shareholder qualifies, provides its notice, and submits all of the
nominees a company is required to include, then becomes ineligible
under the rule? Under what circumstances should a second shareholder or
group be able to nominate directors? If the second nominating
shareholder or group provided a notice before the first shareholder
became ineligible? Should it matter whether a company had notified the
second nominating shareholder or group that it intended to exclude
their nominee or nominees?
8. Application of the Other Proxy Rules to Solicitations by the
Nominating Shareholder or Group
    As proposed, Rule 14a-11 would permit shareholders to aggregate
their securities with other shareholders in order to meet the
applicable minimum ownership threshold to nominate a director.
Accordingly, we anticipate that shareholders would, in many instances,

engage in communications with other shareholders in an effort to form a
nominating shareholder group that would be deemed solicitations under
the proxy rules. In 2003 we proposed an exemption from certain of the
proxy rules to enable shareholders to communicate for the limited
purpose of forming a nominating shareholder group without filing and
disseminating a proxy statement. To qualify for the exemption,
shareholders would have had two options. The communications would
either have been made to a limited number of shareholders or, in the
alternative, to an unlimited number of shareholders, provided that the
communication was limited in content and filed with the Commission.
Some commenters supported adoption of limited exemptions,\239\ while
others stated that the exemptions were unnecessary or duplicative of
existing exemptions from the proxy rules. In particular, commenters
expressed concerns about the exemption for solicitations not involving
more than 30 persons in connection with the formation of a nominating
security holder group.\240\ These commenters believed the 30-person
exemption might be used for undeclared control purposes and believed
that there was no reason to replace the 10-person exemption set forth
in Exchange Act Rule 14a-2(b)(2), which permits limited testing of the
waters before application of the notice and filing requirements of the
proxy rules.\241\
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    \239\ See 2003 Summary of Comments; see also comment letters
from CalPERS; CIR; ICI; and Clauss & Wolf.
    \240\ See 2003 Summary of Comments; see also comment letters
from ABA; NYC Bar; and Sullivan.
    \241\ Id.
---------------------------------------------------------------------------

    After considering further the need for an exemption, and in
particular the comments received on the 2003 Proposal, we are proposing
an exemption from the proxy rules for communications made in connection
with using proposed Rule 14a-11 \242\ that are limited in content and
filed with the Commission.\243\ We believe this limited exemption will
facilitate shareholders' use of proposed Rule 14a-11 and remove
concerns shareholders seeking to use the rule may have regarding
certain communications with other shareholders regarding their intent
to submit a nomination pursuant to the rule. The exemption would not
apply to oral communications because such communications could not
easily satisfy the filing requirement, which we believe is important in
determining compliance with the content restriction in the proposed
exemption. As proposed, Exchange Act Rules 14a-3 to 14a-6 (other than
paragraphs 14a-6(g) and 14a-6(p)), 14a-8, 14a-10, and 14a-12 to 14a-15
would not apply to any solicitation by or on behalf of any shareholder
in connection with the formation of a nominating shareholder group,
provided that:
---------------------------------------------------------------------------

    \242\ The proposed exemption would not apply to solicitations
made when seeking to have a nominee included in a company's proxy
materials pursuant to a procedure specified in the company's
governing documents. In this instance, companies and/or shareholders
would have determined the parameters of the shareholder's or group's
access to the company's proxy materials. Given the range of possible
criteria companies and/or shareholders could establish for
nominations, we are not proposing to extend the exemption to those
circumstances. A shareholder would need to determine whether one of
the existing exemptions applies to their solicitation conducted in
connection with a nomination made pursuant to a company's governing
documents. The proposed exemption also would not apply to
nominations made pursuant to applicable state law provisions, again
because state law could establish any number of possible criteria
for nominations.
    \243\ See proposed Rule 14a-2(b)(7)(i).
---------------------------------------------------------------------------

     Each written communication includes no more than:
     A statement of the shareholder's intent to form a
nominating shareholder group in order to nominate a director under the
proposed rule;
     Identification of, and a brief statement regarding, the
potential nominee or nominees or, where no nominee or nominees have
been identified, the characteristics of the nominee or nominees that
the shareholder intends to nominate, if any;
     The percentage of securities that the shareholder
beneficially owns or the aggregate percentage owned by any group to
which the shareholder belongs; and
     The means by which shareholders may contact the soliciting
party; \244\ and
---------------------------------------------------------------------------

    \244\ See id.
---------------------------------------------------------------------------

     Any written soliciting material published, sent or given
to shareholders in accordance with the terms of this provision is filed
with the Commission by the nominating shareholder, under the company's
Exchange Act file number (or in the case of a registered investment
company, under the company's Investment Company Act file number), no
later than the date the material is first published, sent or given to
shareholders. The soliciting material would be required to include a
cover page in the form set forth in Schedule 14A, with the appropriate
box on the cover page marked.\245\
---------------------------------------------------------------------------

    \245\ See proposed Rule 14a-2(b)(7)(ii). We note that written
communications include electronic communications, such as e-mails
and Web site postings.
---------------------------------------------------------------------------

    In this regard, we note that shareholders also would have the
option to structure their solicitations, whether written or oral, to
comply with an existing exemption from the proxy rules, including the
exemption for solicitations of no more than 10 shareholders,\246\ and
the exemption for certain communications that take place in an
electronic shareholder forum.\247\
---------------------------------------------------------------------------

    \246\ Exchange Act Rule 14a-2(b)(2).
    \247\ Exchange Act Rule 14a-2(b)(6).
---------------------------------------------------------------------------

    Both the nominating shareholder or group and the company may wish
to solicit in favor of their nominees for director by various means,
including orally, by U.S. mail, electronic mail, and Web site postings.
While the company ultimately would file a proxy statement and therefore
could rely on the existing proxy rules to solicit outside the proxy
statement,\248\ shareholders could be limited in their soliciting
activities under the current proxy rules. Accordingly, we are proposing
a new exemption to the proxy rules providing that solicitations by or
on behalf of a nominating shareholder or group in support of a nominee
included in the company's proxy statement and form of proxy in
accordance with the proposed rule, would not be subject to Exchange Act
Rules 14a-3 to 14a-6 (other than paragraphs 14a-6(g) and 14a-6(p)),
14a-8, 14a-10, and 14a-12 to 14a-15, provided that:
---------------------------------------------------------------------------

    \248\ See Exchange Act Rule 14a-12.
---------------------------------------------------------------------------

     The soliciting party does not, at any time during such
solicitation, seek directly or indirectly, either on its own or
another's behalf, the power to act as proxy for a shareholder and does
not furnish or otherwise request, or act on behalf of a person who
furnishes or requests, a form of revocation, abstention, consent or
authorization; \249\
---------------------------------------------------------------------------

    \249\ See proposed Rule 14a-2(b)(8)(i).
---------------------------------------------------------------------------

     Each written communication includes:
     The identity of the nominating shareholder or group and a
description of his or her direct or indirect interests, by security
holdings or otherwise;
     A prominent legend in clear, plain language advising
shareholders that a shareholder nominee is or will be included in the
company's proxy statement and to read the company's proxy statement
when it becomes available because it includes important information.
The legend also must explain to shareholders that they can find the
proxy statement, other soliciting material and any other relevant
documents, at no charge on the Commission's Web site; and
     Any soliciting material published, sent or given to
shareholders in accordance with this paragraph must be filed by the
nominating shareholder or group with the Commission, under the
company's Exchange Act file number,

no later than the date the material is first published, sent or given
to shareholders.\250\ Three copies of the material would at the same
time be filed with, or mailed for filing to, each national securities
exchange upon which any class of securities of the company is listed
and registered. The soliciting material would be required to include a
cover page in the form set forth in Schedule 14A, with the appropriate
box on the cover page marked.\251\
---------------------------------------------------------------------------

    \250\ For a registered investment company, the filing would be
made under the subject company's Investment Company Act file number.
    \251\ See proposed Rule 14a-2(b)(8)(iii).
---------------------------------------------------------------------------

Request for Comment
    H.1. Should the Commission provide a new exemption for soliciting
activities undertaken by shareholders seeking to form a nominating
shareholder group pursuant to Rule 14a-11? If so, is the proposed
exemption appropriate? If not, why not? What specific changes to the
exemption would be appropriate? Should the rule require that a
shareholder meet any of the requirements of Rule 14a-11 to rely on the
exemption (e.g., have held the securities they seek to aggregate for
the required holding period)? Is it appropriate to require filing with
the Commission on the date of first use, as proposed?
    H.2. Should the Commission expand the proposed exemption for
soliciting activities undertaken by shareholders seeking to form a
nominating shareholder group pursuant to Rule 14a-11 to apply also to
oral communications? If so, what amendments to the proposed exemption
would be necessary?
    H.3. What requirements should apply to soliciting activities
conducted by a nominating shareholder or group? In particular, what
filing requirements and specific parameters should apply to any such
solicitations? For example, we have proposed a limited content
exemption for certain solicitations by shareholders seeking to form a
nominating shareholder group. Is this content-based limitation
appropriate? Should shareholders, for example, also be permitted to
explain their reasons for forming a nominating shareholder group?
Should shareholders be permitted to identify any potential nominee, as
proposed, and why that person was chosen? If not, what, if any,
limitations would be more appropriate? For example, should an exemption
for certain solicitations by shareholders seeking to form a nominating
shareholder group be limited to no more than a specified number of
shareholders, but not limited in content (e.g., fewer than 10
shareholders, 10 shareholders, 20 shareholders, 30 shareholders, 40
shareholders, more than 40 shareholders)?
    H.4. Should communications made to form a group be permitted to
identify a possible or proposed nominee or nominees, as proposed?
    H.5. Is the requirement that the nominating shareholder or group
provide a description of his or her direct or indirect interests, by
security holdings or otherwise, sufficiently clear? Do we need to
provide additional guidance as to what interests would be required to
be disclosed?
    H.6. Should all written soliciting materials be filed with the
Commission on the date of first use? If not, how much later should they
be filed (e.g., two business days after first use; four business days
after first use, some other date)? Should the materials be filed before
the date of first use?
    H.7. Should we provide a similar exemption for soliciting
activities undertaken by shareholders seeking to form a nominating
shareholder group other than in connection with Rule 14a-11 (e.g., in
connection with a nomination under applicable state law provisions or a
company's governing documents)?
    H.8. Should solicitations by or on behalf of a nominating
shareholder or group in support of a nominee included in the company's
proxy statement and form of proxy pursuant to Rule 14a-11 be exempt?
Why or why not?
    H.9. Should the exemption be conditioned on the soliciting
materials including a legend about the shareholder's nominee being
included in company proxy materials and a statement about where
shareholders can find the proxy statement, soliciting material, and
other relevant documents, as proposed? Should any other conditions be
included in the exemption?
    H.10. Should a nominating shareholder or group be required to file
any soliciting material published, sent or given to shareholders in
accordance with the exemption no later than the date the material is
first published, sent or given to shareholders, as proposed?
    H.11. Should solicitations by the nominating shareholder or group
be limited or prohibited? If so, why?
    H.12. Should we provide a similar exemption for soliciting
activities undertaken by a nominating shareholder or group in support
of their nominee or nominees, where those nominees are included in a
company's proxy materials pursuant to applicable state law provisions
or a company's governing documents?

