grouping the company's nominees may make it easier to vote for all of
the company's nominees than to vote for the shareholder nominees in
addition to some of the company nominees. Accordingly, when a
shareholder nominee is included (either pursuant to Rule 14a-11, an
applicable State law provision, or a company's governing documents), we
proposed an amendment to Rule 14a-4 to provide that a company may not
give shareholders the option of voting for or withholding authority to
vote for the company nominees as a group, but instead must require that
shareholders vote on each nominee separately.
    Commenters were mixed on the appropriate presentation of nominees
on the form of proxy. Several commenters supported the proposed
amendments to Rule 14a-4 to prohibit the option of voting for
management's slate as a whole,\601\ with one of these commenters
characterizing the current option of ``elect all directors'' as ``a
convenience in uncontested director elections'' but warning that
providing that option in contested elections ``tilts the scales unduly
in favor of management.'' \602\ The commenter believed that
shareholders would not have any difficulty in identifying the
management nominees and disagreed with the argument that a form of
proxy listing all nominees would be confusing. As a possible solution,
the commenter suggested a legend such as ``There are six candidates.
Vote for no more than five.'' Another commenter argued that the
advantage of voting for each individual nominee is the de facto
plurality voting standard that would result.\603\ Numerous commenters
opposed the proposed amendments to Rule 14a-4 and argued that the form
of proxy should allow shareholders to vote for the entire slate of
management nominees.\604\ Many of these commenters believed that such
an option is needed to minimize shareholder confusion,\605\ with
several commenters justifying such an option on the basis that boards
expend considerable efforts in selecting the complete slate of
management nominees (e.g., considering issues as the independence of
the board as whole).\606\ One commenter stated that individual
shareholders (unlike large institutional investors who have outsourced
the actual proxy voting process for their portfolio) would be
discouraged from voting if the proxy voting process becomes overly
tedious as a result of the inability to vote for (or withhold votes
for) a group of nominees.\607\ The commenter analogized to the
shareholders' voting options for shareholder proposals, where
shareholders are allowed to vote on all matters as recommended by
management through the exercise of discretionary voting authority. It
noted that, under the existing proxy rules, companies often allow
shareholders to vote ``For All, except'' and then allow them to
identify the specific nominees for whom the proxy is not authorized to
vote. The commenter recommended that companies be permitted to have
this same option when there are shareholder nominees included in the
proxy materials (with a clear statement in the form of proxy that the
shareholder should indicate a vote for the shareholder nominee in the
space provided for that nominee). One commenter argued that the ability
to vote on the entire slate is essential in the event that the proposed
rules are applied to investment companies, as such entities have a far
higher proportion of retail shareholders than most operating companies
and consequently have more difficulty in achieving a quorum.\608\
---------------------------------------------------------------------------

    \601\ See letters from CII; COPERA; P. Neuhauser; RiskMetrics;
USPE.
    \602\ Letter from CII.
    \603\ See letter from RiskMetrics.
    \604\ See letters from 26 Corporate Secretaries; ABA; Aetna;
Alcoa; American Express; Anadarko; Boeing; BorgWarner; BRT;
ExxonMobil; Fenwick; Honeywell; ICI; Intel; JPMorgan Chase; Pfizer;
Seven Law Firms; Society of Corporate Secretaries; Tenet; U.S.
Bancorp.
    \605\ See letters from Aetna; American Express; Boeing;
BorgWarner; JPMorgan Chase; Seven Law Firms; Society of Corporate
Secretaries; U.S. Bancorp.
    \606\ See letters from BorgWarner; Pfizer; Society of Corporate
Secretaries; Tenet.
    \607\ See letter from ABA.
    \608\ See letter from ICI.
---------------------------------------------------------------------------

    We are adopting this aspect of the Proposal largely as
proposed,\609\ because we continue to believe that grouping the
company's nominees and permitting them to be voted on as a group would
make it easier to vote for all of the company's nominees than to vote
for the shareholder nominees in addition to some of the company
nominees. This would result in an advantage to the management nominees
and would be inconsistent with an impartial approach and the goals of
Rule 14a-11. The final rule clarifies that the change would apply not
only when a nominee is included pursuant to Rule 14a-11, applicable
State law, or a company's governing documents, but also where a nominee
is included pursuant to a provision in foreign law.
---------------------------------------------------------------------------

    \609\ See new Rule 14a-4(b)(2)(iv). We anticipate that companies
would continue to be able to solicit discretionary authority to vote
a shareholder's shares for the company nominees, as well as to
cumulate votes for the company nominees in accordance with
applicable State law, where such State law or the company's
governing documents provide for cumulative voting.
---------------------------------------------------------------------------

    We believe that potential confusion that may result from not
providing the option to vote for the company's slate can be mitigated
to the extent that companies provide clear voting instructions,
particularly with respect to the number of candidates for which a
shareholder can vote. In addition, we do not believe that requiring
shareholders to vote for candidates individually, rather than as a
group, creates a burden that will result in discouraging shareholders
from voting at all in director elections. In this regard, we note that
a company could clearly designate the nominees on its form of proxy as
company nominees or shareholder nominees.
e. No Preliminary Proxy Statement
    Under the Proposal, inclusion of a shareholder nominee in the
company's proxy materials would not require the company to file a
preliminary proxy statement provided that the company was otherwise
qualified to file directly in definitive form. In this regard, the
Proposal made clear that inclusion of a shareholder nominee would not
be deemed a solicitation in opposition.\610\ We did not receive a
significant amount of comment on this aspect of the rule, although two
commenters agreed that inclusion of a Rule 14a-11 shareholder nominee
should not require the company to file preliminary proxy

materials.\611\ We are adopting this provision largely as proposed. As
adopted, a company would not be required to file a preliminary proxy
statement in connection with a nomination made pursuant to Rule 14a-11,
an applicable state or foreign law provision, or a company's governing
documents.\612\
---------------------------------------------------------------------------

    \610\ See proposed revisions to Rule 14a-6(a)(4) and Note 3 to
that rule.
    \611\ See letters from ABA; CII.
    \612\ See also discussion in footnote 598 above.
---------------------------------------------------------------------------

10. Application of the Other Proxy Rules to Solicitations by the
Nominating Shareholder or Group
a. Rule 14a-2(b)(7)
    As noted in the Proposing Release, we anticipate that shareholders
may engage in communications with other shareholders in an effort to
form a nominating shareholder group to aggregate their holdings to meet
the applicable minimum ownership threshold to nominate a director.
While consistent with the purpose of Rule 14a-11, such communications
would be deemed solicitations under the proxy rules. Accordingly, we
proposed an exemption from the proxy rules for written communications
made in connection with using proposed Rule 14a-11 \613\ that are
limited in content and filed with the Commission.\614\ As noted in the
Proposal, we believed this limited exemption would 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.
---------------------------------------------------------------------------

    \613\ Under the Proposal, the 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 or pursuant to applicable State law
(as opposed to pursuant to Rule 14a-11).
    \614\ See proposed Rule 14a-2(b)(7)(i).
---------------------------------------------------------------------------

    Some commenters supported the proposed exemption for soliciting
activities by shareholders seeking to form a group for purposes of Rule
14a-11.\615\ One of these commenters stated that because ``many
institutional investors lack incentives to invest actively in seeking
governance benefits that would be shared by their fellow
shareholders,'' the rule should avoid imposing unnecessary hurdles or
costs on shareholders organizing or joining a nominating group.\616\
Another supporter of the exemption stated that soliciting activities to
form a group for the purpose of submitting nominations under Rule 14a-
11, State law, or a company's governing documents generally should be
exempt, with no filing requirement prior to giving the company notice
and filing a Schedule 14N.\617\ Another commenter also recommended that
any exemption also cover solicitations for nominations submitted under
State law or a company's governing documents.\618\ Finally, one
commenter expressed support for the proposed exemption so shareholders
could communicate with other investors to explain their nominee's
qualifications and the rationale for submitting their nominations as
long as they file all materials with the Commission and do not solicit
proxies on behalf of their nominees.\619\
---------------------------------------------------------------------------

    \615\ See letters from Group of 80 Professors of Law, Business,
Economics and Finance (``Bebchuk, et al.''); CalSTRS; CII; P.
Neuhauser; RiskMetrics; Schulte Roth & Zabel; USPE.
    \616\ Letter from Bebchuk, et al.
    \617\ See letter from CII.
    \618\ See letter from P. Neuhauser.
    \619\ See letter from RiskMetrics.
---------------------------------------------------------------------------

    On the other hand, several commenters opposed the creation of a new
exemption for soliciting activities to form a nominating group.\620\
Two of these commenters stated that the proposed exemption in Rule 14a-
2(b)(7) is unnecessary, given the existing exemptions available to
nominating shareholders (e.g., Rule 14a-2(b)(2) exemption for
communications with up to 10 shareholders and Rule 14a-2(b)(6) for
communications in an electronic shareholder forum).\621\ One commenter
indicated that a solicitation to form a ``control'' group could have
significant implications affecting control of a company if there are no
limits on the number of shareholders or aggregated holdings of a
nominating group.\622\ The commenter asserted that, absent these
limits, a shareholder could build a nominating group with hundreds of
shareholders owning far in excess of the ownership threshold needed to
use Rule 14a-11. The commenter warned that the proposed exemption could
facilitate avoidance of the proposed requirements of Rule 14a-11
because the exempt solicitations could be the first stage of a campaign
against incumbent directors and in favor of shareholder nominees. This
commenter also believed that the exemption should not apply to
solicitations undertaken by shareholders to form a nominating
shareholder group in order to submit nominees pursuant to State law or
a company's governing documents.\623\
---------------------------------------------------------------------------

    \620\ See letters from ABA; Anadarko; BRT; Seven Law Firms.
    \621\ See letters from ABA; Seven Law Firms.
    \622\ See letter from ABA.
    \623\ Id.
---------------------------------------------------------------------------

