54
N.
Seeking to Change Proxy Statement’s Formattin
8-54
O.
Regulation FD Concerns
8-54
P.
Statements in Support Permissible
8-55
Q.
Can Discuss Proposal Topic with Other Shareholders (But File Written Communications)
8-55
6.03
Practice Pointers
8.56
7. Eligibility to Submit a Proposal
7.04
Proof of Ownership Requirement
8-64
A.
Documentary Support from a Record Holder
8-65
B.
Broker Documentation as Proof; DTC Participants vs. Introducing Brokers
8-65
C.
Failure by Broker to Provide Documentation
8-67
1.
Snapshots in Broker Statements
8-67
D.
SEC Filings
8-68
E.
Phone Conversations
8-68
F.
Failure to Respond Appropriately
8-68
7.05
Holding Period
8-68
A.
One-Year Period
8-68
B.
Tacking of Holdings in Predecessor Company
8-69
7.06
Valuation of Securities
8-70
A.
$2,000 Requirement
8-70
B.
No Need for Continuous Ownership of $2,000
8-70
C.
Shareholders Permitted to Aggregate Holdings to Meet Threshold
8-70
7.07
Continuous Ownership Until Shareholders’ Meeting
8-70
A.
Statements about Continuous Ownership
8-70
B.
Failure to Hold Securities until Meeting Date
8-71
7.08
Practice Pointers
8-71
8. One-Proposal Rule
8.01
Background of the Exclusion
8-73
A.
History of the Exclusion
Purpose of the Exclusion
B.
Purpose of the Exclusion
Purpose of the Exclusion
8.02
Application of the Exclusion
8-73
A.
Identifying the Key Issues
8-73
B.
Distinct Multiple Proposals
8-74
C.
Opportunity to Cure
8-74
C1.
Failure to Provide Notice and Opportunity to Cure
8-74
D.
Relate to One Concept
8-74
E.
No Substitute Proposals
8-75
8.04
Practice Pointers
8-75
9. Alter Egos
9.01
Introduction
8-75
9.02
Family Members
8-76
9.03
Persons Under Common Control
8-76
A.
Common Interest in Securities
8-76
B.
Agents for Proponents
8-76
C.
Investment Advisor as Permissible Agent
8-77
10. Limitation on Proposal Length
10.01
Background of the Exclusion
8-78
A.
History of the Exclusion
8-78
B.
Purpose of the Exclusion
8-78
10.02
Application of the Exclusion
8-79
A.
Identifying the Key Issues
8-79
B.
Staff Performs Own Count Manually
8-79
C.
Waiver of Word Limit
8-79
D.
Need for More Words
8-79
10.03
Notification of Deficiency and Opportunity to Cure
8-80
A.
Notification Requirement
8-80
B.
Contents of Notice
8-80
C.
No Second Chance to Cure
8-80
D.
Revised Proposal Exceeding Limit
8-80
10.04
Determination of What Constitutes a “Word”
8-81
A.
Titles and Introductory Statements
8-81
B.
Numbers and Acronyms
8-81
C.
Hyphens
8-81
D.
Graphics
8-81
E.
Web Site Addresses
8-83
10.05
Practice Pointers
8-83
11. Submission Deadline
11.01
Background of the Exclusion
8-85
A.
History of the Exclusion
8-85
B.
Purpose of the Exclusion
8-86
11.02
Application of the Exclusion
8-86
A.
Identifying the Key Issues
8-86
B.
Disclosure of Deadline in SEC Filings
8-87
C.
Erroneous Disclosure of Deadline in SEC Filings
8-87
D.
Applicability of Advance Notice Bylaw Provisions
8-87
E.
Different Methods to Submit Proposals
8-88
F.
Adding a Co-Proponent
8-88
G.
Company as Cause for Missing Deadline
8-88
H.
Notifying the Proponent
8-88
I.
Deadline & Proof of Ownership Are Different
8-89
11.03
Calculation of Deadline for Annual Meetings
8-89
A.