C. Amendments to Exchange Act Rule 14a-8(i)(8)

1. Background
    Currently, Rule 14a-8(i)(8) allows a company to exclude from its
proxy statement a shareholder proposal that relates to a nomination or
an election for membership on the company's board of directors or a
procedure for such nomination or election. As noted, the Commission
amended this provision in 2007 to expressly permit the exclusion of a
proposal that would result in an immediate election contest or would
set up a process for shareholders to conduct an election contest in the
future by requiring the company to include shareholders' director
nominees in the company's proxy materials for subsequent meetings. The
Commission adopted this proposal in December 2007 to provide certainty
to companies and shareholders in light of the AFSCME decision.\252\ In
the adopting release, the Commission noted the many disclosures that
are required for election contests that would not have been provided
for in Rule 14a-8.\253\ In this regard, several Commission rules,
including Exchange Act Rule 14a-12, regulate contested proxy
solicitations to assure that investors receive disclosure to enable
them to make informed voting decisions in elections. The requirements
to provide these disclosures to shareholders from whom proxy authority
is sought are grounded in Rule 14a-3, which requires that any party
conducting a proxy solicitation file with the Commission, and furnish
to each person solicited, a proxy statement containing the information
in Schedule 14A. Items 4(b) and 5(b) of Schedule 14A require numerous
specified disclosures if the solicitation is subject to Rule 14a-12(c),
and Item 7 of Schedule 14A also requires important specified
disclosures for any director nominee. Finally, all of these disclosures
are covered by the prohibition on the making of a solicitation
containing false or misleading statements or omissions that is found in
Rule 14a-9.
---------------------------------------------------------------------------

    \252\ See Election of Directors Adopting Release. See also
footnotes 88 and 89, above.
    \253\ See Election of Directors Adopting Release.
---------------------------------------------------------------------------

    The Commission's action in 2007 provided certainty to shareholders
and companies regarding the application of Rule 14a-8(i)(8) in the wake
of the AFSCME decision that had caused confusion about what disclosure
and liability rules might apply to any resulting election contest. As
noted in

Section II., at that time, the Commission did not take any action with
respect to the alternative proposal published in 2007.\254\ Since that
time, we have continued to consider whether the proxy process can be
improved and we have concluded that the proxy rules, including Rule
14a-8(i)(8), can be amended to further facilitate shareholders' rights
to nominate directors and promote fair corporate suffrage, while still
providing appropriate disclosure and liability protections.
---------------------------------------------------------------------------

    \254\ Under the alternative proposal, Rule 14a-8(i)(8) would
have been amended with certain conditions to permit a qualifying
shareholder who makes full disclosure in connection with a bylaw
proposal relating to director nominations procedures to have that
proposal included in a company's proxy materials.
---------------------------------------------------------------------------

2. Proposed Amendment to Rule 14a-8(i)(8)
    We are proposing an amendment to Rule 14a-8(i)(8), the election
exclusion, to enable shareholders, under certain circumstances, to
require companies to include in company proxy materials proposals that
would amend, or that request an amendment to, a company's governing
documents regarding nomination procedures or disclosures related to
shareholder nominations, provided the proposal does not conflict with
proposed Rule 14a-11.\255\ The proposal would have to meet the
procedural requirements of Rule 14a-8 and not be subject to one of the
substantive exclusions other than the election exclusion (e.g., the
proposal could be excluded if the shareholder proponent did not meet
the ownership threshold under Rule 14a-8).\256\
---------------------------------------------------------------------------

    \255\ A proposal would continue to be subject to exclusion under
Rule 14a-8(i)(2) if its implementation would cause the company to
violate any state, federal, or foreign law to which it is subject,
or under Rule 14a-8(i)(3), if the proposal or supporting statement
was contrary to any of the Commission's proxy rules. As proposed to
be amended, Rule 14a-8(i)(8) would allow shareholders to propose
additional means, other than Rule 14a-11, for disclosure of
shareholder nominees in company proxy materials. Therefore, a
shareholder proposal that seeks to provide an additional means for
including shareholder nominees in the company's proxy materials
pursuant to the company's governing documents would not be deemed to
conflict with Rule 14a-11 simply because it would establish
different eligibility thresholds or require more extensive
disclosures about a nominee or nominating shareholder than would be
required under Rule 14a-11. A shareholder proposal would conflict
with Rule 14a-11, however, to the extent that the proposal would
purport to prevent a shareholder or shareholder group that met the
requirements of proposed Rule 14a-11 from having their nominee for
director included in the company's proxy materials. A shareholder
proposal would also be subject to exclusion under Rule 14a-8(i)(2)
or Rule 14a-8(i)(3) to the extent that it would affirmatively excuse
nominating shareholders or their nominees from compliance with the
liability provisions of Rule 14a-9(c) or the proposed Rule 14a-19
disclosure requirements applicable to shareholder nominations
submitted pursuant to an applicable state law provision or a
company's governing documents.
    \256\ Currently, Rule 14a-8 requires that a shareholder
proponent 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 a period of one year prior to submitting the
proposal. See Rule 14a-8(b). These requirements would remain the
same. The proposal may be subject to exclusion if the procedural
requirements of the rule are not met or it falls within one of the
other substantive bases for exclusion included in Rule 14a-8.
---------------------------------------------------------------------------

    As proposed, except as provided below in the codification of staff
positions, revised Rule 14a-8(i)(8) would not restrict the types of
amendments that a shareholder could propose to a company's governing
documents to address the company's provisions regarding nomination
procedures or disclosures related to shareholder nominations, although
any such proposals that conflict with proposed Rule 14a-11 or state law
could be excluded.\257\ We recognize that the proposed amendments to
Rule 14a-8(i)(8) could result in shareholders proposing amendments that
would establish procedures for nominating directors and disclosures
related to such nominations that require a different ownership
threshold, holding period, or other qualifications or representations
than those proposed in Rule 14a-11. The amendments proposed by
shareholders through Rule 14a-8 would be permitted unless they would
conflict with Rule 14a-11 (i.e., proposals that would preclude
nominations by shareholders who would qualify under proposed Rule 14a-
11 to have their nominee for director included in the company's proxy
materials) or applicable state law. We considered whether this would
create confusion or lack of certainty for companies and their
shareholders, but believe that this possibility is outweighed by the
importance of facilitating shareholders' ability to exercise their
rights to determine their own additional shareholder nomination proxy
disclosure and related procedures.
---------------------------------------------------------------------------

    \257\ In this regard, the proposed revision to Rule 14a-8(i)(8)
would not make a distinction between binding and non-binding
proposals.
---------------------------------------------------------------------------

3. Disclosure Requirements
    We are not proposing any new disclosure requirements for a
shareholder that submits a proposal that would amend, or that requests
an amendment to, a company's governing documents to address the
company's nomination procedures or procedures for inclusion of
shareholder nominees in company proxy materials or disclosures related
to those shareholder provisions.\258\ New disclosures would not be
required from a shareholder simply submitting such a proposal to amend,
or requesting an amendment to, a company's governing documents because
the Commission believes that a shareholder may simply want to amend the
company's procedures for nominating directors, but may not intend to
nominate any particular individual.\259\
---------------------------------------------------------------------------

    \258\ Shareholders submitting a proposal to amend a company's
governing documents to address nomination procedures for inclusion
of shareholder nominees in company proxy materials or disclosures
related those shareholder nomination provisions would be subject to
the rule's current requirements. See footnote 256, above.
    \259\ This approach is different from the disclosure
requirements the Commission proposed in the Shareholder Proposals
Release in 2007; however, it is consistent with the overall
requirements relating to the submission of shareholder proposals--
generally, shareholder proponents are not required to provide any
type of disclosure along with their proposal.
---------------------------------------------------------------------------

    As noted, the proposed amendments to Rule 14a-8(i)(8) could result
in shareholders proposing amendments that would establish procedures
for nominating directors and disclosures related to such nominations
that require a different ownership threshold, holding period, or other
qualifications or representations than those proposed in Rule 14a-11.
In addition, a state could set forth in its corporate code \260\ or a
company may choose to amend its governing documents, to provide for
nomination or disclosure rights in addition to those provided pursuant
to Rule 14a-11 (e.g., a company could choose to provide a right for
shareholders to have their nominees disclosed in the company's proxy
materials regardless of ownership--in that instance, the company's
provision would apply for certain shareholders who would not otherwise
have their nominees included in the company's proxy materials pursuant
to Rule 14a-11). Accordingly, we are proposing amendments to our proxy
rules to address the disclosure requirements when a nomination is made
pursuant to such a provision.\261\ We believe the proposed additional
disclosure requirements are necessary to provide shareholders with full
and fair disclosure of information that is material when a choice among
directors to be elected is presented.
---------------------------------------------------------------------------

    \260\ See discussion of North Dakota Publicly Traded
Corporations Act, N.D. Cent. Code Sec.  10-35 et al., in footnote
70, above.
    \261\ See proposed Rule 14a-19.
---------------------------------------------------------------------------

    Proposed Rule 14a-19 would apply to a shareholder nomination for
director for inclusion in the company's proxy materials made pursuant
to procedures

established pursuant to state law or by a company's governing
documents. The proposed rule would require a nominating shareholder or
group to include in its shareholder notice on Schedule 14N (which also
would be filed with the Commission on the date provided to the company)
disclosures about the nominating shareholder or group and their nominee
that are similar to what would be required in an election contest.\262\
---------------------------------------------------------------------------

    \262\ See proposed Rule 14a-19.
---------------------------------------------------------------------------

    Specifically, the shareholder notice on Schedule 14N would be
required to include:
     A statement from the nominee that the nominee consents to
be named in the company's proxy statement and to serve on the board if
elected, for inclusion in the company's proxy statement; \263\
---------------------------------------------------------------------------

    \263\ See proposed Rule 14a-19(a).
---------------------------------------------------------------------------

     Disclosure about the nominee complying with the
requirements of Item 4(b), Item 5(b), and Items 7(a), (b) and (c) and,
for investment companies, Item 22(b) of Exchange Act Schedule 14A, for
inclusion in the company's proxy statement; \264\
---------------------------------------------------------------------------

    \264\ See proposed Rule 14a-19(b). This information would
identify the nominee, describe certain legal proceedings, if any,
related to the nominee, and describe certain of the nominee's
transactions and relationships with the company. See Items 7(a),
(b), and (c) of Schedule 14A. This information also would include
biographical information and information concerning interests of the
nominee. See Item 5(b) of Schedule 14A. With respect to a nominee
for director of an investment company, the disclosure would include
certain basic information about the nominee and any arrangement or
understanding between the nominee and any other person pursuant to
which he was selected as a nominee; information about the positions,
interests, and transactions and relationships of the nominee and his
immediate family members with the company and persons related to the
company; information about the amount of equity securities of funds
in a fund complex owned by the nominee; and information describing
certain legal proceedings related to the nominee, including legal
proceedings in which the nominee is a party adverse to, or has a
material interest adverse to, the company or any of its affiliated
persons. See paragraph (b) of Item 22 of Schedule 14A.
---------------------------------------------------------------------------

     Disclosure about the nominating shareholder or members of
a nominating shareholder group consistent with the disclosure currently
required pursuant to Item 4(b) and Item 5(b) of Schedule 14A; \265\
---------------------------------------------------------------------------

    \265\ See proposed Rule 14a-19(c).
---------------------------------------------------------------------------

     Disclosure about whether the nominating shareholder or
member of a nominating shareholder group has been involved in any legal
proceeding during the past five years, as specified in Item 401(f) of
Regulation S-K. Disclosure pursuant to this section need not be
provided if provided in response to Items 4(b) and 5(b) of Schedule
14A; \266\
---------------------------------------------------------------------------

    \266\ See proposed Rule 14a-19(d).
---------------------------------------------------------------------------

     The following disclosure regarding the nature and extent
of the relationships between the nominating shareholder or group and
nominee and the company or any affiliate of the company:
     Any material direct or indirect interest in any contract
or agreement between the nominating shareholder or group or the nominee
and the company or any affiliate of the company (including any
employment agreement, collective bargaining agreement, or consulting
agreement);
     Any material pending or threatened litigation in which the
nominating shareholder or group or nominee is a party or a material
participant, and that involves the company, any of its officers or
directors, or any affiliate of the company; and
     Any other material relationship between the nominating
shareholder or group or the nominee and the company or any affiliate of
the company not otherwise disclosed; \267\ and
---------------------------------------------------------------------------

    \267\ See proposed Rule 14a-19(e).
---------------------------------------------------------------------------

     Disclosure of any Web site address on which the nominating
shareholder or group may publish soliciting materials.\268\

    \268\ See proposed Rule 14a-19(f).

These disclosures would then be included in the company's proxy
materials pursuant to proposed new Item 7(f) of Schedule 14A. Proposed
Item 22(b)(19) of Schedule 14A would require investment companies to
include in their proxy materials disclosures from the nominating
shareholder or shareholder group with regard to the nominee and
nominating shareholder or shareholder group that are similar to those
required for reporting companies (other than registered investment
companies).
    In addition, the nominating shareholder or group would be required
to identify the shareholder or group making the nomination and the
amount of their ownership in the company on Schedule 14N. The filing
would be required to include, among other disclosures:
     The name and address of the nominating shareholder or each
member of the nominating shareholder group; and
     Information regarding the aggregate number and percentage
of the securities entitled to be voted, including the amount
beneficially owned and the number of shares over which the nominating
shareholder or each member of the nominating shareholder group has or
shares voting or disposition power.