    Commenters also suggested the following changes to the proposed
exemption:
     The exemption should not be available if the shareholder
or any member of the nominating group uses another available exemption
for a nomination to be presented at the same shareholder meeting;\624\
---------------------------------------------------------------------------

    \624\ See letters from ABA; Seven Law Firms.
---------------------------------------------------------------------------

     The exemption should not be available for a ``data
gathering strategy'' in which a shareholder is ``testing the waters''
for other purposes, such as for a traditional proxy contest;\625\
---------------------------------------------------------------------------

    \625\ Id.
---------------------------------------------------------------------------

     The shareholder should certify that it has a bona fide
intent to present a Rule 14a-11 nomination and the shareholder should
be prohibited from nominating directors at the same meeting through
means other than Rule 14a-11;\626\ and
---------------------------------------------------------------------------

    \626\ See letter from ABA.
---------------------------------------------------------------------------

     The exemption should not be available if the company or
another shareholder has publicly announced that the company would be
facing a traditional proxy contest.\627\

    \627\ See letters from ABA; Seven Law Firms.
---------------------------------------------------------------------------

One commenter stated generally that allowing the ``permitted activity
among shareholders wishing to nominate a director'' would ``increase
the need for the Commission to police group activity that may be
undertaken with an undisclosed control intent.'' \628\
---------------------------------------------------------------------------

    \628\ Letter from Biogen.
---------------------------------------------------------------------------

    Two commenters agreed with the Commission that the Rule 14a-2(b)(7)
exemption should not be available for solicitations conducted through
oral communications.\629\ These commenters warned that there would be
no way to ensure that orally-communicated information is being provided
to shareholders in a consistent manner and in accordance with the
rule's requirements. One commenter recommended specific changes to the
rule to clarify that the exemption is not available for oral
communications.\630\ On the other hand, several commenters believed
that oral communications should be exempt.\631\ Some commenters pointed
out that such communications are exempt in other contexts and are
difficult to monitor in any case.\632\ To mitigate the risk of
inappropriate communications, one commenter suggested that the
Commission require that oral communications made in reliance on the
exemption not be inconsistent with any communications

previously filed by the shareholder in connection with the
nomination.\633\
---------------------------------------------------------------------------

    \629\ See letters from ABA; Seven Law Firms.
    \630\ See letter from Seven Law Firms.
    \631\ See letters from CII; Cleary; P. Neuhauser; Schulte Roth &
Zabel; USPE.
    \632\ See letters from CII; USPE.
    \633\ See letter from Cleary.
---------------------------------------------------------------------------

    Two commenters expressed general support for the proposal requiring
that a nominating shareholder or group file any soliciting materials
published, sent or given to shareholders pursuant to the exemption no
later than the date that the material is first published, sent, or
given.\634\ One commenter argued that if the Commission retains the
requirement that solicitations be in writing, then it should relax the
``date of first use'' filing deadline (with a three business day
deadline being its preference).\635\ One commenter supported the filing
requirement ofRule 14a-2(b)(7)(ii) for soliciting materials published,
sent or given to shareholders solicited to become part of a nominating
group,\636\ while three commenters opposed the filing requirement.\637\
Of those opposing the requirement, one commenter noted that under the
Williams Act, persons contemplating an actual change in control are not
required to publicly disclose their activities until a group owning 5%
of the company's shares has been formed.\638\ One commenter stated that
it is possible that a group of shareholders ultimately may decide not
to submit a shareholder nominee.\639\ Therefore, this commenter
believed, any requirement for filings before the group submits a
nominee would place an unfair disadvantage on the process of first
determining if a nomination is the right course of action, and if so,
who the nominee should be. Another commenter suggested that the filing
requirement be triggered on the date the shareholder proposes a
nominee, not on the date of solicitation.\640\ The commenter believed
that a shareholder should not be burdened with the filing requirement
at the initial stages of determining the feasibility of forming a
group.
---------------------------------------------------------------------------

    \634\ See letters from ABA; CII.
    \635\ See letter from Schulte Roth & Zabel.
    \636\ See letter from ABA.
    \637\ See letters from CalSTRS; COPERA; P. Neuhauser.
    \638\ See letter from P. Neuhauser.
    \639\ See letter from COPERA.
    \640\ See letter from CalSTRS.
---------------------------------------------------------------------------

    Three commenters recommended that communications made for the
purpose of forming a nominating shareholder group should be permitted
to identify possible or proposed nominees,\641\ with one commenter
adding the condition that the nominee first agree to being named.\642\
Two commenters recommended the following additional disclosure in any
written soliciting materials used in reliance on the Rule 14a-2(b)(7)
exemption:
---------------------------------------------------------------------------

    \641\ See letters from ABA; CII; USPE.
    \642\ See letter from ABA.
---------------------------------------------------------------------------

     The period that the soliciting shareholder held the
specified number of shares;
     A description of any short positions or other hedging
arrangements through which the soliciting shareholder reduced or
otherwise altered its economic stake in the company;
     A description of any contracts, arrangements,
understandings or relationships between the soliciting shareholder and
any other person with respect to any securities of the company; and
     A description of any plans or proposals of the shareholder
or group with respect to the organization, business or operations of
the company.\643\
---------------------------------------------------------------------------

    \643\ See letters from ABA; Seven Law Firms.

One commenter added that the required disclosure should be consistent
with that required by Items 4 and 6 of Schedule 13D,\644\ while another
commenter stated that shareholders should be permitted to include a
brief statement of the reasons for the formation of the nominating
group.\645\
---------------------------------------------------------------------------

    \644\ See letter from ABA.
    \645\ See letter from Schulte Roth & Zabel.
---------------------------------------------------------------------------

    After considering the comments, we are adopting the proposed
exemption with certain modifications, including modifications to enable
shareholders to communicate orally, to require the filing of a cover
page in the form set forth in Schedule 14N (with the appropriate box on
the cover page marked) no later than when the solicitation commences,
and to clarify the circumstances under which the exemption will be
available.\646\ We believe that this limited exemption will facilitate
shareholders' use of 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.
---------------------------------------------------------------------------

    \646\ Shareholders also would have the option to structure their
solicitations in connection with the formation of a nominating
shareholder group, 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 (Exchange Act Rule
14a-2(b)(2)) and the exemption for certain communications that take
place in an electronic shareholder forum (Exchange Act Rule 14a-
2(b)(6)). For example, a shareholder could rely on Rule 14a-2(b)(2)
to solicit no more than 10 shareholders in an effort to form a
nominating shareholder group. If the shareholder's efforts did not
result in the formation of a group large enough to meet the
ownership thresholds, the shareholder could then rely on Rule 14a-
2(b)(7) to continue its efforts to form a nominating shareholder
group for the purpose of submitting a nomination pursuant to Rule
14a-11.
---------------------------------------------------------------------------

    New Rule 14a-2(b)(7) provides an exemption from the generally
applicable disclosure, filing, and other requirements of the proxy
rules for solicitations by or on behalf of any shareholder in
connection with the formation of a nominating shareholder group,
provided that the shareholder is not holding the company's securities
with the purpose, or with the effect, of changing control of the
company or to gain a number of seats on the board of directors that
exceeds the maximum number of nominees that the registrant could be
required to include under Rule 14a-11(d). In addition, any written
communication may include no more than:
     A statement of the shareholder's intent to form a
nominating shareholder group in order to nominate a director under Rule
14a-11;
     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 voting power of the company's securities
that are entitled to be voted on the election of directors that each
soliciting shareholder holds or the aggregate percentage held by any
group to which the shareholder belongs; and
     The means by which shareholders may contact the soliciting
party.
    Any written soliciting material published, sent or given to
shareholders in accordance with the terms of this provision must be
filed with the Commission by the nominating shareholder or group, 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
be filed with a cover page in the form set forth in Schedule 14N, with
the appropriate box on the cover page marked to identify the filing as
soliciting material pursuant to Rule 14a-2(b)(7).\647\ This requirement
is largely consistent with the Proposal; however, under the final rule,
the solicitation will be filed on Schedule 14N rather than as
definitive additional

soliciting materials on Schedule 14A, as was proposed. We have made
this change to avoid confusion between soliciting materials filed in
connection with the formation of a nominating shareholder group under
Rule 14a-11 (or in connection with a Rule 14a-11 nomination), as
discussed further below, and other proxy materials that may be filed by
companies or by participants in a traditional proxy contest.
---------------------------------------------------------------------------

    \647\ Materials filed in connection with the new solicitation
exemptions will be filed under a cover page of Schedule 14N and will
appear as a Schedule 14N-S on EDGAR. See new Rule 14a-2(b)(7)(ii).
We note that written communications include electronic
communications, such as e-mails and Web site postings, and scripts
used in connection with oral solicitations.
---------------------------------------------------------------------------