Normal Deadline
8-89
B.
How Not to Calculate Deadline
8-90
C.
Deadline Is Bright-Line Rule
8-90
D.
Receipt Date Counts
8-90
E.
Deadline May Fall on Weekend or Holiday
8-91
F.
Other Type of Deadline: Floor Proposals & Advance Notice Bylaws
8-91
G.
What Disclosure Looks Like
8-92
H.
Amended Proposals
8-92
I.
Withdrawals and Resubmissions
8-93
J.
Notice of Intention to Submit
8-93
K.
Meeting Date Must Be Set
8-93
L.
Assess What Type of Proposal Received
8-94
M.
Spun-Off Company Deadlines
8-94
N.
Use of Discretionary Proxy Authority
8-94
11.04
Calculation of Special Meeting and Changed Meeting Deadlines
8-95
A.
Deadline If No Annual Meeting in Prior Year
8-95
B.
Deadline for Special Meetings
8-97
C.
Changing the Deadline
8-97
11.05
Definition of “Principal Executive Offices”
8-98
11.05.A.
What Are “Principal Executive Offices”
8-98
11.05.B.
Good Faith Efforts Irrelevant
8-98
11.06
Practice Pointers
8-98
12. Attendance at the Meeting
12.01
Background of the Exclusion
8-99
A.
History of the Exclusion
8-99
B.
Purpose of the Exclusion
8-100
12.02
Application of the Exclusion
8-100
A.
Identifying the Key Issues
8-100
B.
Before-the-Fact Application
8-101
C.
Evidence of Lack of Attendance
8-101
D.
What Constitutes “Presenting” a Proposal
8-101
E.
Proponent Not Required to Vote for Proposal
8-102
F.
Proposals Submitted During Two-Year Period
8-102
G.
Applies to Special & Annual Shareholders’ Meetings
8-103
H.
Applies to Virtual Shareholders’ Meetings
8-103
I.
No Need for a “Second”
8-103
J.
Adjournments
8-103
12.03
Good Cause Exception
8-103
A.
Explanations That Are Not “Good Cause”
8-104
B.
Even Showing Good Cause May Be Insufficient
8-104
C.
Proponent Must Actually Present Proposal
8-104
12.04
Qualifications for Proponent Representatives
8-105
A.
State Law Governs Representative Proces
8-105
B.
Representative Does Not Have to be Shareholder
8-106
C.
Representative Must Show Shareholder’s Authority Delegation
8-106
D.
Representative Can Obtain Own Representative
8-107
E.
Company Employee as Representative
8-107
12.05
Failing Proposals
8-108
A.
Company Moves Failing Proposal (& Proponent Can’t Withdraw)
8-108
B.
Company Allows Failing Proposal to Be “Withdrawn”
8-108
12.06
Practice Pointers
8-108
13. Identification of Proponents
13.01
Background of the Exclusion
8-110
A.
History of the Exclusion
8-110
B.
Purpose of the Exclusion
8-110
13.02
Application of the Exclusion
8-111
A.
Identifying the Key Issues
8-111
B.
Providing Identifying Information Upon Request
8-111
C.
Inclusion of Identifying Information in Proposal or Supporting Statement
8-111
D.
Rule Applies to All Types of Identifying Information
8-112
E.
Applies to Co-Proponents or Representatives
8-112
F.
Need to Provide More than Name and Address upon Request
8-112
14. Improper under State Law
14.01
Background of the Exclusion
8-113
A.
History of the Exclusion
8-113
B.
Purpose of the Exclusion
8-114
C.
Overlap with Other Exclusions
8-114
14.02
Application of the Exclusion
8-115
A.
Identifying the Key Issues
8-115
B.
Lack of State Law Guidance for Staff
8-115
C.
Judicial Interpretation of Interplay Between State and Federal Law
8-116
D.
Exclusion Causes Tension Between State and Federal Law
8-116
E.
Legal Opinion Requirement
8-116
1.