We believe that these disclosures would assist shareholders in making
an informed voting decision with regard to any nominee or nominees put
forth by the nominating shareholder or group, in that the disclosures
would enable shareholders to gauge the nominating shareholder's or
group's interest in the company. Depending on the requirements of the
state law provisions or the company's governing documents, these
disclosures also may be important to the company in determining whether
the nominating shareholder or group meets any ownership threshold,
where applicable. The nominating shareholder or group would be liable
for any false or misleading statements in these disclosures pursuant to
proposed new paragraph (c) of Rule 14a-9.\269\
---------------------------------------------------------------------------

    \269\ See proposed Rule 14a-9(c).
---------------------------------------------------------------------------

    The disclosure requirements we are proposing differ from the
approach proposed in the alternative proposal in 2007.\270\ In that
release, the Commission proposed requiring significant new disclosures
from shareholder proponents of bylaw proposals to be made on Schedule
13G. Commenters expressed concern that the proposed disclosure
requirements were too onerous and should not be required to submit a
shareholder proposal.\271\ Upon further consideration, we believe that
it is appropriate to allow the submission of proposals to amend, or
that request an amendment to, a company's governing documents to
address the company's nomination procedures or disclosures related to
shareholder nominations without requiring extensive disclosure
regarding the shareholder proponent. As noted above, we acknowledge
that some shareholders may simply desire to amend or establish the
company's procedure for nominating directors, but may not contemplate
nominating any particular

individual. In addition, we do not require additional disclosure from
proponents of other types of shareholder proposals submitted under Rule
14a-8. We are soliciting comment, however, on whether additional
disclosure from a shareholder submitting a bylaw proposal would be
appropriate.
---------------------------------------------------------------------------

    \270\ See Shareholder Proposals Proposing Release.
    \271\ See, e.g., comment letters from American Federation of
Labor and Congress of Industrial Organizations (August 2, 2007)
(``AFL-CIO 2007''); Amalgamated Bank LongView Funds (October 2,
2007); Australian Council of Super-Investors (October 2, 2007);
Robert Balopole, CFA, President, Balopole Investment Management
Corp.; CalPERS 2007; California State Teachers' Retirement System
(November 16, 2007) (``CalSTERS 2007''); Council of Institutional
Investors (September 18, 2007) (``CII''); Public Employees'
Retirement Association of Colorado (October 1, 2007) (``CO
Retirement''); McRitchie 2007; F&C Management Limited (October 1,
2007); State Board of Administration of Florida (October 3, 2007);
ICGN Shareholder Rights Committee (October 2, 2007); State
Universities Retirement System of Illinois (October 1, 2007);
Investment Management Association (October 2, 2007); KLD Research &
Analytics, Inc. (October 2, 2007); Brett McDonnell (September 27,
2007); Treasurer, State of North Carolina (October 2, 2007); Ohio
Public Employees Retirement System (October 2, 2007); SEIU;
International Brotherhood of Teamsters (August 30, 2007); UK Local
Authority Pension Fund Forum (October 2, 2007); and United Church
Foundation (September 27, 2007).
---------------------------------------------------------------------------

4. Codification of Prior Staff Interpretations
    Although we are proposing to amend Rule 14a-8(i)(8), we continue to
believe that under certain circumstances companies should have the
right to exclude proposals related to particular elections and
nominations for director from company proxy materials where those
proposals could result in an election contest between company and
shareholder nominees without the important protections provided by the
disclosure and liability provisions otherwise provided for in the proxy
rules. Rule 14a-8(i)(8) should not, however, be read so broadly such
that the provision could be used to permit the exclusion of proposals
regarding the qualifications of directors, shareholder voting
procedures, board nomination procedures and other election matters of
importance to shareholders that would not directly result in an
election contest between management and shareholder nominees, and that
do not present significant conflicts with the Commission's other proxy
rules. Therefore, we propose to amend Rule 14a-8(i)(8) to codify
certain prior staff interpretations with respect to the type of
proposals that would continue to be excludable.\272\
---------------------------------------------------------------------------

    \272\ In limited circumstances, the staff may permit proponents
to make minor revisions to a proposal to cure a deficiency under
Rule 14a-8. Under existing staff interpretations, the staff may
permit revisions to proposals that would disqualify board nominees
from standing for election at the upcoming meeting or that would
remove a director from office before his or her term expires. In
contrast, where the proposal or supporting statement questions the
competence or business judgment of one or more directors that will
stand for reelection at the upcoming meeting, the staff will
generally not permit the proponent to revise the proposal to cure
such a deficiency. The proposed codification of existing staff
interpretations under Rule 14a-8(i)(8) is not intended to alter the
staff's historical approach (see Staff Legal Bulletin No. 14 (July
13, 2001)) to permitting revisions to cure deficiencies under Rule
14a-8(i)(8).
---------------------------------------------------------------------------

    A company would be permitted to exclude a proposal under Rule 14a-
8(i)(8) if it:
     Would disqualify a nominee who is standing for election;
\273\
---------------------------------------------------------------------------

    \273\ See, e.g., Dollar Tree Stores, Inc. (March 7, 2008) and
Waddell and Reed Financial, Inc. (February 23, 2001).
---------------------------------------------------------------------------

     Would remove a director from office before his or her term
expired; \274\
---------------------------------------------------------------------------

    \274\ See, e.g., TVI Corporation (April 2, 2008) and First
Energy Corp. (March 17, 2003).
---------------------------------------------------------------------------

     Questions the competence, business judgment, or character
of one or more nominees or directors; \275\
---------------------------------------------------------------------------

    \275\ See, e.g., Exxon Mobil Corporation (March 20, 2002) and
AT&T Corp. (February 12, 2001).
---------------------------------------------------------------------------

     Nominates a specific individual for election to the board
of directors,\276\ other than pursuant to Rule 14a-11, an applicable
state law provision, or a company's governing documents; or
---------------------------------------------------------------------------

    \276\ See, e.g., N-Viro International Corporation (March 8,
2007) and Dow Jones & Company, Inc. (January 31, 1996).
---------------------------------------------------------------------------

     Otherwise could affect the outcome of the upcoming
election of directors.

With regard to the language ``otherwise could affect the outcome of the
upcoming election of directors,'' we are seeking to address the fact
that the proposed new language of the exclusion specifically addresses
the particular types of proposals that we have traditionally seen in
this area and that we believe are clearly excludable under the policy
underlying the rule. With the broader proposed language, we are seeking
to address new proposals that may be developed over time that are
comparable to the four specified categories and would undermine the
purpose of the exclusion. This broader language is generally consistent
with the language of the other bases for exclusion in Rule 14a-8.\277\
---------------------------------------------------------------------------

    \277\ See, e.g., Rule 14a-8(i)(7) addressing proposals that
``deal[] with a matter relating to the company's ordinary business
operations,'' and Rule 14a-8(i)(10) addressing proposals that have
been ``substantially implemented'' already by the company.
---------------------------------------------------------------------------

Request for Comment
    I.1. Should the Commission amend Rule 14a-8(i)(8), as proposed, to
allow proposals that would amend, or that request an amendment to, a
company's governing documents regarding nomination procedures or
disclosures related to shareholder nominations, provided the proposal
does not conflict with proposed Rule 14a-11? Should the rule instead
require such proposals to be included only in particular circumstances?
For example, should inclusion of such proposals be required only when a
company already has a provision in place regarding the inclusion of
shareholder director nominees, or disclosure about those nominees, in
company proxy materials?
    I.2. Should the Commission amend Rule 14a-8(i)(8) to allow
proposals that would amend, or that request an amendment to, a
company's governing documents to provide for or prohibit inclusion of
shareholder nominees for director in company proxy materials? Should
such an amendment operate separately from proposed Rule 14a-11? Should
such an amendment be adopted regardless of whether proposed Rule 14a-11
is adopted? If so, under what circumstances should such proposals be
permitted? For example, should shareholder proposals be included where
they propose or request amendments to provisions in the company's
governing documents to address the inclusion of shareholder nominees
for director in the company's proxy materials so long as such
amendments are not prohibited under state law? Should such proposals
instead be included only if the law of the company's state of
incorporation explicitly authorizes a company to have a provision in
its governing documents that permits the inclusion of shareholder
nominees in the company's proxy materials? Should such proposals
instead be limited under Rule 14a-8 to instances when a company already
has a provision in its governing documents that addresses the inclusion
of shareholder nominees in the company's proxy materials?
    I.3. Should companies be required to include non-binding proposals
regarding procedures to include shareholder nominees for director in
company proxy materials, as proposed? Should the requirements instead
be limited to binding proposals?
    I.4. Should proposed Rule 14a-8(i)(8) operate independently, even
if proposed Rule 14a-11 were not adopted or not in effect? Why or why
not? Are there changes or additions to Rule 14a-8(i)(8) as proposed
that can or should be made so that it would be better suited or able to
operate independently? Please give specific recommendations.
    I.5. Is it sufficiently clear that shareholders would have the
ability under proposed Rule 14a-8(i)(8) to propose nomination
procedures that are different from proposed Rule 14a-11 provided that
such procedures would serve as additional methods of accessing the
proxy and would not preclude a shareholder or group or shareholders who
satisfied the Rule 14a-11 requirements from using the Rule 14a-11
method? If not, what clarification should be made?
    I.6. As proposed, a shareholder proposal under Rule 14a-8(i)(8)
would supplement proposed Rule 14a-11, not replace it. Should
shareholders instead be permitted under Rule 14a-8(i)(8) to propose
governing document amendments that would conflict with proposed Rule
14a-11? Please explain how and why. Are there different

limitations on such proposals that we should consider? If so, what are
they?
    I.7. What would be the costs to companies if Rule 14a-8(i)(8) were
amended as proposed?
    I.8. Rule 14a-8 currently requires that a shareholder proponent
have held continuously 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 as of the date of submission of the
proposal. Are these thresholds appropriate? Should the minimum
ownership threshold be higher than $2,000 in market value of the
company's securities entitled to be voted on the proposal? Should the
minimum ownership threshold be periodically adjusted for inflation?
Should these eligibility determinations be made on the date of
submission of the proposal, as proposed? If not, what date should be
used?
    I.9. Are there alternative thresholds that would be more
appropriate for purposes of submitting a proposal under Rule 14a-
8(i)(8) (e.g., 1%, 2%, 3%, 4%, or 5% of the company's securities)? If
so, please explain.
    I.10. We are not proposing any requirements to disclose information
about a shareholder proponent who submits a proposal that seeks to
establish a procedure for nominating one or more directors. Should the
rule require disclosure about a shareholder proponent who submits a
proposal that relates to procedures for nominating directors but does
not nominate a director? If so, what disclosures would be appropriate?
The disclosures required in a contested election? Disclosure about the
proponent's motives and interactions with the company leading up to the
proposal? With respect to requiring disclosure from shareholder
proponents, should our rules make a distinction between a proposal
relating to a procedure for nominating directors and other proposals on
other unrelated subjects?
    I.11. Should disclosure consistent with that required in an
election contest as defined in Rule 14a-12 be required for shareholder
nominations pursuant to applicable state law provisions or a company's
governing documents, as proposed? Why or why not? What additional
disclosures should be required, if any? Which of the proposed
disclosure requirements, if any, should be deleted or revised?
    I.12. As proposed, the disclosures required for a nomination
pursuant to an applicable state law provision or a company's governing
documents do not include all of the disclosures that would be required
for a Rule 14a-11 nomination. Would any of the additional disclosures
required under Rule 14a-11 be appropriate with regard to a nomination
under an applicable state law provision or a company's governing
documents? If so, which ones in particular? Should a nominating
shareholder or group submitting a nomination pursuant to an applicable
state law provision or a company's governing documents be required to
provide a statement regarding the nominating shareholder's or group's
intent to continue to hold the securities through the date of the
meeting? Should the rules require a statement regarding the nominating
shareholder's or group's intent with respect to continued ownership of
the shares after the election?
    I.13. Should Rule 14a-8(i)(8) be amended to codify the prior staff
interpretations of the election exclusion, as proposed? Why or why not?
Does the proposed new language best describe the category of proposals
that companies should be permitted to exclude? Are there other examples
or categories or proposals that should be included in the revised rule
(that do not restrict the ability of shareholders to propose nomination
procedures)?
    I.14. Is the proposed new language of Rule 14a-8(i)(8) sufficiently
clear? In particular, would the proposed language ``or otherwise could
affect the outcome of the upcoming election of directors,'' achieve its
goal? Would there be unintended consequences of revising the language
as proposed?