    We also have expanded the exemption to cover oral solicitations. As
noted in the Proposal, we originally proposed to limit the exclusion to
written communications to address our concern that oral communications
could not easily satisfy the filing requirement (which would make it
more difficult to monitor use of the exemption). However, after further
consideration, we agree with commenters that oral communications should
be included within the exemption because it is likely that shareholders
will need to speak to each other in order to effectively form a
nominating shareholder group. Oral communications will not be limited
in content in the way that written communications are limited. In an
effort to better monitor and avoid abuse under the exemption, however,
a shareholder seeking to form a nominating shareholder group in
reliance on the exemption in Rule 14a-2(b)(7) will be required to file
a Schedule 14N notice of commencement of the oral solicitation. Because
there are no limits on the number of holders that can be solicited in
reliance on the new rule, or the contents of the oral communications,
we believe it is important for our staff and the markets to be aware of
the commencement of these activities.
    The Schedule 14N filing for oral solicitations will consist of a
cover page in the form set forth in Schedule 14N, with the appropriate
box on the cover page marked to identify the filing as a notice of
solicitation pursuant to Rule 14a-2(b)(7). This filing would be made
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 of the first communication
made in reliance on the rule.
    As noted above, some commenters were opposed to the filing
requirement for solicitations for various reasons. We have decided to
adopt the filing requirement because we believe it is important to
provide companies and shareholders with information about potential
nominations under Rule 14a-11 when the new solicitation exemption is
used to pursue such a nomination. We do not believe that the filing
requirement is burdensome, particularly in light of the fact that we
are providing shareholders with the opportunity to engage in activities
for which they would otherwise need to file a proxy statement or have
another exemption available.
    More generally, we understand commenters' concerns regarding the
solicitation exemptions, including the exemption for oral
communications when seeking to form a group, being used as a means to
engage in a contest for control, but we believe that requiring a
nominating shareholder or group to file a Schedule 14N to provide
notice of such communications, along with the other limitations in the
rule we are adopting, should mitigate these concerns. In response to
commenters' concerns, we have clarified in the rule that a shareholder
or group that chooses to rely on new Rule 14a-2(b)(7) would lose that
exemption if they subsequently engaged in a non-Rule 14a-11 nomination
or solicitation in connection with the subject election of directors
other than solicitations exempt under Rule 14a-2(b)(8), or if they
become a member of a group, as determined under Section 13(d)(3) of the
Exchange Act and Rule 13d-5(b)(1), or otherwise, with persons engaged
in soliciting or other nominating activities in connection with the
subject election of directors.\648\ This could result in the
shareholder or group being deemed to have engaged in a non-exempt
solicitation in violation of the proxy rules. In addition, we have
clarified that, consistent with Rule 14a-11, the exemption is available
only where the shareholder is not holding the company's securities with
the purpose, or with the effect, of changing control of the company or
to gain a number of seats on the board of directors that exceeds the
maximum number of nominees that the registrant could be required to
include under Rule 14a-11(d). Thus, we do not believe that it is likely
that a shareholder or group will use the exemption as a means to engage
in a contest for control.
---------------------------------------------------------------------------

    \648\ See new Instruction to Rule 14a-2(b)(7).
---------------------------------------------------------------------------

    Consistent with the Proposal, neither this exemption nor the
exemption set forth in Rule 14a-2(b)(8) (discussed below) will 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 (as opposed to pursuant to Rule 14a-11).
As we noted in the Proposal, 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 continue to believe it would not be appropriate to
extend the exemption to those circumstances. Also consistent with the
Proposal, we have not extended the exemption to nominations made
pursuant to applicable State law provisions,\649\ again because State
law could establish any number of possible criteria for nominations. 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 or State
law.
---------------------------------------------------------------------------

    \649\ Similarly, the exemption would not be available for
solicitations in connection with nominations made pursuant to
foreign law provisions.
---------------------------------------------------------------------------

    b. Rule 14a-2(b)(8)
    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,\650\ shareholders could be limited in their soliciting
activities under the current proxy rules. Accordingly, our Proposal
included a new exemption to the proxy rules for solicitations by or on
behalf of a nominating shareholder or group in support of its nominee
who is included in the company's proxy statement and form of proxy.
---------------------------------------------------------------------------

    \650\ See Exchange Act Rule 14a-12.
---------------------------------------------------------------------------

    As proposed, the exemption would be available only where the
shareholder is not seeking proxy authority. In addition, any written
communications would be required to include specified disclosures,
including:
     The identity of the nominating shareholder or group;
     A description of his or her direct or indirect interests,
by security holdings or otherwise; and
     A legend advising shareholders that a shareholder nominee
is or will be included in the company's proxy statement and that they
should read the company's proxy statement when available and that the
proxy statement, other soliciting material, and any other relevant
documents are or will be available at no charge on the Commission's Web
site.

    Under the Proposal, written soliciting materials also would be
required to be filed 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.\651\ 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.\652\
---------------------------------------------------------------------------

    \651\ For a registered investment company, the filing would be
made under the company's Investment Company Act file number.
    \652\ See proposed Rule 14a-2(b)(8)(iii).
---------------------------------------------------------------------------

    Three commenters supported the proposed Rule 14a-2(b)(8) exemption
for soliciting activities by or on behalf of a nominating shareholder
or group in support of the shareholder nominees included in a company's
proxy materials, with soliciting materials filed no later than the date
that the materials are first used.\653\ Two of these commenters
explained that because management would solicit votes against the
shareholder nominees and for their own nominees, the nominating
shareholder, group, and shareholder nominees should have the same
ability to solicit, so long as they do not request proxy
authority.\654\ Another commenter stated that the exemption should
apply to solicitations for nominations made pursuant to Rule 14a-11,
State law, or a company's governing documents.\655\ The commenter
opposed any limitations on the soliciting activities by a nominating
shareholder or group and viewed such soliciting activities as the same
as a company's disclosure opposing a shareholder proposal. One
commenter supported the Rule 14a-2(b)(8) exemption for solicitations by
a nominating shareholder or group in favor of a shareholder nominee who
is included in a company's proxy materials (or against a management
nominee), but recommended that the rule specify that the exemption only
applies to solicitations in favor of a shareholder nominee (or against
a board nominee) that occur after the distribution of the company's
proxy materials--this would help avoid confusion and misunderstandings
about whether solicitation may occur before the company's proxy
materials are available.\656\ This commenter also recommended that the
exemption not be available if the company or another shareholder has
publicly announced that the company would be facing a traditional proxy
contest, even from an unrelated shareholder. The commenter also
believed that the exemption should be available for any written
solicitation by or on behalf of a nominating shareholder or group in
support of a nominee included in a company's proxy materials pursuant
to State law or the company's governing documents, as long as the
nominating shareholder or group does not use a form of proxy that
differs from that of the company, does not furnish or otherwise request
a form of revocation, abstention, consent or authorization, and files
its solicitation material for its nominees (or against the management
nominees) with the Commission on the date of first use.
---------------------------------------------------------------------------

    \653\ See letters from CII; COPERA; P. Neuhauser.
    \654\ See letters from COPERA; P. Neuhauser.
    \655\ See letter from CII.
    \656\ See letter from ABA.
---------------------------------------------------------------------------

    To the extent that it is not included in either the company's proxy
materials or Schedule 14N, the commenter also recommended that
additional disclosure be required to be included in solicitations made
pursuant to Rule 14a-2(b)(8).\657\ Another commenter also stated that
Rule 14a-2(b)(8) should apply only to solicitations in favor of a
shareholder nominee that occur after the mailing of a company's proxy
materials.\658\ Further, the commenter explained that solicitations
should not occur at a time when shareholders do not have access to the
more complete and balanced disclosure about all of the nominees in a
company's proxy materials.
---------------------------------------------------------------------------

    \657\ The recommended disclosures included: the period that the
soliciting shareholder held the specified number of shares; a
description of any short positions or other hedging arrangements
through which the soliciting shareholder reduced or otherwise
altered its economic stake in the company; a description of any
contracts, arrangements, understandings or relationships between the
soliciting shareholder and any other person with respect to any
securities of the company; and a description of any plans or
proposals of the shareholder or group with respect to the
organization, business or operations of the company.
    \658\ See letter from Seven Law Firms.
---------------------------------------------------------------------------

    As adopted, Rule 14a-2(b)(8) provides an exemption from the
generally applicable disclosure, filing, and other requirements of the
proxy rules for solicitations by or on behalf of a nominating
shareholder or group, provided that:
 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;\659\
---------------------------------------------------------------------------

    \659\ See new Rule 14a-2(b)(8)(i). The language in this
provision generally follows the language in Rule 14a-2(b)(1) and,
therefore, we interpret both provisions in the same manner. In this
regard, we note the discussion in the Proxy Disclosure and
Solicitation Enhancements proposing release of our view of the scope
of the term ``form of revocation'' within the meaning of Rule 14a-
2(b)(1) and the proposed amendment to that rule to clarify that the
term does not include an unmarked copy of the company's proxy card
that is requested to be returned directly to management. See
Securities Act Release No. 33-9052; 34-60280 (July 10, 2009) [74 FR
35076]. If we act on the proposed amendments to Rule 14a-2(b)(1), we
would expect to make conforming changes to Rule 14a-2(b)(8).
---------------------------------------------------------------------------

 Each written communication includes:\660\
---------------------------------------------------------------------------

    \660\ See new Rule 14a-2(b)(8)(ii).
---------------------------------------------------------------------------

     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 that they should read the company's proxy
statement when 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 exemption must be filed by the
nominating shareholder or group with the Commission on Schedule 14N,
under the company's Exchange Act file number or, in the case of an
investment company registered under the Investment Company Act of 1940,
under the company's Investment Company Act file number, no later than
the date the material is first published, sent or given to
shareholders. 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 14N, with the appropriate
box on the cover page marked.\661\
---------------------------------------------------------------------------

    \661\ See new Rule 14a-2(b)(8)(iii).