Form of Opinion
8-116
2.
Opinion Content
8-117
3.
Bar of Lawyer Rendering Opinion
8-117
a.
No Requirement for Proponent to Submit Legal Opinion
8-117
b.
Dueling Opinions
8-117
14.03
Interpretive Approaches
8-118
A.
“Mandatory” Versus “Precatory” Proposals
8-118
1.
Rebuttable Presumption that Precatory Proposals Includable
8-118
2.
Precatory Presumed Unless Binding Nature Evident
8-118
3.
Which State Law Applies
8-118
4.
Opportunity to Cure
8-119
5.
Laws that Provide Specific Power to the Board
8-119
B.
Precatory Characterization Not a Cure
8-119
1.
Exxon Corporation
8-119
2.
Pennzoil Corporation
8-120
C.
Mandatory Bylaw Proposals
8-120
1.
Laws that Allow Shareholders to Mandate Bylaw Amendments
8-121
2.
Staff Analysis of Bylaw Amendment Proposals
8-122
3.
SEC Staff May Have “No View”
8-122
4.
Battles Over Mandatory Bylaw Amendments
8-122
a.
Fleming Companies
8-123
b.
Quickturn Design Systems, Inc
8-123
c.
Shiva Corporation
8-124
d.
General DataComm
8-124
5.
CA v. AFSCME Employees Pension Plan
8-125
14.04
Practice Pointers
8-127
15. Violation of Law
15.01
Background of the Exclusion
8-128
A.
History of the Exclusion
8-128
B.
Purpose of the Exclusion
8-128
C.
Overlap with Other Exclusions
8-128
15.02
Application of the Exclusion
8-129
A.
Identifying the Key Issues
8-129
B.
Opportunity to Cure
8-129
15.03
Legal Opinion Requirement
8-129
A.
Form of Opinion
8-129
B.
Opinion Content
8-129
C.
Bar of Lawyer Rendering Opinion
8-130
D.
No Requirement for Proponent to Submit Legal Opinion
8-130
E.
Dueling Opinions
8-130
15.04
Types of Law
8-131
A.
State Law
8-131
1.
State Corporate Law
8-131
2.
Other State Laws
8-131
3.
Breach of Contract
8-131
4.
Renegotiations of Existing Contract Rights
8-132
B.
Federal Laws
8-132
C.
Foreign Law
8-132
1.
Foreign Law Resulting in Breach of State or Federal Law
8-132
15.05
Common Type of Proposals
8-132
A.
Shareholder Rights
8-132
B.
Unilateral Amendment of Certificate of Incorporation
8-132
C.
Board Structure
8-133
D.
Rights Plans
8-133
E.
Mandatory Arbitration
8-133
15.06
Practice Pointers
8-133
16. Violation of the Proxy Rules
16.01
Background of the Exclusion
8-134
A.
History of the Exclusion
8-135
B.
Purpose of the Exclusion
8-135
C.
Overlap with Other Exclusions
8-135
16.02
Application of the Exclusion
8-136
A.
Identifying the Key Issues
8-136
B.
Time Consuming Nature for Staff
8-137
C.
Violation of Rule 14a-9
8-137
D.
Violations of Other Proxy Rules
8-137
E.
Types of SEC Staff Responses
8-137
F.
Problems Only with Supporting Statement
8-138
G.
Opportunity to Correct or Support
8-138
H.
Impact of Word Limit
8-138
I.
Presentation of Proposal
8-138
16.03
Overly Vague Proposals
8-139
A.
Lack of Direction About Implementation
8-139
16.04
False & Misleading
8-139
A.
Types of “False & Misleading” Information
8-139
B.
Rare for Staff to Allow Exclusion Due to False Supporting Statement
8-139
C.
Personal Disclosures About the Proponent
8-139
D.
Defamation or Impugning Character
8-139
E.
URLs in Proposals
8-140
16.05
Modifying Proposals or Supporting Statements
8-140
A.
8-140