D. Other Rule Changes

1. Beneficial Ownership Reporting Requirements
    The proposed rules would enable shareholders to engage in limited
solicitations to form nominating shareholder groups and engage in
solicitations in support of their nominees without disseminating a
proxy statement. Although the minimum amount of securities a
shareholder or group of shareholders must beneficially hold to be
eligible to submit a nomination pursuant to proposed Rule 14a-11 is 1%
for large accelerated filers, 3% for accelerated filers, and 5% for
non-accelerated filers, the Commission anticipates that some
shareholders or groups of shareholders may beneficially own in the
aggregate more than 5% of the company's securities that are eligible to
vote for the election of directors. Therefore, nominating shareholders
will need to consider whether they have formed a group under Exchange
Act Section 13(d)(3) and Rule 13d-5(b)(1) that is required to file
beneficial ownership reports.\278\ Any person who is directly or
indirectly the beneficial owner of more than 5% of a class of equity
securities registered under Exchange Act Section 12 must report that
ownership by filing an Exchange Act Schedule 13D with the
Commission.\279\ There are exceptions to this requirement, however,
that permit such a person to report that ownership on Schedule 13G
rather than Schedule 13D.\280\ One exception permits filings on
Schedule 13G for a specified list of qualified institutional investors
who have acquired the securities in the ordinary course of their
business and with neither the purpose nor the effect of changing or
influencing control of the company. A second exception applies to
persons who are not specified in the first exception. These beneficial
owners of more than 5% of a subject class of securities may file on
Schedule 13G if they acquired the securities with neither the purpose
nor the effect of changing or influencing control of the company and
they are not directly or indirectly the beneficial owner of 20% or more
of the subject class of securities.
---------------------------------------------------------------------------

    \278\ Nominating shareholders that have formed a group under
Exchange Act Section 13(d)(3) and Rule 13d-5(b) would need to
reassess whether group status and the obligation of the group to
file beneficial ownership reports continue after the election of
directors.
    \279\ See Exchange Act Rule 13d-1.
    \280\ See, e.g., Exchange Act Rules 13d-1(b) and 13d-1(c).
---------------------------------------------------------------------------

    Central to Schedule 13G eligibility is that the shareholder be a
passive investor that has acquired the securities without the purpose,
or the effect, of changing or influencing control of the company. In
addition, shareholders who are filing as qualified institutional
investors must have acquired the securities in the ordinary course of
their business. We believe that the formation of a shareholder group
solely for the purpose of nominating one or more directors pursuant to
proposed Rule 14a-11, the nomination of one or more directors pursuant
to proposed Rule 14a-11, soliciting activities in connection with such
a nomination (including soliciting in opposition to a company's
nominees), or the election of such a nominee as a director under
proposed Rule 14a-11, should not result in a nominating shareholder or
nominating shareholder group losing its eligibility to file on Schedule
13G. In such circumstances, a nominating shareholder or nominating
shareholder group could report on Schedule 13G, rather than Schedule
13D. Accordingly, we are proposing to revise the requirement that the
first and second

categories of persons who may report their ownership on Schedule 13G
have acquired the securities without the purpose or effect of changing
or influencing control of the registrant to provide an exception for
activities solely in connection with a nomination under Rule 14a-
11.\281\ Any activity other than those provided for under Rule 14a-11
would make these instructions inapplicable. These rule changes would
not apply to nominating shareholders or groups that submit a nomination
pursuant to an applicable state law provision or a company's governing
documents because in those instances the applicable provisions may not
limit the number of board seats for which a shareholder or group could
nominate candidates or include a requirement that the nominating
shareholder or group lack intent to change the control of the issuer or
to gain more than a limited number of seats on the board (as is the
case under proposed Rule 14a-11). Accordingly, we do not believe it
would be appropriate to make any determination as to whether a
nominating shareholder or group under an applicable state law provision
or a company's governing documents would be eligible to file on
Schedule 13G.
---------------------------------------------------------------------------

    \281\ This exception would only be available for purposes of the
nomination. After the election of directors, a nominating
shareholder or group would need to reassess its eligibility to
continue to report on Schedule 13G as a passive or qualified
institutional investor. For example, if a nominating shareholder is
the nominee, and is successful in being elected to the board of a
company, the shareholder would most likely be ineligible to continue
filing on Schedule 13G because of its ability as a director to
directly or indirectly influence the management and policies of the
company.
---------------------------------------------------------------------------

Request for Comment
    J.1. The proposal would provide that a shareholder or shareholder
group \282\ would not, solely by virtue of nominating one or more
directors under proposed Rule 14a-11, soliciting on behalf of that
nominee or nominees, or having that nominee or nominees elected, lose
their eligibility to file as a passive or qualified institutional
investor. This provision would then permit those shareholders or groups
to report their ownership on Schedule 13G, rather than Schedule 13D. Is
this approach appropriate? Should other conditions be required to be
satisfied? If so, what other conditions? For example, should a
nominating shareholder or group cease to qualify as a passive or
qualified institutional investor where the nominee is the nominating
shareholder or a member of the group, a member of the immediate family
of the nominating shareholder or any member of the group, an employee
of the nominating shareholder or any member of the group, or is in any
way controlled by the nominating shareholder or any member of the
group?
---------------------------------------------------------------------------

    \282\ A group may file on Schedule 13G so long as each member
qualifies to do so individually.
---------------------------------------------------------------------------

    J.2. Should nominating shareholders or groups be required to comply
with the additional Schedule 13D filing and disclosure requirements
under the Exchange Act beneficial ownership reporting standards?
    J.3. Should we provide a similar provision for nominating
shareholders or groups submitting a nomination pursuant to an
applicable state law provision or a company's governing documents? Why
or why not?
2. Exchange Act Section 16
    Exchange Act Section 16 \283\ applies to every person who is the
beneficial owner of more than 10% of any class of equity security
registered under Exchange Act Section 12 (``10% owners''), and each
officer and director (collectively with 10% owners, ``insiders'') of
the issuer of such security. Generally:
---------------------------------------------------------------------------

    \283\ 15 U.S.C. 78p.
---------------------------------------------------------------------------

     Section 16(a) requires an insider to file an initial
report with the Commission disclosing his or her beneficial ownership
of all equity securities of the issuer upon becoming an insider. To
keep this information current, Section 16(a) also requires insiders to
report changes in such holdings, in most cases within two business days
following the transaction.\284\
---------------------------------------------------------------------------

    \284\ Exchange Act Section 16(a) [15 U.S.C. 78p(a)].
---------------------------------------------------------------------------

     Section 16(b) provides the issuer (or shareholders suing
on behalf of the issuer) a private right of action to recover from an
insider any profit realized by the insider from any purchase and sale
(or sale and purchase) of any equity security of the issuer within any
period of less than six months.\285\
---------------------------------------------------------------------------

    \285\ Exchange Act Section 16(b) [15 U.S.C. 78p(b)].
---------------------------------------------------------------------------

     Section 16(c) makes it unlawful for an insider to sell any
equity security of the issuer if the insider: (1) Does not own the
security sold; or (2) owns the security, but does not deliver it
against the sale within specified time periods.\286\
---------------------------------------------------------------------------

    \286\ Exchange Act Section 16(c) [15 U.S.C. 78p(c)].
---------------------------------------------------------------------------

    In 2003 the Commission proposed that a group formed solely for the
purpose of nominating a director pursuant to proposed Rule 14a-11,
soliciting in connection with the election of that nominee, or having
that nominee elected as a director should not be viewed as being
aggregated together for purposes of the 10% ownership determination
under Section 16.\287\ We are not proposing such an exclusion today and
instead believe it would be appropriate to apply the existing analysis
of whether a group has formed \288\ and whether Section 16
applies.\289\ In this regard, because the ownership thresholds for
proposed Rule 14a-11 are significantly lower than 10%, and are
generally lower than what was proposed in 2003, we do not believe that
the lack of an exclusion would have a deterrent effect on the formation
of groups, and therefore an exclusion may be unnecessary under the
current proposal. Rather, a group formed for the purpose of nominating
a director pursuant to proposed Rule 14a-11, soliciting in connection
with the election of that nominee, or having that nominee elected as a
director, would be analyzed the same way as any other group for
purposes of determining whether group members are 10% owners subject to
Section 16.
---------------------------------------------------------------------------

    \287\ Commenters on the 2003 Proposal generally supported the
proposed exception. See 2003 Summary of Comments; see also comment
letters from CalPERS, CIR; ICI; NYC Bar; and NYS Bar.
    \288\ See Exchange Act Rule 13d-5(b) [17 CFR 240.13d-5(b)].
    \289\ See Exchange Act Rule 16a-1(a)(1) [17 CFR 240.16a-
1(a)(1)].
---------------------------------------------------------------------------

    Some shareholders, particularly institutions and other entities,
may be concerned that successful use of proposed Rule 14a-11 to include
a director nominee in company proxy materials may result in the
nominating person also being deemed a director under the
``deputization'' theory developed by courts in Section 16(b) short-
swing profit recovery cases.\290\ Under this theory it is possible for
a person to be deemed a director subject to Section 16, even though the
issuer has not formally elected or otherwise named that person a
director. We have not proposed standards for establishing the
independence of the nominee from the nominating shareholder, or members
of the nominating shareholder group.
---------------------------------------------------------------------------

    \290\ See Feder v. Martin Marietta, 406 F.2d 260 (2d Cir.),
cert. denied, 396 U.S. 1036 (1970); Blau v. Lehman, 368 U.S. 403
(1962); and Rattner v. Lehman, 193 F.2d 564 (2d Cir. 1952). The
judicial decisions in which this theory was applied do not establish
precise standards for determining when ``deputization'' may exist.
However, the express purpose of Section 16(b) is to prevent the
unfair use of information by insiders through their relationships to
the issuer. Accordingly, one factor that courts may consider in
determining if Section 16(b) liability applies is whether, by virtue
of the ``deputization'' relationship, the ``deputizing'' entity's
transactions in issuer securities may benefit from the deputized
director's access to inside information.

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

Request for Comment
    K.1. Would it be a disincentive to using proposed Rule 14a-11 if
shareholders forming a group to nominate a director could become
subject to Section 16 once the group's ownership exceeds 10% of the
company's equity securities? Why or why not?
    K.2. Are there any specific reasons why shareholders forming a
group solely to nominate a director pursuant to proposed Rule 14a-11
should not be subject to Section 16 once the group's ownership exceeds
10% of the company's equity securities? If so, should the Commission
adopt an exclusion from Section 16? Why, or why not?
    K.3. If we should amend Rule 16a-1(a)(1), the rule that defines who
is a 10% owner for Exchange Act Section 16 purposes, to exclude a Rule
14a-11 nominating shareholder group from the definition, how should
such an exclusion be structured? For example, these groups could remain
subject to the general condition of the rule that they not have the
purpose or effect of changing or influencing control of the issuer, but
a note to Rule 16a-1(a)(1) could provide an exception for members of
nominating shareholder groups formed solely for the purpose of using
proposed Rule 14a-11.\291\ Should these conditions or other conditions
apply?
---------------------------------------------------------------------------

    \291\ Rule 16a-1(a)(1) also contains a general condition that
the securities be held for the benefit of third parties or in
customer or fiduciary accounts in the ordinary course of business,
but this condition would not be applicable to nominating shareholder
groups under the exclusion contemplated by this comment request.
---------------------------------------------------------------------------

    K.4. Should the Commission consider providing an exclusion to the
existing Rule 13d-5 definition of ``group'' that applies to both the
Section 13(d) beneficial ownership reporting requirements and the
Section 16 reporting requirements?
    K.5. If the Commission adopts any such exclusion, should it be
based on additional or different conditions? For example, should the
Commission provide an exclusion from the definition of ``group'' in
Rule 13d-5(b) for shareholders that agree to act together solely for
the purpose of holding their securities in accordance with proposed
Rule 14a-11(b)(2)?
    K.6. Are there reasons that members of nominating shareholder
groups formed under proposed Rule 14a-11 should be treated differently
than shareholder groups permitted to form and formed to nominate
directors under an applicable state law provision, or under provisions
in a company's governing documents? If so, why? What distinctions ought
to be drawn between groups formed under proposed Rule 14a-11 and an
applicable state law provision or a company's governing documents in
terms of Rule 13d-5(b) and Rule 16a-1(a)(1)?
    K.7. Should there be a prohibition on any affiliation between
nominees and nominating shareholders or groups? If so, what limitations
would be appropriate? Would any such prohibitions or limitations make
it less likely that in Section 16(b) cases courts would find nominating
shareholders to be ``deputized'' directors in circumstances where
liability should not apply? Would the lack of any such prohibitions or
limitations increase the likelihood that courts would find nominating
shareholders to be ``deputized'' directors?