    We are adopting certain modifications to Rule 14a-2(b)(8) from the
Proposal to clarify when a party may begin to rely on the exemption and
to require that all soliciting material be filed on new Schedule
14N.\662\ The exemption is otherwise consistent with the Proposal.
---------------------------------------------------------------------------

    \662\ As noted above, the soliciting material will be filed
under cover of Schedule 14N and will appear as Schedule 14N-S on
EDGAR.
---------------------------------------------------------------------------

    We have added a new instruction to the exemption clarifying that a

nominating shareholder or group may rely on the exemption provided in
Rule 14a-2(b)(8) after receiving notice from the company in accordance
with Rule 14a-11(g)(1) or (g)(3)(iv) that the company will include the
nominating shareholder's or group's nominee or nominees.\663\ As
proposed, a nominating shareholder or group would not have been able to
rely on the exemption until their nominee or nominees are actually
included in the company's proxy materials. We received little comment
on the appropriate timing for commencement of soliciting activities
under the proposed exemption, with one commenter suggesting that Rule
14a-2(b)(8) apply only to solicitations that occur after the mailing of
a company's proxy materials,\664\ and another suggesting generally that
there should be no limitations on soliciting activities by nominating
shareholders or groups.\665\
---------------------------------------------------------------------------

    \663\ See Instruction 1 to Rule 14a-2(b)(8).
    \664\ See letter from ABA.
    \665\ See letter from CII.
---------------------------------------------------------------------------

    After further consideration, we have determined that a nominating
shareholder or group should be able to begin soliciting once there is
certainty as to whether their nominees will be included in the
company's proxy materials rather than being required to wait for the
company to furnish its proxy materials. In this regard, we note that
the exemption is consistent with the treatment of insurgent soliciting
materials in a traditional proxy contest, as an insurgent may rely on
Rule 14a-12(a) to engage in soliciting activities before furnishing
shareholders with a proxy statement provided that the soliciting party
provides certain disclosure and files a definitive proxy statement
before or at the same time as the forms of proxy, consent or
authorization are furnished to or requested from shareholders.\666\ We
have included the requirement that the nominating shareholder or group
have received notice that their nominee or nominees will be included in
the company's proxy materials before commencing solicitations to avoid
confusion and potential abuse of the exemption.
---------------------------------------------------------------------------

    \666\ See Exchange Act Rule 14a-12(a).
---------------------------------------------------------------------------

    We also have modified the filing requirements for written
soliciting materials. Similar to the filing requirements for relying on
Rule 14a-2(b)(7), any written soliciting material published, sent or
given to shareholders in accordance with the terms of Rule 14a-2(b)(8)
must be filed with the Commission on a Schedule 14N, 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
be filed with a cover page in the form set forth in Schedule 14N, with
the appropriate box on the cover page marked to identify the filing as
soliciting material pursuant to Rule 14a-2(b)(8). This requirement is
largely consistent with the Proposal, however, under the final rule,
the solicitation will be filed on Schedule 14N rather than as
definitive additional soliciting materials on Schedule 14A, as was
proposed. As noted above, we received comment supporting the filing of
soliciting materials,\667\ however, the commenters did not specifically
address whether the filing should be made under cover of Schedule 14N
or Schedule 14A. As discussed above with respect to filings made
pursuant to Rule 14a-2(b)(7),we have made the change to Schedule 14N to
avoid confusion between soliciting materials filed in connection with
the formation of a nominating shareholder group under Rule 14a-11 (or
in connection with a Rule 14a-11 nomination) and other proxy materials
that may be filed by companies or by participants in a traditional
proxy contest.
---------------------------------------------------------------------------

    \667\ See letters from CII; COPERA; P. Neuhauser.
---------------------------------------------------------------------------

    As described in Section II.B.2.e. above, the rules we are adopting
today will not prohibit shareholders from submitting Rule 14a-11
nominations for inclusion in company proxy materials when a proxy
contest is being conducted by another person concurrently. We are,
however, adding a clarification to new Rule 14a-2(b)(8), similar to
Rule 14a-2(b)(7), in response to commenters' concern that the
exemptions could be used as the first stage of a contest for control.
As adopted, the exemption will be lost if a shareholder or group
subsequently engages in a non-Rule 14a-11 nomination or solicitation in
connection with the subject election of directors or if they become a
member of a group, as determined under Section 13(d)(3) of the Exchange
Act and Rule 13d-5(b)(1), or otherwise, with persons engaged in
soliciting or other nominating activities in connection with the
subject election of directors. The risk of losing the Rule 14a-2(b)(8)
exemption and potential liability for engaging in non-exempt
solicitations should prevent nominating shareholders or groups from
soliciting in relation to any other person's nominees.\668\ Further, as
discussed in Sections II.B.2.e. and II.B.10.a. above, under Rule 14a-11
a company will not be required to include a nominee or nominees if the
nominating shareholder or group is a member of any other group with
persons engaged in solicitations in connection with the subject
election of directors or other nominating activities; separately
conducts a solicitation in connection with the subject election of
directors other than a Rule 14a-2(b)(8) exempt solicitation in relation
to those nominees it has nominated pursuant to Rule 14a-11 or for or
against the company's nominees; or is acting as a participant in
another person's solicitation in connection with the subject election
of directors. All of these restrictions are designed to address
commenters' concerns about collusion and potential abuse of the
process. We also believe these restrictions are consistent with the
desire to limit Rule 14a-11 to those shareholders or groups that do not
have an intent to change the control of the company or to gain a number
of seats on the board of directors that exceeds the maximum number of
nominees that the registrant could be required to include under Rule
14a-11. Finally, we have clarified in an instruction to Rule 14a-
2(b)(8)\669\ that Rule 14a-2(b)(8) is the only exemption upon which
Rule 14a-11 nominating shareholders or groups may rely for their
soliciting activities in support of nominees that are or will be
included in the company's proxy materials or for or against company
nominees. This will help ensure that these persons will not seek proxy
authority and will file written communications in connection with their
soliciting efforts and, we believe, will help to address some of
commenters' concerns with regard to confusion and potential abuse of
the exemption.
---------------------------------------------------------------------------

    \668\ See Instruction 3 to Rule 14a-2(b)(8).
    \669\ See Instruction 2 to Rule 14a-2(b)(8).
---------------------------------------------------------------------------

    Consistent with the Proposal and as discussed above with regard to
Rule 14a-2(b)(7), the exemption will 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
(as opposed to pursuant to Rule 14a-11). As we noted in the Proposal,
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 that companies
and/or shareholders could establish for nominations, we continue to
believe it would not be appropriate to extend the exemption to those
circumstances. Also

consistent with the Proposal, we have not extended the exemption to
nominations made pursuant to applicable State law provisions, again
because State law could establish any number of possible criteria for
nominations.\670\ 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 or State law.
---------------------------------------------------------------------------

    \670\ Similarly, the exemption would not be available for
solicitations in connection with nominations made pursuant to
foreign law provisions.
---------------------------------------------------------------------------

11. 2011 Proxy Season Transition Issues
    Rule 14a-11 contains a window period for submission of shareholder
nominees for inclusion in company proxy materials of no earlier than
150 calendar days, and no later than 120 calendar days, before the
anniversary of the date that the company mailed its proxy materials for
the prior year's annual meeting.\671\ Shareholders seeking to use new
Rule 14a-11 would be able to do so if the window period for submitting
nominees for a particular company is open after the effective date of
the rules. For some companies, the window period may open and close
before the effective date of the new rules. In those cases,
shareholders would not be permitted to submit nominees pursuant to Rule
14a-11 for inclusion in the company's proxy materials for the 2011
proxy season. For other companies, the window period may open before
the effective date of the rules, but close after the effective date. In
those cases, shareholders would be able to submit a nominee between the
effective date and the close of the window period.
---------------------------------------------------------------------------

    \671\ See Rule 14a-11(b)(10) and discussion in Section
II.B.8.c.ii. above.
---------------------------------------------------------------------------

C. 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. This provision currently
permits 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.
    When the Commission adopted the current language of Rule 14a-
8(i)(8) in December 2007,\672\ it noted that many disclosures are
required for election contests that are not provided for in Rule 14a-
8.\673\ 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 making a solicitation containing materially false or
misleading statements or omissions that is found in Rule 14a-9.
---------------------------------------------------------------------------

    \672\ See Election of Directors Adopting Release.
    \673\ See Election of Directors Adopting Release.
---------------------------------------------------------------------------

2. Proposed Amendment
    In the Proposal, we proposed an amendment to Rule 14a-8(i)(8), the
election exclusion, to enable shareholders, under certain
circumstances, to require companies to include in their proxy materials
shareholder 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.\674\ The purpose of the
proposed amendment was to further facilitate shareholders' rights to
nominate directors and promote fair corporate suffrage, while still
providing appropriate disclosure and liability protections.
---------------------------------------------------------------------------

    \674\ Under the Proposal, Rule 14a-8(i)(8) would allow
shareholders to propose additional means, other than Rule 14a-11,
for inclusion of shareholder nominees in company proxy materials.
Therefore, under the Proposal, a shareholder proposal that sought 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 proposed 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.
---------------------------------------------------------------------------

    Under the proposed amendment, the shareholder proposal would have
to meet the procedural requirements of Rule 14a-8 (e.g., the proposal
could be excluded if the shareholder proponent did not meet the
ownership threshold under Rule 14a-8) and not be subject to one of the
other substantive bases for exclusion in the rule.\675\ The proposed
revision of 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.\676\
---------------------------------------------------------------------------

    \675\ 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 at least one year by the date the
proponent submits the proposal. See Rule 14a-8(b). These
requirements would remain the same.
    \676\ In this regard, the proposed revision to Rule 14a-8(i)(8)
would not make a distinction between binding and non-binding
proposals.
---------------------------------------------------------------------------

    In the Proposal, we stated that we continued 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 for in the proxy rules. Therefore, while
proposing the revision to Rule 14a-8(i)(8) as discussed above, we also
proposed to codify certain prior staff interpretations with respect to
the types of proposals that would continue to be excludable pursuant to
Rule 14a-8(i)(8). As proposed, 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;
     Would remove a director from office before his or her term
expired;
     Questions the competence, business judgment, or character
of one or more nominees or directors;
     Nominates a specific individual for election to the board
of directors, other than pursuant to Rule 14a-11, an applicable State
law provision, or a company's governing documents; or
     Otherwise could affect the outcome of the upcoming
election of directors.

    The proposed codification was not intended to change the staff's
prior interpretations or limit the application of the exclusion; it was
intended to provide more clarity to companies and shareholders
regarding the application of the exclusion.
3. Comments on the Proposal
    The proposal to amend Rule 14a-8 to revise the election exclusion
received widespread support. Numerous commenters expressed general
support for the proposed amendments to Rule 14a-8(i)(8), with many of
the commenters supporting the Commission's proposal as a whole \677\
and other commenters supporting the amendments while opposing Rule 14a-
11.\678\ Some commenters expressly supported the adoption of both Rule
14a-11 and amendments to Rule 14a-8(i)(8).\679\ Some commenters
indicated that the adoption of only the proposed amendments to Rule
14a-8(i)(8), without Rule 14a-11, would not address current
shortcomings in corporate governance and achieve the Commission's
stated objectives.\680\ Of the commenters that supported the Rule 14a-8
amendments but opposed Rule 14a-11, many believed the amendments to
Rule 14a-8 would allow procedures for the inclusion of shareholder
nominees in company proxy materials to evolve and private ordering
under State law to continue, unfettered by the complexities of a
Federal standard that would apply uniformly to differently situated
companies operating under diverse State law regimes.\681\
---------------------------------------------------------------------------

    \677\ See letters from 13D Monitor; ACSI; AFL-CIO; AFSCME;
Joseph Ahearn (``J. Ahearn''); Rahim Ali (``R. Ali'');
AllianceBernstein; Amalgamated Bank; Americans for Financial Reform;
Australian Reward Investment Alliance (``ARIA''); AUST(Q)
Superannuation (``AUST(Q)''); W. Baker; Barclays; BCIA; Bebchuk, et
al.; R. Blake; William B. Bledsoe (``W. Bledsoe''); Brigham and
Associates, LLC (``Brigham''); British Insurers; Ethan S. Burger
(``E. Burger''); J. Burke; CalPERS; CalSTRS; Calvert; Cbus
(``Cbus''); CFA Institute; John P. Chaney (``J. Chaney''); The
Christopher Reynolds Foundation of New York (``Christopher Reynolds
Foundation''); CII; COPERA; Corporate Library; Central Pension Fund
of the International Union of Operating Engineers (``CPF''); CRMC;
L. Dallas; Mike G. Dill (``M. Dill''); T. DiNapoli; Dominican
Sisters of Hope; Andrew H. Dral (``A. Dral''); D. Eshelman; First
Affirmative; Florida State Board of Administration; Martin Fox (``M.
Fox''); Raymond E. Frechette (``R. Frechette''); Glass Lewis; James
J. Givens (``J. Givens''); Governance for Owners (``Governance for
Owners''); GovernanceMetrics; Michael D. Grabowski (``M.
Grabowski''); Greenlining Institute (``Greenlining''); Hermes; HESTA
Super Fund (``HESTA''); Sheryl Hogan (``S. Hogan''); David G. Hood
(``D. Hood''); IAM; ICGN; Frank Coleman Inman (``F. Inman'');
Ironfire; Melinda Katz (``M. Katz''); Michael E. Kelley (``M.
Kelley''); Peter C. Kelly (``P. Kelly''); Key Equity Investors, Inc.
(``Key Equity Investors''); Victor Kimball (``V. Kimball''); Jeffery
Kondracki (``J. Kondracki''); A. Krakovsky; Paul E. Kritzer (``P.
Kritzer''); LACERA; C. Levin; Lanny D. Levin (``L. Levin''); LIUNA;
LUCRF; Marco Consulting; Maine Securities Corporation (``Maine
Securities''); B. McDonnell; James McRitchie (``J. McRitchie'');
Mercy Investment Program; M. Metz; David B. Moore (``D. Moore'');
Karen L. Morris (``K. Morris''); Robert Moulton-Ely (``R. Moulton-
Ely''); Motor Trades Association of Australia Superannuation Fund
Pty Limited (``MTAA''); Murray & Murray & Co., LPA (``Murray &
Murray''); William J. Nassif (``W. Nassif''); Tom Nappi (``T.
Nappi''); D. Nappier; Nathan Cummings Foundation; P. Neuhauser; Nine
Law Firms; New Jersey State Investment Council (``NJSIC''); Norges
Bank; Non-Government School Superannuation Fund (``Non-
Government''); Ontario Teachers' Pension Plan Board (``Ontario
Teachers''); OPERS; Thomas Paine (``T. Paine''); Pax World; Pershing
Square; Karl Putnam (``K. Putnam''); S. Ranzini; RacetotheBottom;
Joan Reekie (``J. Reekie''); Relational; RiskMetrics; D. Roberts; D.
Romine; Joseph Rozbicki (``J. Rozbicki''); Schulte Roth & Zabel;
Shamrock; Shareowners.org; Sheet Metal Workers; Sisters of Mercy;
Social Investment Forum; Sodali; Solutions; Laszlo Sterbinszky (``L.
Sterbinszky''); Stringer Photography (``Stringer''); SWIB; J. Taub;
Teamsters; Aleta Thielmeyer (``A. Thielmeyer''); TIAA-CREF;
Trillium; TriState Coalition; T. Rowe Price; L. Tyson; Ursuline
Sisters of Tildonk; Universities Supernnuation; USPE; ValueAct
Capital; The Value Alliance and Corporate Governance Alliance
(``Value Alliance''); R. VanEngelenhoven; Walden; B. Wilson; Leslie
Wolfe (``L. Wolfe''); Steve Wolfe (``S. Wolfe''); Neil Wollman (``N.
Wollman''); WSIB; Marcelo Zinn (``M. Zinn'').
    \678\ See letters from 26 Corporate Secretaries; 3M; ABA;
Advance Auto Parts; Aetna; AGL; Alcoa; Allstate; Alston & Bird;
Ameriprise; American Bankers Association; American Express;
Anadarko; Applied Materials; Association of Corporate Counsel; Avis
Budget; Best Buy; Boeing; Boston Scientific; Brink's; BRT;
Burlington Northern; California Bar; Callaway; Caterpillar; Chevron;
P. Clapman; Comcast; CSX; Cummins; Davis Polk; Deere; Devon; DTE
Energy; DuPont; Eaton; Einstein Noah; Eli Lilly; ExxonMobil; FedEx;
Financial Services Roundtable; FMC Corp.; FPL Group; Frontier; GE;
General Mills; A. Goolsby; C. Holliday; Home Depot; Honeywell; IBM;
ICI; Intel; JPMorgan Chase; E. J. Kullman; N. Lautenbach; MetLife;
Microsoft; J. Miller; Motorola; NACD; NIRI; O'Melveny & Myers;
Office Depot; P&G PepsiCo; Pfizer; Piedmont; Praxair; Protective;
Ryder; S&C Safeway; Seven Law Firms; Shearman & Sterling; Sherwin-
Williams; SIFMA; Simpson Thacher; Society of Corporate Secretaries;
Southern Company; Tenet; Tesoro; Textron; Theragenics; Tidewater;
Tompkins; G. Tooker; tw telecom; United Brotherhood of Carpenters;
U.S. Bancorp; The Valspar Corporation (``Valspar''); Wachtell; Wells
Fargo; Xerox.
    \679\ See letters from AFL-CIO; CFA Institute; CII; Governance
for Owners; C. Levin; Marco Consulting; SWIB.
    \680\ See letters from CII; USPE.
    \681\ See letters from American Express; Brink's; BRT; CSX;
Davis Polk; DuPont; C. Holliday; GE; General Mills; MetLife;
Safeway; Tenet; Verizon.
---------------------------------------------------------------------------

    While supporting the amendments to Rule 14a-8(i)(8), some
commenters expressed concerns about certain aspects of the amendments
or recommended certain changes.\682\ Two commenters expressed concerns
about the codification of staff policies and interpretations under the
current version of Rule 14a-8(i)(8).\683\ One commenter expressed
concerns that the proposed amendments to Rule 14a-8(i)(8) are broader
than necessary to allow proposals seeking to establish access to a
company's proxy materials and have the potential of significantly
changing the administration of Rule 14a-8(i)(8) with respect to other
types of proposals.\684\ The commenter also noted that the fact that
only four types of proposals have been addressed by the staff in the
Rule 14a-8 process could be attributed to the fact that the current
standard under Rule 14a-8(i)(8) operated to avoid other impermissible
proposals from being presented in the first place. If the current
standard is repealed, this commenter worried that the staff would have
no basis upon which to assess proposals that attempt to circumvent or
supplement the Commission's proxy solicitation rules. The commenter
believed that eliminating the current standard would go beyond what is
needed to permit shareholders to submit proposals seeking to amend, or
request an amendment to, a company's governing documents to establish a
procedure for including shareholder-nominated candidates for director
in a company's proxy materials. The commenter suggested retaining the
current standard in Rule 14a-8(i)(8) and amending the language only to
specifically authorize proposals seeking to establish access to a
company's proxy materials and require the disclosure provided in
proposed Rule 14a-19.
---------------------------------------------------------------------------

    \682\ See letters from ABA; BorgWarner; CII; J. McRitchie; P.
Neuhauser; O'Melveny & Myers; Seven Law Firms.
    \683\ See letters from ABA; Seven Law Firms.
    \684\ See letter from ABA.
---------------------------------------------------------------------------

4. Final Rule Amendment
    As noted above in Section I.A., we do not believe that adopting
changes to Rule 14a-8(i)(8) alone, without adopting Rule 14a-11, will
achieve our goal of facilitating shareholders' ability to exercise
their traditional State law rights to nominate directors. We believe
that revising Rule 14a-8 will provide an additional avenue for
shareholders to indirectly exercise those rights; therefore, the final
rules include a revision to Rule 14a-8(i)(8). As adopted, companies
will no longer be able to rely on Rule 14a-8(i)(8) to exclude a
proposal seeking to establish a procedure in a company's governing
documents for the inclusion of one or more shareholder nominees for
director in the company's proxy materials.\685\
---------------------------------------------------------------------------

    \685\ As we stated in the Proposing Release, a proposal would
continue to be subject to exclusion under other provisions of Rule
14a-8. For example, a proposal would be excludable 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.