E. Application of the Liability Provisions in the Federal Securities
Laws to Statements Made by a Nominating Shareholder or Nominating
Shareholder Group

    It is our intent that a nominating shareholder or group relying on
Rule 14a-11, an applicable state law provision, or a company's
governing documents to include a nominee in company proxy materials be
liable for any materially false or misleading statements in information
provided by the nominating shareholder or group to the company (in its
shareholder notice on Schedule 14N) that is then included in the
company's proxy materials. To this end we have amended Rule 14a-9 to
add a new paragraph (c), to specifically address these situations.
Proposed new paragraph (c) states that ``no nominee, nominating
shareholder or nominating shareholder group, or any member thereof,
shall cause to be included in a registrant's proxy materials, either
pursuant to the federal proxy rules, an applicable state law provision,
or a registrant's governing documents as they relate to including
shareholder nominees for director in registrant proxy materials, any
statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in
order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with
respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.''
    In addition, proposed new Rule 14a-11(e) contains express language
providing that the company would not be responsible for information
that is provided by the nominating shareholder or group under Rule 14a-
11 and then repeated by the company in its proxy statement, except
where the company knows or has reason to know that the information is
false or misleading. A similar provision is included in proposed Rule
14a-19 with regard to information that is provided by the nominating
shareholder or group in connection with a nomination made pursuant to
an applicable state law provision or the company's governing
documents.\292\
---------------------------------------------------------------------------

    \292\ See Note to proposed Rule 14a-19.
---------------------------------------------------------------------------

    Also, as proposed, any information that is provided to the company
in the notice from the nominating shareholder or group under Rule 14a-
11 (and, as required, filed with the Commission by the nominating
shareholder or group) and then included in the company's proxy
materials would not be incorporated by reference into any filing under
the Securities Act, the Exchange Act, or the Investment Company Act
unless the company determines to incorporate that information by
reference specifically into that filing.\293\ A similar provision would
apply to information that is provided by the nominating shareholder or
group in connection with a nomination made pursuant to an applicable
state law provision or the company's governing documents.\294\
---------------------------------------------------------------------------

    \293\ See the Instruction to proposed Item 7(e) of Schedule 14A;
Instruction to proposed Item 22(b)(18) of Schedule 14A.
    \294\ See the Instruction to proposed Item 7(f) of Schedule 14A;
Instruction to proposed Item 22(b)(19) of Schedule 14A.
---------------------------------------------------------------------------

    To the extent the company does incorporate that information by
reference or otherwise adopt the information as its own, however, we
would consider the company's disclosure of that information as the
company's own statement for purposes of the antifraud and civil
liability provisions of the Securities Act, the Exchange Act, or the
Investment Company Act, as applicable.
Request for Comment
    L.1. Is an amendment to Rule 14a-9 the appropriate means to assign
liability for materially false or misleading information provided by
the nominating shareholder or group to the company that is included in
the company's proxy materials? If not, what would be a more appropriate
means? Should we characterize the disclosure provided to the company by
the nominating shareholder or group and included in the company's proxy
materials as soliciting material of the nominating

shareholder or group, as we proposed in 2003? Why or why not? Is it
appropriate for proposed Rule 14a-9(c) to apply to nominations made
pursuant to Rule 14a-11, an applicable state law provision, and a
company's governing documents?
    L.2. Does the language of proposed new paragraph (c) of Rule 14a-9
make clear that the nominating shareholder or group would be liable for
any information included in its Schedule 14N or notice to the company
that is included in the company's proxy materials? If not, what
specific changes should be made to the proposed rule text?
    L.3. Does the proposal make clear the company's responsibilities
when it includes such information in its proxy materials? Should the
proposal include language otherwise addressing a company's
responsibility for repeating statements that it knows or has reason to
know are not accurate? Are there situations where a company should be
responsible for repeating statements of the nominating shareholder or
group? Should the proposal treat disclosure provided in connection with
a nomination pursuant to Rule 14a-11, an applicable state law
provision, or a company's governing documents differently?
    L.4. Should information provided by nominating shareholders or
groups be deemed incorporated by reference into Securities Act,
Exchange Act, or Investment Company Act filings? Why or why not?
    L.5. Should information, if incorporated by reference into
Securities Act or Exchange Act filings, still be treated as the
responsibility of the nominee rather than the company? As proposed, are
we creating a disincentive to incorporation by reference?

F. General Request for Comment

    We request and encourage any interested person to submit comments
regarding:
     The proposed amendments that are the subject of this
release;
     Additional or different changes; or
     Other matters that may have an effect on the proposals
contained in this release.
    We request comment from the point of view of companies, investors
and other market participants. With regard to any comments, we note
that such comments are of great assistance to our rulemaking initiative
if accompanied by supporting data and analysis of the issues addressed
in those comments.

IV. Paperwork Reduction Act

A. Background

    The proposed amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of
1995.\295\ We are submitting the proposal to the Office of Management
and Budget for review in accordance with the PRA.\296\ The titles for
the collections of information are:
---------------------------------------------------------------------------

    \295\ 44 U.S.C. 3501 et seq.
    \296\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Form ID'' (OMB Control No. 3235-0328);
    (2) ``Proxy Statements--Regulation 14A (Commission Rules 14a-1
through 14a-19 and Schedule 14A)'' (OMB Control No. 3235-0059);
    (3) ``Information Statements--Regulation 14C (Commission Rules 14c-
1 through 14c-7 and Schedule 14C)'' \297\ (OMB Control No. 3235-0057);
---------------------------------------------------------------------------

    \297\ Exchange Act Schedule 14C requires disclosure of some
items of Exchange Act Schedule 14A. Therefore, while we are not
proposing to amend the text of Schedule 14C, the proposed amendments
to Schedule 14A also must be reflected in the PRA burdens for
Schedule 14C.
---------------------------------------------------------------------------

    (4) ``Schedule 14N'';
    (5) ``Securities Ownership--Regulation 13D and 13G (Commission
Rules 13d-1 through 13d-7 and Schedules 13D and 13G)'' (OMB Control No.
3235-0145);
    (6) ``Form 8-K'' (OMB Control No. 3235-0060); and
    (7) ``Rule 20a-1 under the Investment Company Act of 1940,
Solicitations of Proxies, Consents, and Authorizations'' (OMB Control
No. 3235-0158).
    These regulations, rules and forms were adopted pursuant to the
Exchange Act and the Investment Company Act and set forth the
disclosure requirements for securities ownership reports filed by
investors, proxy and information statements,\298\ and current reports
filed by companies to ensure that investors are informed and can make
informed voting or investing decisions. The hours and costs associated
with preparing, filing, and sending these schedules and forms
constitute reporting and cost burdens imposed by each collection of
information. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.
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    \298\ The proxy rules apply only to domestic companies with
securities registered under Section 12 of the Exchange Act and to
investment companies registered under the Investment Company Act.
The number of annual reports by reporting companies may differ from
the number of proxy and information statements filed with the
Commission in any given year. This is because some companies are
subject to reporting requirements by virtue of Section 15(d) of the
Exchange Act, and therefore are not covered by the proxy rules.
Also, some companies are subject to the proxy rules only because
they have a class of debt registered under Section 12. These
companies generally are not required to hold annual meetings for the
election of directors. In addition, companies that are not listed on
a national securities exchange may not hold annual meetings and
therefore would not be required to file a proxy or information
statement.
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B. Summary of Proposed Amendments

    The Commission's proposals would provide shareholders with two ways
to more fully exercise their rights to nominate directors. First, we
are proposing a new rule--Rule 14a-11--that would, under certain
circumstances, require companies to include in their proxy materials
shareholder nominees for director submitted by long-term shareholders
or groups of shareholders with significant holdings. Under the rule, a
company would not be required to include a shareholder nominee or
nominees for director in the company proxy materials where the
nominating shareholder or group is seeking to change the control of the
issuer or to obtain more than a limited number of seats on the board.
Proposed Rule 14a-11 would not apply where state law or a company's
governing documents prohibit shareholders from nominating directors.
    For purposes of the PRA, we estimate the total annual incremental
paperwork burden resulting from proposed Rule 14a-11 and the related
rule changes for reporting companies (other than registered investment
companies), and registered investment companies to be approximately
17,149 hours of internal company or shareholder time and a cost of
approximately $2,796,320 for the services of outside
professionals.\299\ For purposes of the PRA, we estimate the total
annual incremental paperwork burden to nominating shareholders and
groups from proposed Schedule 14N to be approximately 28,565 hours of
shareholder personnel time, and $3,808,600 for services of outside
professionals. As discussed further, below, these total costs include
all additional disclosure burdens associated with the proposed rules
including burdens related to the notice and disclosure requirements.
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    \299\ For convenience, the estimated PRA hour burdens have been
rounded to the nearest whole number. We estimate an hourly cost of
$400 per hour for the service of outside professionals based on our
consultations with several registrants and law firms and other
persons who regularly assist registrants in preparing and filing
proxy statements and related disclosures with the Commission.
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    Second, under the proposed amendment to Rule 14a-8(i)(8), the
``election exclusion,'' a company would

not be permitted to exclude a shareholder proposal that would amend, or
that requests an amendment to, a company's governing documents
regarding nomination procedures or disclosures related to shareholder
nominations, provided the proposal does not conflict with proposed Rule
14a-11.
    For purposes of the PRA, we estimate the total annual incremental
paperwork burden resulting from the proposed amendment to Rule 14a-
8(i)(8) and the related rule changes for reporting companies (other
than registered investment companies), registered investment companies,
and shareholders to be approximately 7,692 hours of internal company or
shareholder time and a cost of approximately $1,025,500 for the
services of outside professionals.
    In connection with proposed Rule 14a-11 and the proposed amendment
to Rule 14a-8(i)(8), we also are proposing new rules that would require
a notice to be filed with the Commission on proposed new Schedule 14N,
and provided to the company, when a shareholder seeks to submit a
nomination to a company pursuant to Rule 14a-11 or pursuant to an
applicable state law provision or the company's governing documents.
The Schedule 14N would include disclosure similar to the disclosure
currently required in a proxy contest. The nominating shareholder or
group would provide the disclosure specified in Rule 14a-18 or Rule
14a-19, as applicable, in the Schedule 14N. The company would be
required to include the disclosure provided by the nominating
shareholder in its proxy materials.
    We also are proposing a new exemption from the proxy rules for
communications by nominating shareholders or groups that are soliciting
in favor of a shareholder nominee for director included pursuant to
Rule 14a-11. This exemption would require inclusion in the written
soliciting materials of a legend advising shareholders to look at the
company's proxy statement when it becomes available and advising
shareholders how to find the company's proxy statement. The burden
hours resulting from the proposed exemption are included in the above
totals related to proposed Rule 14a-11.
    Compliance with the proposed disclosure requirements would be
mandatory. There would be no mandatory retention period for the
information disclosed, and responses to the disclosure requirements
would not be kept confidential.