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

    In addition, we are adopting the proposed amendment to codify the
prior staff interpretations largely as proposed. As adopted, companies
will be permitted to exclude a shareholder proposal pursuant to Rule
14a-8(i)(8) if it:
     Would disqualify a nominee who is standing for election;
     Would remove a director from office before his or her term
expired;
     Questions the competence, business judgment, or character
of one or more nominees or directors;
     Seeks to include a specific individual in the company's
proxy materials for election to the board of directors; or
     Otherwise could affect the outcome of the upcoming
election of directors.\686\
---------------------------------------------------------------------------

    \686\ We note that the rule text adopted differs slightly from
the proposed rule text as a result of technical modifications we
made to better reflect our intent with respect to the rule. We are
adopting amended Rule 14a-8(i)(8) with the language ``seeks to
include a specific individual in the company's proxy materials for
election to the board of directors'' rather than ``nominates a
specific individual for election to the board of directors, other
than pursuant to Rule 14a-11, an applicable State law provision, or
a company's governing documents.'' The change in the language from
``nominates'' to ``seeks to include'' more accurately reflects the
fact that Rule 14a-8 cannot be used as a means to nominate a
candidate for election to the board of directors. We also deleted
the language regarding Rule 14a-11, an applicable State law
provision, or a company's governing documents because we believe it
is unnecessary.

We believe that shareholders and companies will benefit from the
enhanced clarity that the amended rule will provide concerning the
application of the rule. We do not believe that the amendments will
result in confusion with regard to the rule's application because the
amendments do not change the manner in which Rule 14a-8(i)(8) has been,
and will continue to be, interpreted by the staff with respect to other
types of proposals.
    The amendments to Rule 14a-8(i)(8) could result in shareholders
proposing amendments to a company's governing documents that would
establish procedures under a company's governing documents for the
inclusion of one or more shareholder nominees for director in company
proxy materials. These proposals could seek to include a number of
provisions relating to nominating directors for inclusion in company
proxy materials, and disclosures related to such nominations, that
require a different ownership threshold, holding period, or other
qualifications or representations than those contained in Rule 14a-11.
To the extent that shareholders are successful in adopting amendments
to a company's governing documents to establish procedures for the
inclusion of one or more shareholder nominees for director in the
company's proxy materials, we note that the provision would be an
additional avenue for shareholders to submit nominees for inclusion in
company proxy materials, not a substitute for, or restriction on, Rule
14a-11. While such amendments proposed by shareholders through Rule
14a-8 would not be excludable under Rule 14a-8(i)(8) as amended, a
company may seek to exclude such a proposal on another basis. For
example, to the extent a proposal sought to limit the application of
Rule 14a-11, a company could seek to exclude the proposal pursuant to
Rule 14a-8(i)(3) on the basis that it is contrary to the proxy rules.
We considered whether permitting proposals to allow additional means
for shareholder director nominees to be included in company proxy
materials would create confusion or lack of certainty for companies and
their shareholders in light of the final provisions of Rule 14a-11. In
the end, however, we have concluded that this possibility of confusion
can be addressed through disclosure and is more than offset by the
benefits of facilitating shareholders' ability to determine that their
companies should have additional provisions allowing for inclusion of
shareholder nominees in company proxy materials.
    One commenter opposed the application of proposed Rule 14a-8(i)(8)
to investment companies for the same reasons that it opposed the
application of proposed Rule 14a-11 to investment companies.\687\ We
have decided to make amended Rule 14a-8(i)(8) applicable to investment
companies for the same reasons that we are making Rule 14a-11
applicable to investment companies. Rule 14a-8(i)(8) is intended to
further facilitate shareholders' traditional State law rights to
nominate directors, which apply to the shareholders of investment
companies. As discussed above, we do not believe that the regulatory
protections offered by the Investment Company Act or the fact that
open-end management investment companies are not required by State law
to hold annual meetings serves to decrease the importance of the rights
that are granted to shareholders under State law. For further
discussion of our reasons for applying the rule to investment
companies, see Section II.B.3.b.
---------------------------------------------------------------------------

    \687\ See letter from ICI.
---------------------------------------------------------------------------

5. Disclosure Requirements
    We did not propose 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 for inclusion of shareholder nominees
in company proxy materials or disclosures related to those shareholder
provisions.\688\ We solicited comment on whether additional disclosure
from a shareholder submitting such a proposal would be appropriate.
Three commenters opposed requiring disclosure from shareholders who
submit such a proposal pursuant to Rule 14a-8 that differs from
disclosure required of shareholders who submit other types of Rule 14a-
8 proposals.\689\ Three commenters recommended generally that a
shareholder who submits a Rule 14a-8 proposal regarding a procedure to
include shareholder nominees for director in a company's proxy
materials should be required to provide additional disclosure (e.g.,
disclosure about its long-term interest in the company and intentions
regarding the shareholder proposal) so that other shareholders could
make a fully-informed voting decision.\690\ They argued that disclosure
at the time of a nomination pursuant to such a procedure would relate
only to the election of specific nominees; it would not provide
shareholders with enough information to make a voting decision on the
proposed procedure and its effect.
---------------------------------------------------------------------------

    \688\ Shareholders submitting a proposal that seeks to establish
a procedure under a company's governing documents for the inclusion
of one or more shareholder director nominees in the company's proxy
materials would be subject to Rule 14a-8's current requirements. See
footnote 685 above.
    \689\ See letters from CII; Florida State Board of
Administration; United Brotherhood of Carpenters.
    \690\ See letters from ICI; Keating Muething; O'Melveny & Myers.
---------------------------------------------------------------------------

    As we stated in the Proposing Release, it is our view that
disclosure at the time a nominee is submitted and an actual vote is
taken on a shareholder nominee is sufficient. Therefore, we are not
adopting any new disclosure requirements for a shareholder simply
submitting such a proposal because we believe that a shareholder may
simply want to amend the company's procedures for including shareholder
nominees in company proxy materials, but may not intend to nominate any
particular individual.\691\
---------------------------------------------------------------------------

    \691\ 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
specific type of disclosure along with their proposal.

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

    In proposing amendments to Rule 14a-8(i)(8), we noted that the
amendments could result in shareholder proposals 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,\692\ or a company may choose to amend its governing documents, to
establish nomination or disclosure provisions in addition to those
provided pursuant to Rule 14a-11 (e.g., a company could choose to allow
shareholders to have their nominees included in the company's proxy
materials regardless of ownership--in that instance, the company's
provision would apply for certain shareholders who otherwise could not
have their nominees included in the company's proxy materials pursuant
to Rule 14a-11). Accordingly, we proposed amendments to our proxy rules
to address the disclosure requirements when a nomination is made
pursuant to such a provision.\693\
---------------------------------------------------------------------------

    \692\ See North Dakota Publicly Traded Corporations Act, N.D.
Cent. Code Sec.  10-35-08 (2009). In 2007, North Dakota amended its
corporate code to permit five percent shareholders to provide a
company notice of intent to nominate directors and require the
company to include each such shareholder nominee in its proxy
statement and form of proxy. See N.D. Cent. Code Sec.  10-35 et al.
(2007).
    \693\ See proposed Rule 14a-19.
---------------------------------------------------------------------------

    As 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, under the Proposal, 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.\694\
---------------------------------------------------------------------------

    \694\ See proposed Rule 14a-19.
---------------------------------------------------------------------------

    Specifically, the notice on Schedule 14N, as proposed, would be
required to include:

 A statement 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; \695\
---------------------------------------------------------------------------

    \695\ 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, as
applicable, for inclusion in the company's proxy statement; \696\
---------------------------------------------------------------------------

    \696\ 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; \697\
---------------------------------------------------------------------------

    \697\ See proposed Rule 14a-19(c).
---------------------------------------------------------------------------

 Disclosure about whether the nominating shareholder or any
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; \698\
---------------------------------------------------------------------------

    \698\ 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 direct or indirect material 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; \699\ and
---------------------------------------------------------------------------

    \699\ See proposed Rule 14a-19(e).
---------------------------------------------------------------------------

 Disclosure of any Web site address on which the nominating
shareholder or group may publish soliciting materials.\700\
---------------------------------------------------------------------------

    \700\ See proposed Rule 14a-19(f).

These disclosures would be included in the company's proxy materials
pursuant to proposed new Item 7(f) of Schedule 14A, or in the case of
investment companies, proposed Item 22(b)(19) of Schedule 14A.
    In addition, under the Proposal, 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 did not receive a significant amount of comment specifically
addressing proposed Rule 14a-19. One commenter believed that the
disclosure requirements of Rules 14a-18 and 14a-19 should be virtually
identical.\701\ The commenter highlighted certain discrepancies, such
as the intent to retain the requisite shares through, and subsequent
to, the date of election. Another commenter saw no need for a separate
rule to deal with nominations submitted under State law or a company's
governing documents and therefore urged the Commission not to adopt
Rule 14a-19.\702\ The commenter believed there are no policy grounds to
justify disparate treatment of nominations submitted under State law or
a company's governing documents. It warned that a separate rule would
only create confusion. Another commenter

suggested that we extend the disclosure requirement to nominations
submitted pursuant to a provision under foreign law.\703\
---------------------------------------------------------------------------

    \701\ See letter from P. Neuhauser.
    \702\ See letter from Cleary.
    \703\ See letter from Curtis.
---------------------------------------------------------------------------

    As we stated in the Proposing Release, 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;
thus, we are adopting the disclosure requirement largely as
proposed.\704\ As noted above, one commenter suggested that the
disclosure standard should apply to nominations made pursuant to
foreign law. We agree that the disclosure is necessary regardless of
the source of the ability to nominate candidates for director. We
therefore have clarified that the disclosure requirement extends not
only to nominations made pursuant to State law or a company's governing
documents, but also pursuant to foreign law (in the case of a non-U.S.
domiciled company that does not qualify as a foreign private issuer).
We continue to believe that these disclosures will 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. We understand the
concern that a separate disclosure rule for nominations made pursuant
to State or foreign law provisions, or a company's governing documents
could create confusion. We note, however, that certain disclosure
provisions or certifications applicable to Rule 14a-11 nominations may
not be applicable to nominations made pursuant to other provisions. For
example, State or foreign law provisions, or the company's governing
documents may require different ownership thresholds or holding
periods. Therefore, we believe it is necessary to have separate
disclosure requirements for nominations made pursuant to State or
foreign law, or a company's governing documents. As with disclosures
made in connection with a Rule 14a-11 nomination, the nominating
shareholder or group would be liable for any materially false or
misleading statements in these disclosures pursuant to new paragraph
(c) of Rule 14a-9.\705\
---------------------------------------------------------------------------

    \704\ As noted in footnote 511 above, the applicable disclosure
requirement in Item 401(f) of Regulation S-K was amended in the
Proxy Disclosure Enhancements Adopting Release to require disclosure
regarding legal proceedings for the past 10 years as opposed to past
five years. Thus, disclosure would be required about a nominee's or
nominating shareholder's participation in legal proceedings during
the past 10 years. We also are making clarifying changes to the
disclosure required regarding the nature and extent of relationships
between the nominating shareholder or group and/or nominee and/or
the company or its affiliates. See footnote 514 and accompanying
text in Section II.B.8.c.i. above.
    \705\ See proposed Rule 14a-9(c).
---------------------------------------------------------------------------

    As noted above, we have restructured Rule 14a-11, Rule 14a-18, and
Schedule 14N. Similarly, while we are adopting the disclosure
requirements largely as proposed in Rule 14a-19,\706\ they are now
included in Item 6 of Schedule 14N. In addition, because we moved the
disclosure requirements for Rule 14a-11 from proposed Rule 14a-18 into
Schedule 14N, the requirements for shareholders submitting nominations
pursuant to a provision in State law or a company's governing documents
are being adopted as new Rule 14a-18.
---------------------------------------------------------------------------

    \706\ As adopted, Item 6(d) of Schedule 14N will require
disclosure about a nominating shareholder's involvement in legal
proceedings during the past ten years, rather than five years as was
proposed. This is due to the Commission's recent amendment of Item
401(f) of Regulation S-K. See footnotes 511 and 704 above.
---------------------------------------------------------------------------

    Under the Proposal, a shareholder submitting a nomination pursuant
to a State law provision or a provision in a company's governing
documents would be required to file a Schedule 14N (with the
disclosures required by that Schedule) by the date specified in the
advance notice provision, or where no such provision is in place, no
later than 120 calendar days before the date the company mailed its
proxy materials for the prior year's annual meeting.\707\ We are
adopting this requirement as proposed. We note that it is likely that a
State or foreign law provision or a provision in a company's governing
documents will provide a deadline for submission of nominations made
pursuant to those provisions. While we believe that shareholders
submitting nominations pursuant to those provisions should provide the
disclosure required by Schedule 14N, we believe it is appropriate to
defer to the deadline, if any, set forth in those provisions. In this
regard, we note that timing concerns present in the Rule 14a-11
nomination context (e.g., timing requirements for engaging in the staff
no-action process) are not present in this context.
---------------------------------------------------------------------------

    \707\ If a company did not hold an annual meeting during the
prior year, or if the date of the meeting has changed by more than
30 calendar days from the prior year, then the nominating
shareholder or group must provide notice a reasonable time before
the registrant mails its proxy materials.
---------------------------------------------------------------------------

D. Other Rule Changes

1. Disclosure of Dates and Voting Information
    As proposed, if a company did not hold an annual meeting during the
prior year, or if the date of the meeting has changed by more than 30
days from the prior year, within four business days of determining the
anticipated meeting date a company would be required to file a Form 8-K
to disclose the date by which a nominating shareholder or group must
submit notice to include a nominee in the company's proxy materials
pursuant to Rule 14a-11.\708\ The date disclosed as the deadline for
such shareholder nominations for director would be required to be a
reasonable time before the company mails its proxy materials for the
meeting. We also proposed to require a registered investment company
that is a series company to file a Form 8-K disclosing the company's
net assets as of June 30 of the calendar year immediately preceding the
calendar year of the meeting and the total number of the company's
shares that are outstanding and entitled to vote for the election of
directors (or if votes are to be cast on a basis other than one vote
per share, then the total number of votes entitled to be voted and the
basis for allocating votes) at the annual meeting of shareholders (or,
in lieu of such an annual meeting, a special meeting of shareholders)
as of the end of the most recent calendar quarter.
---------------------------------------------------------------------------

    \708\ See proposed Item 5.07 to Form 8-K.
---------------------------------------------------------------------------

    We did not receive much comment on this aspect of the rule. One
commenter urged the Commission not to require the Form 8-K filing for
investment companies, which generally are not required to file Form 8-
K.\709\ The commenter favored instead a requirement for investment
companies to inform shareholders through another method (or combination
of methods) of disclosure reasonably designed to provide notice of the
date, including via a press release or posting information on the
company's Web site. One commenter supported the proposed instruction to
Item 5.07 of Form 8-K.\710\
---------------------------------------------------------------------------

    \709\ See letter from ICI.
    \710\ See letter from ABA.
---------------------------------------------------------------------------

    We are adopting this requirement substantially as proposed,
although the requirement will be in new Item 5.08 of Form 8-K. A
company will be required to file a Form 8-K, within four business days
of determining the anticipated date of the meeting, disclosing the date
by which a nominating shareholder or group must submit notice to
include a nominee in the company's proxy

materials pursuant to Rule 14a-11, which date shall be a reasonable
time before the registrant mails its proxy materials for the
meeting.\711\ We also have clarified that where a company is required
to include shareholder director nominees in the company's proxy
materials pursuant to an applicable state or foreign law provision, or
a provision in the company's governing documents then the company is
required to disclose the date by which a nominating shareholder or
nominating shareholder group must submit the Schedule 14N required
pursuant to Rule 14a-18.
---------------------------------------------------------------------------

    \711\ See new Item 5.08 of Form 8-K and new General Instruction
B.1. to Form 8-K. A late filing of such form would result in the
registrant not being current or timely for purposes of rules and
regulations related to form eligibility and the resale of
securities. The company would be deemed current once the Form 8-K is
filed.
---------------------------------------------------------------------------

    A registered investment company that is a series company also must
disclose the total number of the company's shares that are outstanding
and entitled to vote for the election of directors (or if votes are to
be cast on a basis other than one vote per share, then the total number
of votes entitled to be voted and the basis for allocating such votes)
at the shareholder meeting as of the end of the most recent calendar
quarter.\712\ We believe it is important to provide shareholders with
information regarding the deadline for submitting such nominations in
the event that the date of the meeting at which the election of
directors will take place changes significantly. Moreover, we have
decided to require registered investment companies to make the
disclosures on Form 8-K, as proposed, rather than through another
method or combination of methods because we believe that the
information that we are requiring is important information that should
be filed with the Commission and accessible on EDGAR rather than merely
disclosed on a Web site or in a press release.\713\
---------------------------------------------------------------------------

    \712\ See General Instruction B.1 and Item 5.08(b) of Form 8-K;
Rules 13a-11(b)(3) and 15d-11(b)(3); and Instruction 2 to Rule 14a-
11(b)(1). In the case of registered investment companies, nominating
shareholders may rely on the information contained in the Form 8-K
filed in connection with the meeting, unless the nominating
shareholder or group knows or has reason to know that the
information contained therein is inaccurate. See discussion in
footnote 280.
    \713\ We are not adopting the proposed requirement that a
registered investment company that is a series company file a Form
8-K disclosing the company's net assets as of June 30 of the
calendar year immediately preceding the calendar year of the
meeting. We proposed this requirement in connection with our
proposal to use tiered thresholds based on net assets to determine
eligibility under Rule 14a-11. Since the rule we are adopting does
not use tiered thresholds, the proposed requirement is no longer
necessary.
---------------------------------------------------------------------------

    Exchange Act Rule 14a-5 requires registrants to disclose in a proxy
statement the deadlines for submitting shareholder proposals and
matters submitted pursuant to advance notice bylaws. We are amending
Rule 14a-5 to also require companies to disclose the deadline for
submitting nominees for inclusion in the company's proxy materials for
the company's next annual meeting of shareholders. This provision will
apply with respect to inclusion of nominations in a company's proxy
materials pursuant to Rule 14a-11, an applicable state or foreign law
provision, or a company's governing documents.\714\ We believe that it
is necessary to conform the existing requirements in Rule 14a-5,
consistent with the proposal to give adequate notice to shareholders
about their ability to submit a nominee or nominees for inclusion in a
company's proxy materials pursuant to Rule 14a-11. The change should
help to avoid any potential confusion regarding the date by which
shareholders seeking to have a nominee included in a company's proxy
materials would need to submit a Schedule 14N pursuant to Rule 14a-11
or Rule 14a-18.
---------------------------------------------------------------------------

    \714\ See new Rule 14a-5(e)(3).
---------------------------------------------------------------------------

2. Beneficial Ownership Reporting Requirements
    As adopted, Rule 14a-11 requires that a nominating shareholder or
group hold at least 3% of the voting power of the company's securities
entitled to be voted on the election of directors. Although unnecessary
to be able to use the rule, it is possible that in aggregating shares
to meet the ownership requirement, a nominating shareholder or group
will trigger the reporting requirements of Regulation 13D-G, which
requires that a shareholder or group that beneficially owns more than
5% of a voting class of any equity security registered pursuant to
Section 12 file beneficial ownership reports.\715\ 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. Any person (which
includes a group as defined in Rule 13d-5(b)(1)) 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.\716\ There are exceptions to this requirement, however,
that permit such a person to report that ownership on Schedule 13G
rather than Schedule 13D. 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.\717\ A second exception applies to persons who
beneficially own more than 5% of a subject class of securities 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.\718\
---------------------------------------------------------------------------

    \715\ The term equity security also includes any equity security
of any insurance company which would have been required to be
registered pursuant to Section 12 of the Exchange Act except for the
exemption contained in Section 12(g)(2)(G) of the Act or any equity
security issued by a closed-end investment company registered under
the Investment Company Act of 1940. See Exchange Act Rule 13d-1(i).
    \716\ See Exchange Act Rule 13d-1.
    \717\ See Exchange Act Rule 13d-1(b).
    \718\ See Exchange Act Rule 13d-1(c).
---------------------------------------------------------------------------

    Central to Schedule 13G eligibility under the exceptions discussed
above 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. Typically, persons
who seek to nominate candidates for a company's board of directors
would be unable to meet these eligibility requirements to file on
Schedule 13G. As we stated in the Proposing Release, however, 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, or soliciting activities in connection with such a
nomination (including soliciting in opposition to a company's nominees)
should not result in a nominating shareholder or nominating shareholder
group losing its eligibility to file on Schedule 13G. As a result, we
proposed to revise the requirement that the first and second categories
of persons who may report their ownership on Schedule 13G must have
acquired the securities without the purpose or effect of changing or
influencing control of the company and, in the case of Rule 13d-1(b),
in the ordinary course of business, to provide an exception for
activities solely in connection with a nomination under Rule 14a-11.