C. Paperwork Reduction Act Burden Estimates

    The proposed amendments would, if adopted, require additional
disclosure on Schedules 14A and 14C and new Schedule 14N, as well as
Form 8-K. Schedule 14A prescribes the information that a company and/or
a soliciting shareholder must include in its proxy statement to provide
shareholders with material information relating to voting decisions.
Schedule 14C prescribes the information that a company that is
registered under Exchange Act Section 12 must include in its
information statement in advance of a shareholders' meeting when it is
not soliciting proxies from its shareholders, including when it takes
corporate action by written authorization or consent of shareholders.
When filed in connection with Rule 14a-11, Schedule 14N would require
disclosure about the amount and percentage of securities entitled to be
voted on the election of directors by the nominating shareholder or
group, the length of ownership of such securities, and the nominating
shareholder's or group's intent to continue to hold the securities
through the date of the meeting. Schedule 14N would also require a
certification that the nominating shareholder or group is not seeking
to change the control of the company or to gain more than a limited
number of seats on the board, as well as disclosure similar to the
disclosure currently required for a contested election and certain
representations required for use of Rule 14a-11, including that the
nominee meets the generally applicable objective criteria for
``independence'' in any applicable national securities exchange or
national securities association rules. When filed in connection with a
nomination pursuant to an applicable state law provision or the
company's governing documents, the Schedule 14N would include similar
but more limited disclosures and representations. Exchange Act Rule
14a-8 requires the company to include a shareholder proposal in its
Schedule 14A or 14C unless the shareholder has not complied with the
procedural requirements in Rule 14a-8 or the proposal falls within one
of the 13 substantive bases for exclusion in Rule 14a-8. Investment
Company Act Rule 20a-1 requires registered investment companies to
comply with Exchange Act Regulation 14A or 14C, as applicable.\300\
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    \300\ The annual responses to Investment Company Act Rule 20a-1
reflect the number of proxy and information statements that are
filed by registered investment companies.
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1. Proposed Rule 14a-11
    Proposed Rule 14a-11 would require any subject company to include
disclosure about a nominating shareholder's or group's nominee or
nominees for election as director in the company's proxy materials when
the conditions of the rule are met. The proposed rule would apply
unless state law or a company's governing documents prohibit
shareholders from nominating a candidate or candidates for election as
director. A nominating shareholder or group would be required to file
proposed Schedule 14N to disclose information about the nominating
shareholder or group and the nominee or nominees, and the company would
be required to include certain information regarding the nominating
shareholder or group and nominee or nominees in the company's proxy
statement unless the company determines that it is not required to
include the nominee or nominees in its proxy materials.\301\ Nominating
shareholders also would be afforded the opportunity to include in the
company's proxy statement a statement of support for its nominee or
nominees of a length not to exceed 500 words. The nominee or nominees
also would be included on the company's form of proxy in accordance
with Exchange Act Rule 14a-4.
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    \301\ The burdens associated with Schedule 14N and the
disclosure requirements of Rule 14a-18 and Rule 14a-19 are discussed
in Section IV.C.3. below.
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    Under the proposed rule, shareholders or groups beneficially owning
at least 1%, 3%, or 5% of a company's securities entitled to be voted
on the election of directors, for large accelerated, accelerated, and
non-accelerated filers, respectively, would be eligible to submit a
nominee for election as director to be included in the company's proxy
materials subject to certain limitations on the overall number of
shareholder nominees for director.
    We estimate that 4,163 reporting companies (other than registered
investment companies) are likely to have at least one shareholder that
could meet the above thresholds.\302\ For

purposes of this analysis, we estimate that 5% of companies with
shareholders eligible to submit nominees pursuant to Rule 14a-11 will
receive nominees from shareholders for inclusion in their proxy
materials, which would result in 208 companies with shareholders
meeting the applicable eligibility threshold receiving nominees
annually.\303\ We further estimate that 61 registered investment
companies will receive nominees from shareholders pursuant to Rule 14a-
11 annually.\304\ For purposes of the PRA, we estimate that the
incremental disclosure burden will be 95 hours per nominee for each
reporting company (other than registered investment companies) and
registered investment company to comply with the requirements of Rule
14a-11 and Items 7(e) and (f) and 22(b)(18) and (19) of Schedule
14A.\305\ As discussed, we estimate for PRA purposes that each company
that receives nominees pursuant to Rule 14a-11 will receive two
nominees from shareholders or groups. Thus, for reporting companies
(other than registered investment companies) we estimate 13,015 total
company burden hours which corresponds to 9,761 hours of company time,
and a cost of approximately $1,301,500 for the services of outside
professionals. In the case of registered investment companies, we
estimate the total annual incremental paperwork burden to prepare the
disclosure that would be required under this portion of the proposed
rules to be approximately 3,805 burden hours, which corresponds to
2,854 hours of company time and a cost of approximately $380,500 for
the services of outside professionals. In each case, this estimate
includes:
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    \302\ We estimate that 1,385 large accelerated filers have at
least one shareholder that meets the 1% threshold; 1,584 accelerated
filers have at least one shareholder meeting the 3% threshold; and
1,194 non-accelerated filers have at least one shareholder meeting
the 5% threshold. See Section II.B.3., above.
    Shareholders would be permitted to aggregate holdings for
purposes of meeting the eligibility thresholds in Rule 14a-11 and
therefore the Commission anticipates that some groups of
shareholders may beneficially own in the aggregate more than 5% of
the company's securities that are eligible to vote for the election
of directors. In these circumstances, nominating shareholders will
need to consider whether they have formed a group under Exchange Act
Section 13(d)(3) and Rule 13d-5(b)(1) that is required to file
beneficial ownership reports. To the extent nominating shareholder
groups exceed the 5% threshold and file a Schedule 13G this would
result in an increased number of Schedule 13G filings. We estimate
that 25% of the nominees will be from shareholders who individually
meet the eligibility thresholds (52), and 75% will be from
shareholder groups (156). Were each of these groups to exceed 5%, we
estimate that an additional 156 Schedule 13G filings will be made
annually as a result of the proposed rule. The total burden
associated with this increase in the number of filings is 1935
burden hours (156 additional Schedule 13Gs x 12.4 hours/schedule).
This burden corresponds to 484 hours of shareholder time (156
additional Schedule 13Gs x 12.4 hours/Schedule x .25) and $580,320
for services of outside professionals (156 additional Schedule 13Gs
x 12.4 hours/Schedule x .75 x $400).
    \303\ In this regard, we note that in 2008 there were at least
32 contested elections. See RiskMetrics Group, 2008 Postseason
Report Summary, Weathering the Storm: Investors Respond to the
Global Credit Crisis, October 2008. In addition, approximately 118
Rule 14a-8 shareholder proposals related to board issues were
submitted to shareholders for a vote in the 2008-2009 proxy season.
See RiskMetrics 2009 Proxy Season Scorecard, May 15, 2009. We
believe these two numbers, or 150 shareholders in total, provide
some indication of the number of shareholders that may be interested
in using Rule 14a-11. Based upon this information, we believe it is
reasonable to use 208 (based on 5% of the companies that have at
least one shareholder that meets the ownership threshold) as the
estimate for the number of companies that may receive nominees.
    \304\ We estimate that approximately 1,225 registered investment
companies will hold a shareholder meeting in a given year, based on
the number of responses to Rule 20a-1, and that 5% of such companies
will receive nominees from shareholders for inclusion in their proxy
materials. We believe that using the 5% estimate for registered
investment companies is reasonable because we estimate that
shareholders of registered closed-end and open-end investment
companies will on balance submit nominees at the same rate as other
companies.
    \305\ The actual burden hours will depend on the number of
shareholder nominees submitted to a company for inclusion in its
proxy materials. For purposes of the PRA, in the case of reporting
companies (other than registered investment companies) we assume
each shareholder or group would submit two nominees. As discussed in
footnote 183 above, the median board size based on a 2007 sample of
public companies was nine. Approximately 60% of the boards sampled
had between nine and 19 directors. In the case of registered
investment companies, we estimate that the median board size is
eight. See Investment Company Institute and Independent Directors
Council, Overview of Fund Governance Practices 1994-2006, at 6-7
(November 2007), available at:http://www.ici.org/issues/dir/1rpt_
07_fund_gov_practices.pdf (noting that the median number of
independent directors per fund complex in 2006 was six and that
independent directors held 75% or more of board seats in 88% of fund
complexes). Thus, although some shareholders or groups could
nominate fewer than two nominees and others would be permitted to
nominate more than two nominees, depending on the size of the board,
we assume for purposes of the PRA that each shareholder or group
would submit two nominees.
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     If the company determines that it will include a
shareholder nominee, the company's preparation of a written notice to
the nominating shareholder or group (five burden hours per notice);
     The company's inclusion in its proxy statement and form of
proxy of the name of, and other related disclosures concerning, a
person or persons nominated by a shareholder or shareholder group (five
burden hours per nominee); \306\
---------------------------------------------------------------------------

    \306\ The requirement is in proposed amended Rule 14a-4.
---------------------------------------------------------------------------

     The company's preparation of its own statement regarding
the shareholder nominee or nominees (20 burden hours per nominee); and
     If a company determines that it may exclude a shareholder
nominee submitted pursuant to the proposed rule, the company's
preparation of a written notice to the nominating shareholder or group
followed by written notice of the basis for its determination to
exclude the nominee to the Commission staff (65 burden hours per
notice).
    For purposes of this analysis, we assume that approximately 187 (or
90% of) reporting companies (other than registered investment
companies) and 55 (or 90% of) registered investment companies that have
a shareholder or group and receives a shareholder nominee for director
would be required to include the nominee in its proxy materials. In the
other 10% of cases we assume that the company would be able to exclude
the shareholder nominee (after providing notice of its reasons to the
Commission). If a company determines to include a shareholder nominee,
it must provide written notice to the nominating shareholder or group.
We estimate the burden associated with preparing this notice to be five
hours. For reporting companies (other than registered investment
companies), this would result in 935 aggregate burden hours (187
companies x 5 hours/company), which corresponds to 701 burden hours of
company time (187 companies x 5 hours/company x .75) and $93,500 in
services of outside professionals (187 companies x 5 hours/company x
.25 x $400). For registered investment companies, this would result in
275 aggregate burden hours (55 companies x 5 hours/company), which
corresponds to 206 burden hours of company time (55 companies x 5
hours/company x .75), and $27,500 for services of outside professionals
(55 companies x 5 hours/company x .25 x $400).
    We estimate the annual disclosure burden for companies to include
nominees on their form of proxy and proxy materials to be 5 burden
hours per nominee, for a total of 1,870 aggregate burden hours (187
responses x 5 hours/response x 2 nominees) for reporting companies
(other than registered investment companies), and 550 aggregate burden
hours (55 responses x 5 hours/response x 2 nominees) for registered
investment companies. For reporting companies (other than registered
investment companies), this corresponds to 1,403 burden hours of
company time, and $187,000 for services of outside professionals.\307\
For registered investment companies, this corresponds to 413 hours of
company time, and $55,000 for services of outside professionals.\308\
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    \307\ The calculations for these numbers are: 1,870 burden hours
x .75 = 1,402 burden hours of company time and 1,870 burden hours x
.25 x $400 = $187,000 for services of outside professionals.
    \308\ The calculations for these numbers are: 550 burden hours x
.75 = 413 hours of company time and 550 burden hours x .25 x $400 =
$55,000 for services of outside professionals.

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    We estimate that 187 reporting companies (other than registered
investment companies) and 55 registered investment companies would
include a statement with regard to the shareholder nominees.\309\ We
anticipate that the burden to include a statement would include time
spent to research the nominee's background, preparation of the
statement, and company time for review of the statement by, among
others, the nominating committee and legal counsel. We estimate that
this burden would be approximately 20 hours per nominee. For reporting
companies (other than registered investment companies), this would
result in 7,480 aggregate burden hours (187 statements x 20 hours/
statement x 2 nominees). This corresponds to 5,610 hours of company
time (187 statements x 20 hours/statement x 2 nominees x .75) and
$748,000 for services of outside professionals (187 statements x 20
hours/statement x 2 nominees x .25 x $400) for reporting companies
(other than registered investment companies). For registered investment
companies, this would result in 2,200 aggregate burden hours (55
statements x 20 hours/statement x 2 nominees). This corresponds to
1,650 hours of company time (55 statements x 20 hours/statement x 2
nominees x .75) and $220,000 for services of outside professionals (55
statements x 20 hours/statement x 2 nominees x .25 x $400).
---------------------------------------------------------------------------

    \309\ We estimate that each company that includes a shareholder
nominee in its proxy materials would include such a statement.
---------------------------------------------------------------------------

    Further, for purposes of this analysis, we assume that
approximately 42 (or 20% of) reporting companies (other than registered
investment companies) and 12 (or 20% of) registered investment
companies who receive a shareholder nominee for director for inclusion
in their proxy materials would make a determination that they are not
required to include a nominee in their proxy materials because the
nominee is ineligible under proposed Rule 14a-11 and would file a
notice of intent to exclude that nominee.\310\ We estimate that the
burden hours associated with preparing and submitting the company's
notification to the nominating shareholder or group and the Commission
regarding its intent to exclude a shareholder nominee, and its reasons
for doing so, would be 65 hours per notification.\311\ In the case of
reporting companies (other than registered investment companies), we
estimate that this would result in an aggregate burden of 2,730 (42
notices x 65 hours/notice), corresponding to 2,048 hours of company
time (42 notices x 65 hours/notice x .75) and $273,000 for the services
of outside professionals (42 responses x 65 hours/notice x .25 x $400).
In the case of registered investment companies, we estimate that this
would result in 780 aggregate burden hours (12 notices x 65 hours/
notice), which would correspond to 585 hours of company time (12
notices x 65 hours/notice x .75) and $78,000 for the services of
outside professionals (12 notices x 65 hours/notice x .25 x $400).
These burdens would be added to the PRA burdens of Schedules 14A and
14C or, in the case of registered investment companies, Rule 20a-1.
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    \310\ We assume that 21 of these nominees (or 50% of those
sought to be excluded by companies) would ultimately be excludable
under the rule.
    \311\ This estimate is based on data provided by the American
Society of Corporate Secretaries in its comment letter on the 2003
Proposal. In its letter, the ASCS provided data from a survey of its
own, as well as the Business Roundtable's, members indicating that
the average burden associated with preparing and submitting a no-
action request to the staff in connection with a shareholder
proposal was approximately 30 hours and associated costs of $13,896.
Although the letter did not specify as much, assuming these costs
correspond to legal fees, which we estimate at an hourly cost of
$400, we estimate that this cost is equivalent to approximately 35
hours ($13,896/$400). For purposes of the PRA, we assume that
submitting the notice and reasons for excluding a shareholder
nominee to the staff will be comparable to preparing a no-action
request to exclude a proposal under Rule 14a-8. Thus, we estimate
that the burden to submit the notice and reasons for excluding a
shareholder nominee would be approximately 65 hours.
---------------------------------------------------------------------------

    We also estimate that the annual incremental burden for the
nominating shareholder's or group's participation in the Rule 14a-11
exclusion process would average 30 hours per nomination.\312\ For
nominating shareholders or groups of reporting companies (other than
registered investment companies), this would result in 1,260 total
burden hours (42 responses x 30 hours/response). This would correspond
to 945 hours of shareholder time (42 responses x 30 hours/response x
.75) and $126,000 for services of outside professionals (42 responses x
30 hours/response x .25 x $400). For nominating shareholders or groups
of registered investment companies, this would result in 360 total
burden hours (12 responses x 30 hours/response). This would correspond
to 270 hours of shareholder time (12 responses x 30 hours/response x
.75) and $36,000 for services of outside professionals (12 responses x
30 hours/response x .25 x $400). This burden would be added to the PRA
burden of Schedule 14N.
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    \312\ As noted in footnote 311, above, we estimate that the
average burden to a company associated with preparing and submitting
a no-action request to the staff is approximately 65 burden hours.
We believe that the average burden for a shareholder proponent to
respond to a company's no-action request is likely to be less than a
company's burden; therefore, we estimate 30 burden hours for a
nominating shareholder to respond to a company's notice of intent to
exclude to the Commission.
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    We also are proposing a new exemption from the proxy rules for
communications by nominating shareholders or groups that are soliciting
in favor of a shareholder nominee for director. Although nominating
shareholders or groups would not be required to engage in written
solicitations, the exemption would require inclusion in any written
soliciting materials of a legend advising shareholders to look at the
company's proxy statement when it becomes available and advising
shareholders how to find the company's proxy statement. For purposes of
this analysis, we assume that 50% of nominating shareholders or groups
would solicit in favor of their nominee or nominees outside the
company's proxy statement. In the case of reporting companies (other
than registered investment companies), this would result in an
aggregate burden of 104 hours (104 solicitations x 1 hour/
solicitation), which corresponds to 78 hours of shareholder time (104
solicitations x 1 hour/solicitation x .75) and $10,400 for services of
outside professionals (104 solicitations x 1 hour/solicitation x .25 x
$400). These burden hours would be added to the PRA burden of Schedule
14A.\313\
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    \313\ In the case of registered investment companies, this would
result in an aggregate burden of 31 hours (31 solicitations x 1
hour/solicitation), which corresponds to 23 hours of shareholder
time (31 solicitations x 1 hour/solicitation x .75) and $3,100 for
services of outside professionals (31 solicitations x 1 hour/
solicitation x .25 x $400). These burden hours would be added to the
PRA burden of Rule 20a-1.
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2. Proposed Amendment to Rule 14a-8(i)(8)
    Our proposed amendment to Rule 14a-8(i)(8), the election exclusion,
would enable shareholders to submit proposals that would amend, or that
request an amendment to, a company's governing documents regarding
nomination procedures or disclosures related to shareholder
nominations, provided the proposal does not conflict with proposed Rule
14a-11. As proposed, revised Rule 14a-8(i)(8) would not restrict the
types of amendments that a shareholder could propose to a company's
governing documents regarding nomination procedures or disclosures
related to shareholder nominations, although any

such proposals that conflict with proposed Rule 14a-11 or state law
could be excluded. The proposal would have to meet the procedural
requirements of Rule 14a-8 and not be subject to one of the substantive
exclusions other than the election exclusion (e.g., the proposal could
be excluded if the shareholder proponent did not meet the ownership
threshold under Rule 14a-8).
    Historically, shareholders have made relatively few proposals
relating to shareholder access to company proxy materials. The staff
received 368 no-action requests from companies seeking to exclude
shareholder proposals during the 2006-2007 proxy season. Of these
requests, only three (or approximately one percent) related to
proposals for bylaw amendments providing for shareholder nominees to
appear in the company's proxy materials. During the 2007-2008 proxy
season, the staff received 432 no-action requests to exclude
shareholder proposals pursuant to Rule 14a-8. Of these no-action
requests, 6 (or approximately two percent) related to proposals for
bylaw amendments providing for shareholder nominees to appear in the
company's proxy materials. Because our proposed amendment to Rule 14a-
8(i)(8) would narrow the scope of the exclusion and prohibit companies
from excluding certain proposals that are excludable under the current
Rule 14a-8(i)(8), we anticipate an increase in the number of
shareholder proposals to amend, or request an amendment to, a company's
governing documents regarding nomination procedures or disclosures
related to shareholder nominations.
    While the number of no-action requests the staff has received in
the past is a useful starting point, other data also is helpful to
gauge shareholder interest in nominating directors and predict the
anticipated impact on the number of proposals submitted pursuant to
Rule 14a-8 to amend, or request an amendment to, a company's governing
documents regarding nomination procedures or disclosures related to
shareholder nominations that otherwise would be excludable under
current Rule 14a-8(i)(8). For example, based on publicly available
information, from 2001 to 2005, there were an average of 14 contested
elections per year.\314\ In 2008, it is estimated that there were at
least 32 contested elections.\315\ We anticipate that as a result of
the proposed amendment to Rule 14a-8(i)(8), shareholders will submit at
least as many shareholder proposals to amend a company's governing
documents to address the company's nomination procedures or disclosures
related to director nominations as there are contested elections. We
anticipate that if shareholders are willing to put forth the expense
and effort to wage a contest to put forth their own nominees in 32
instances, there will be at least that many proposals submitted to
companies pursuant to Rule 14a-8 because companies will no longer be
permitted under the rule to exclude proposals that currently are
excludable under Rule 14a-8(i)(8). We also anticipate that some
shareholders that have submitted proposals in the past with regard to
other board issues will submit proposals to address a company's
nomination procedures or disclosures related to director nominations.
According to information from RiskMetrics, approximately 118 Rule 14a-8
shareholder proposals regarding board issues were or will be submitted
to shareholders for a vote in the 2008-2009 proxy season.\316\ We
estimate that approximately half of these shareholders would submit a
proposal regarding nomination procedures or disclosures, resulting in
59 proposals.
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    \314\ See Lucian A. Bebchuk, The Myth of the Shareholder
Franchise, 93 Va. L. Rev. 675 (2007) (``Bebchuk 2007 Article'')
(citing data from proxy solicitation firm Georgeson Shareholder).
    \315\ See RiskMetrics Group, 2008 Postseason Report Summary,
Weathering the Storm: Investors Respond to the Global Credit Crisis,
October 2008.
    \316\ See footnote 303, above.
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    In the case of reporting companies (other than registered
investment companies), we anticipate that the amendments to Rule 14a-8
will result in an increase of 38 proposals annually from 2008, and a
total of 97 proposals regarding nomination procedures or disclosures
related to director nominations to companies per year.\317\ We estimate
the annual incremental burden for the shareholder to prepare the
proposal to be 10 burden hours per proposal, for a total of 380 burden
hours (38 proposals x 10 hours/proposal). This would correspond to 285
hours of shareholder time (38 proposals x 10 hours/proposal x .75) and
$38,000 for the services of outside professionals (38 proposals x 10
hours/proposal x .25 x $400).
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    \317\ The increase is calculated by adding the number of proxy
contests in 2008 (32) plus the number of no-action requests received
in 2008 regarding proposals seeking to amend a company's bylaws to
provide for shareholder director nominations (6). We have not
included the estimated 59 proposals in this increase because we
believe they will be submitted in lieu of other types of proposals
(a shareholder is limited to submitting one shareholder proposal to
each company). We recognize that a company that receives a
shareholder proposal has no obligation to submit a no-action request
to the staff under Rule 14a-8 unless it intends to exclude the
proposal from its proxy materials. Based on historical data,
companies generally seek no-action relief from the staff on
approximately 60% of the proposals received. However, we anticipate
that because the proposals that would be submitted pursuant to
amended Rule 14a-8 could affect the composition of the company's
board of directors, nearly all companies receiving such proposals
would submit a written statement of its reasons for excluding the
proposal to the staff. Thus, we estimate that 90% of the estimated
97 companies receiving proposals to amend, or request an amendment
to, a company's governing documents to address nomination procedures
or disclosures related to director nominations would submit a
written statement of its reasons for excluding the proposal to the
staff.
---------------------------------------------------------------------------

    We estimate that 90% of companies that receive a shareholder
proposal to amend, or request an amendment to, a company's governing
documents regarding nomination procedures or disclosures related to
shareholder nominations will seek to exclude the proposal from their
proxy materials (so companies would seek to exclude 87 such proposals
per proxy season). We estimate that the annual incremental burden for
the company's submission of a notice of its intent to exclude the
proposal and its reasons for doing so would average 65 hours per
proposal, for a total of 5,655 burden hours (87 proposals x 65 hours/
proposal) for reporting companies (other than registered investment
companies). This would correspond to 4,241 hours of company time (87
proposals x 65 hours/proposal x .75) and $565,500 for the services of
outside professionals (87 proposals x 65 hours/proposal x .25 x $400).
    We also estimate that the annual incremental burden for the
proponent's participation in the Rule 14a-8 no-action process would
average 30 hours per proposal, for a total of 2,610 burden hours (87
proposals x 30 hours/proposal).\318\ This would correspond to 1,958
hours of shareholder time (87 proposals x 30 hours/proposal x .75) and
$261,000 for services of outside professionals (87 proposals x 30
hours/proposal x .25 x $400). These burdens would be added to the PRA
burden of Schedules 14A and 14C.
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    \318\ As noted above, in footnote 311, we estimate that the
average burden to a company associated with preparing and submitting
a no-action request to the staff was approximately 65 burden hours.
We believe that the average burden for a shareholder proponent to
respond to a company's no-action request is likely to be less than a
company's burden; therefore, we estimate 30 burden hours for a
shareholder proponent to respond to a company's notice of intent to
exclude to the Commission. In this regard, we also estimate that the
average burden for a shareholder proponent to submit a shareholder
proposal would be 10 hours.
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    In the case of registered investment companies, we anticipate that
the amendments to Rule 14a-8 will result in an increase of 9 proposals
annually, and a total of 18 proposals regarding

nomination procedures or disclosures related to director nominations to
companies per year.\319\ We estimate the annual incremental burden for
the shareholder proponent to prepare the proposal to be 10 hours per
proposal, for a total of 90 burden hours (9 proposals x 10 hours/
proposal). This would correspond to 68 hours of shareholder time (9
proposals x 10 hours/proposal x .75) and $9,000 for the services of
outside professionals (9 proposals x 10 hours/proposal x .25 x $400).
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    \319\ The increase is calculated by adding the average number of
registered investment company proxy contests in calendar years 2006,
2007, and 2008 (8) plus the average number of no-action letters
issued by the staff regarding proposals seeking to amend a
registered investment company's bylaws to provide for shareholder
director nominations received in calendar years 2006, 2007, and 2008
rounded to the nearest whole number greater than zero (1). In
addition, we estimate that investment companies currently receive as
many proposals regarding nomination procedures or disclosures as
there are contested elections and no-action letters issued by the
staff, resulting in a total of 18 proposals regarding nomination
procedures or disclosures related to director nominations to
companies per year.
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    Similar to reporting companies other than investment companies, we
assume that 90% of registered investment companies that receive a
shareholder proposal to amend, or request an amendment to, the
company's governing documents regarding nomination procedures or
disclosures related to shareholder nominations will seek to exclude the
proposal from their proxy materials (so registered investment companies
would seek to exclude 16 such proposals per proxy season). Also similar
to reporting companies other than investment companies, we assume that
the annual incremental burden for the company's submission of a notice
of its intent to exclude the proposal and its reasons for doing so
would average 65 hours per proposal, for a total of 1,040 burden hours
for registered investment companies (16 proposals x 65 hours/proposal).
This would correspond to 780 hours of company time (16 proposals x 65
hours/proposal x .75) and $104,000 for the services of outside
professionals (16 proposals x 65 hours/proposal x .25 x $400). We also
estimate that the annual incremental burden for the proponent's
participation in the Rule 14a-8 no-action process would average 30
hours per proposal, for a total of 480 burden hours (16 proposals x 30
hours/proposal). This would correspond to 360 hours of shareholder time
(16 proposals x 30 hours/proposal x .75) and $48,000 for the services
of outside professionals (16 proposals x 30 hours/proposal x .25 x
$400). These burdens would be added to the PRA burden of Rule 20a-1.
3. Proposed Schedule 14N and Proposed Exchange Act Rules 14a-18 and
14a-19
    Proposed Rule 14n-1 would establish a new filing requirement for
the nominating shareholder or group, under which the nominating
shareholder or group would be required to file notice of its intent to
include a shareholder nominee or nominees for director pursuant to
proposed Rule 14a-11, applicable state law provisions, or a company's
governing documents, as well as disclosure about the nominating
shareholder or group and nominee or nominees on proposed new Schedule
14N. New Schedule 14N was modeled after Schedule 13G, but with more
extensive disclosure requirements than Schedule 13G. The Schedule 14N
would require, among other items, disclosure about the amount and
percentage of securities owned by the nominating shareholder or group,
the length of ownership of such securities, and the nominating
shareholder's or group's intent to continue to hold the securities
through the date of the meeting.
    In addition, the Schedule 14N would include disclosure required
pursuant to proposed Rule 14a-18 or Rule 14a-19, as applicable.
Proposed Rule 14a-18 would prescribe the disclosure required to be
included in the nominating shareholder's notice to the company, on
Schedule 14N, of its intent to require that the company include that
shareholder's nominee in the company's proxy materials pursuant to
proposed Rule 14a-11. Proposed Rule 14a-19 would prescribe the
disclosure required to be included in the nominating shareholder's
notice to the company, on Schedule 14N, of its intent to require the
company to include a nominee pursuant to applicable state law
provisions or a company's governing documents. With regard to the
latter, we are seeking to assure that nominating shareholders or groups
who submit a shareholder nomination for inclusion in company proxy
materials pursuant to applicable state law provisions or the company's
governing documents also provide disclosure similar to the disclosure
required in a contested election to give shareholders the information
needed to make an informed voting decision.
    Both rules would require disclosures regarding the nature and
extent of the relationships between the nominating shareholder and
nominee and the company or any affiliate of the company. Pursuant to
proposed Items 7(e)-(f) of Schedule 14A or, in the case of a registered
investment company, Items 22(b)(18)-(19) of Schedule 14A, the company
would be required to include the information set forth in Schedule 14N
in its proxy materials. A nominating shareholder filing a Schedule 14N
to provide disclosure required by proposed Rule 14a-19 when submitting
a nominee for inclusion in company proxy materials pursuant to
applicable state law provisions or the company's governing documents
would not be required to provide the representations required for
nominating shareholders using proposed Rule 14a-11.
    We estimate that compliance with the proposed Schedule 14N
requirements would result in a burden greater than Schedule 13G \320\
but less than a Schedule 14A.\321\ Therefore, we estimate that
compliance with proposed Schedule 14N will result in 47 hours per
response for nominees submitted pursuant to Rule 14a-11.\322\ We also
note that the burden associated with filing a Schedule 14N in
connection with a nomination made pursuant to an applicable state law
provision or the company's governing documents may be slightly less
than a nomination made pursuant to Rule 14a-11 because certain
disclosures, representations and certifications would not be required
(including disclosure about intent to continue to own the company's
securities, the representations that would be required to rely on Rule
14a-11, a supporting statement from the nominating shareholder or
group, and the certification concerning lack of intent to change
control or to gain more than a limited number of seats on the board
that would be required for a nomination pursuant to Rule 14a-11).
Therefore, we estimate that compliance with proposed Schedule 14N when
a shareholder or group submits a nominee or nominees to a company
pursuant to an applicable state law provision or the company's
governing documents will result in 40 hours per response.
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    \320\ We currently estimate the burden per response for
preparing a Schedule 13G filing to be 12.4 hours.
    \321\ We currently estimate the burden per response for
preparing a Schedule 14A filing to be 101.50 hours and a Schedule
14C to be 102.62 hours.
    \322\ We estimate that the burden of preparing the information
in Schedule 14N for a nominating shareholder or group would be \1/3\
of the disclosures typically required by a Schedule 14A filing,
which would result in approximately 34 burden hours. For purposes of
this analysis, we estimate that the 34 burden hours will be added to
the 12.4 hours associated with filing a Schedule 13G, resulting in a
total of approximately 47 burden hours. We estimate that 75% of the
burden of preparation of Schedule 14N will be borne internally by
the nominating shareholder or group, and that 25% will be carried by
outside professionals. We believe the nominating shareholder or
group would work with their nominee to prepare the disclosure and
then have it reviewed by outside professionals.

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    For purposes of the PRA, we estimate the total annual incremental
paperwork burden for nominating shareholders or groups to prepare the
disclosure that would be required under this portion of the proposed
rules to be approximately 28,565 hours of shareholder time, and
$3,808,600 for the services of outside professionals.\323\ This
estimate includes the nominating shareholder's or group's preparation
and filing of the notice and required disclosure and, as applicable,
representations and certifications on Schedule 14N.
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    \323\ This figure represents the aggregate burden hours
attributed to proposed Schedule 14N and is the sum of the burden
associated with Schedules 14N submitted pursuant to Rule 14a-11,
applicable state law provisions, and a company's governing
documents.
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    We do not expect that every shareholder that meets the eligibility
threshold to submit a nominee for inclusion in a company's proxy
materials pursuant to proposed Rule 14a-11, an applicable state law
provision, or a company's governing documents will do so. As discussed
above, we estimate that 208 reporting companies (other than registered
investment companies) and 61 registered investment companies will
receive notices of intent to submit nominees pursuant to proposed Rule
14a-11. We anticipate that some companies will receive nominees from
more than one shareholder or group, though, as discussed above, for
purposes of PRA estimates, we assume each company with an eligible
shareholder would receive two nominees from only one shareholder or
group.
    We estimate that compliance with the requirements of Schedule 14N
submitted pursuant to Rule 14a-11 will require 19,552 burden hours (208
notices x 47 hours/notice x 2 nominees/shareholder) in aggregate each
year for nominating shareholders or groups of reporting companies
(other than registered investment companies), which corresponds to
14,664 hours of shareholder time (208 notices x 47 hours/notice x 2
nominees/shareholder x .75) and costs of $1,955,200 (208 notices x 47
hours/notice x 2 nominees/shareholder .25 x $400) for the services of
outside professionals. In the case of registered investment companies,
we estimate that a nominating shareholder's or group's compliance with
the requirements of Schedule 14N will require 5,734 burden hours (61
responses x 47 hours/response x 2 nominees) in aggregate each year,
which corresponds to 4,301 hours of shareholder time (61 responses x 47
hours/response x 2 nominees x .75) and costs of $573,400 for the
services of outside professionals (61 responses x 47 hours/response x 2
nominees x .25 x $400). Therefore, we estimate a total of 25,286 burden
hours for all reporting companies, including investment companies,
broken down into 18,965 hours of shareholder time and $2,528,600 for
services of outside professionals.
    We assume that all nominating shareholders or groups will prepare a
statement of support for the nominee or nominees, and we estimate the
disclosure burden for the nominating shareholder or group to prepare a
statement of support for its nominee or nominees to be approximately 10
burden hours per nominee. This results in an aggregate burden of 4,160
(208 statements x 10 hours/statement x 2 nominees/shareholder), which
corresponds to 3,120 hours of shareholder time (208 statements x 10
hours/statement x 2 nominees/shareholder x .75) and $416,000 for
services of outside professionals (208 statements x 10 hours/statement
x 2 nominees/shareholder x .25 x $400) for shareholders of reporting
companies (other than registered investment companies). For registered
investment companies, this would result in an aggregate burden of 1,220
(61 statements x 10 hours/statement x 2 nominees/shareholder), which
corresponds to 915 hours of shareholder time (61 statements x 10 hours/
statement x 2 nominees/shareholder x .75) and $122,000 for services of
outside professionals (61 statements x 10 hours/statement x 2 nominees/
shareholder x .25 x $400). Therefore, we estimate a total of 5,380
burden hours for all reporting companies, including investment
companies, broken down into 4,035 hours of shareholder time and
$538,000 for services of outside professionals.
    When a nominating shareholder or group submits a nominee or
nominees to a company pursuant to an applicable state law provision or
the company's governing documents, the nominating shareholder or group
will be required to file a Schedule 14N to provide disclosure about the
nominating shareholder or group and the nominee or nominees as provided
in proposed Rule 14a-19. As discussed, a company will be required to
include certain disclosures about the nominating shareholder or group
and the nominee or nominees in its proxy statement. As noted above, we
estimate that the burden associated with filing a Schedule 14N in
connection with a nomination made pursuant to an applicable state law
provision or a company's governing documents is 40 hours. We also
estimate that approximately 49 nominating shareholders or groups of
reporting companies (other than registered investment companies) would
submit a nomination pursuant to an applicable state law provision or a
company's governing documents.\324\ Thus, we estimate compliance with
the requirements of Schedule 14N for nominating shareholders or groups
submitting nominations pursuant to an applicable state law provision or
the company's governing documents would result in 3,920 aggregate
burden hours (49 notices x 40 hours/notice x 2 nominees/shareholder)
each year for nominating shareholders or groups of reporting companies
(other than registered investment companies), broken down into 2,940
hours of shareholder time (49 notices x 40 hours/notice x 2 nominees/
shareholder x .75) and costs of $392,000 for the services of outside
professionals (49 notices x 40 hours/notice x 2 nominees/shareholder x
.25 x $400). In the case of registered investment companies, we
estimate that approximately 9 nominating shareholders or groups would
submit a nomination pursuant to an applicable state law provision or a
company's governing documents.\325\ We estimate that a nominating