    Comments on the proposal were mixed. Some commenters generally
supported the proposed exceptions from the Schedule 13D filing
obligation for a nominating shareholder or group conducting activities
solely in connection with a Rule 14a-11 nomination so that it would be
eligible to report on Schedule 13G rather than Schedule 13D.\719\ One
such commenter added that the exceptions also should be available to a
nominating shareholder or group submitting nominees pursuant to State
law or a company's governing documents.\720\ One commenter predicted
the amendment would encourage use of Rule 14a-11 by large shareholders
who are knowledgeable about the company but may be reluctant to take
action that may jeopardize their Schedule 13G filer status.\721\ One
commenter observed more generally that a Schedule 13D filing is
unnecessary if the filing requirement of Rule 14a-2(b)(7) is retained
because such filings would provide sufficient notice to the
market.\722\ Even if such filing requirement is not retained, the
commenter believed that a Schedule 13D is unnecessary because the
underlying assumption of Rule 14a-11 is that there is no control
intent.
---------------------------------------------------------------------------

    \719\ See letters from CalSTRS; CFA Institute; CII; Florida
State Board of Administration; ICI; Schulte Roth & Zabel. Another
commenter, ICGN, did not expressly address the proposed amendment
but asked the Commission to clarify the definition of ``group'' so
that shareholders would not be dissuaded from acting collectively to
use Rule 14a-11 out of concern that a Schedule 13D filing obligation
would arise.
    \720\ See letter from CII. In contrast, two commenters stated
that the proposed exceptions should not be extended outside the
context of Rule 14a-11, and agreed that it would not be possible to
address the eligibility standards in provisions of State law or a
company's governing documents or ensure that there is no change in
control attempt. See letters from ABA; Alston & Bird.
    \721\ See letter from Schulte Roth & Zabel.
    \722\ See letter from P. Neuhauser.
---------------------------------------------------------------------------

    On the other hand, other commenters opposed generally the proposed
exceptions from the Schedule 13D filing obligation.\723\ Some of these
commenters expressed reservations about creating a broad exemption or
carve-out from Exchange Act Section 13(d) ``control'' concepts.\724\
One commenter noted that Rules 13d-1(b), (c) and (e) track the use of
the phrase ``changing or influencing control of the issuer'' from
Exchange Act Section 13(d)(5).\725\ This commenter did not believe
there is a persuasive basis for the Commission to provide that, under
all circumstances, a shareholder or group seeking to nominate a
director, in opposition to the election of incumbent directors, is not
seeking to ``influence'' control of the company. One commenter stated
that most election contests would fall within the concept of
``influencing the control of the issuer'' because they focus on the
governance, strategic direction and policy initiatives of the
company.\726\ Another commenter noted that the Schedule 14N
certifications require only that a nominating shareholder has no
intention of ``changing control'' of the company, but does not require
the nominating shareholder to certify that it has no intention of
``influencing control.'' \727\ Several commenters expressed concerns
about inadequate disclosures that would result from the proposed
exceptions or pointed to the useful disclosure required by Schedule
13D.\728\ One commenter observed that if a nominating shareholder or
group has no plans regarding significant changes in the company or
relationships with other parties regarding securities of the company, a
Schedule 13D filing would not require significant information from a
nominating shareholder or group beyond that required by Schedule
14N.\729\ This commenter noted that if a nominating shareholder or
group, however, has more complicated relationships or intentions
relating to the company or its securities, the Schedule 13D filing
would provide additional information that shareholders would find
useful.\730\
---------------------------------------------------------------------------

    \723\ See letters from ABA; Alston & Bird; BRT; Cleary;
Microsoft; Seven Law Firms; Shearman & Sterling; Society of
Corporate Secretaries; Vinson & Elkins.
    \724\ See letters from ABA; Cleary; Microsoft; Seven Law Firm;
Shearman & Sterling.
    \725\ See letter from ABA.
    \726\ See letter from Seven Law Firms.
    \727\ See letter from ABA.
    \728\ See letters from ABA; Alston & Bird; BRT; Seven Law Firms;
Society of Corporate Secretaries; Vinson & Elkins.
    \729\ See letter from ABA.
    \730\ Id
---------------------------------------------------------------------------

    We continue to believe that it is appropriate to provide an
exception for activities solely in connection with a nomination
pursuant to Rule 14a-11 to allow a nominating shareholder or group to
report on Schedule 13G. Accordingly, we are adopting, as proposed, the
exception from the requirement to file a Schedule 13D (and therefore
permitting filing on Schedule 13G) for activities undertaken solely in
connection with a nomination under Rule 14a-11. In addition, we are
adopting a change to the certifications in Schedule 13G to reflect this
exception.\731\
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    \731\ We did not propose the change to the certifications in
Schedule 13G; however, we believe this conforming change is
necessary to reflect the intent of the exception.
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    It is important to note that any activity other than those provided
for under Rule 14a-11 would make the exception inapplicable. For
example, approaching a company's board and urging them to consider
strategic alternatives (e.g., sale of non-core assets or a leveraged
recapitalization) would constitute activities outside of the Rule 14a-
11 nomination, and any nominating shareholder or group engaging in such
activities most likely would be ineligible to file on Schedule 13G. The
rule changes will not apply to nominating shareholders or groups that
submit a nomination pursuant to an applicable state or foreign 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 a number of seats
on the board of directors that exceeds the maximum number of nominees
that the registrant could be required to include under Rule 14a-11 (as
is the case under Rule 14a-11). Accordingly, we do not believe it would
be appropriate to make a general determination by rule as to whether a
nominating shareholder or group under an applicable state or foreign
law provision, or a company's governing documents would be eligible to
file on Schedule 13G. Instead, this would be a fact-specific inquiry.
    We believe that the disclosures about the nominating shareholder or
group required by Rule 14a-11 and Schedule 14N are adequate to allow
shareholders to make an informed decision and to keep the market
apprised of developments regarding board nomination activities, and do
not believe that requiring the additional disclosures in Schedule 13D
is necessary for activities solely in connection with a nomination
under Rule 14a-11. Because this exception is only available for
purposes of the nomination, 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 after the election.
For example, if a nominating shareholder is also the nominee and is
successfully elected to the board, then the shareholder would likely be
ineligible to continue filing on Schedule 13G due to its ability as a
director to directly or indirectly influence the management and
policies of the company. We believe the limited scope of the exemption
addresses commenters'

concerns about nominating shareholders or groups influencing control of
the issuer while reporting on Schedule 13G.
3. Exchange Act Section 16
    Section 16 \732\ 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. We did not propose an exemption from Section 16 for groups
formed solely for the purpose of nominating a director pursuant to Rule
14a-11.\733\ In the Proposal, we explained that we believed the
existing analysis of whether a group has formed \734\ and whether
Section 16 applies \735\ should continue to apply. We also explained
that because the proposed ownership thresholds for Rule 14a-11 were
significantly lower than 10%, we did not believe that the lack of an
exclusion would have a deterrent effect on the formation of groups, and
therefore did not believe it was necessary to propose an exclusion from
Section 16.
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    \732\ 15 U.S.C. 78p.
    \733\ As discussed in the Proposing Release, the Commission had
previously proposed, in 2003, that a group formed solely for the
purpose of nominating a director pursuant to Rule 14a-11, soliciting
in connection with the election of that nominee, or having that
nominee elected as a director be exempted from Exchange Act Section
16 reporting.
    \734\ See Exchange Act Rule 13d-5(b) [17 CFR 240.13d-5(b)].
    \735\ See Exchange Act Rule 16a-1(a)(1) [17 CFR 240.16a-
1(a)(1)].
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    We also noted in the Proposal that some shareholders, particularly
institutions and other entities, may be concerned that successful use
of 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.\736\ 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 did not propose standards for establishing the
independence of the nominee from the nominating shareholder, or members
of the nominating shareholder group.
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    \736\ See Feder v. Martin Marietta Corp., 406 F.2d 260 (2d Cir.
1969), 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.
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    Although we did not propose an exemption from Section 16, we
requested comment on, among other things, whether a nominating
shareholder group should be excluded from Section 16 and whether
subjecting such groups to Section 16 would be a disincentive to using
Rule 14a-11. A few commenters recommended that the Commission create an
exemption from Section 16 for a group of shareholders that aggregated
their holdings in order to submit a nominee pursuant to Rule 14a-
11.\737\ Commenters reasoned that members of a nominating group that
owns more than 10% of the shares could not reasonably be considered
company ``insiders.'' \738\ These commenters noted that the group would
exist for the sole purpose of nominating a candidate and, absent
special facts, would have no access to inside information about the
company. Thus, these commenters argued that the statutory purpose of
Section 16--the prevention of insider trading--would not be relevant to
such groups. Other commenters did not support an exemption from Section
16.\739\ Some of these commenters further agreed that no standard
should be adopted regarding application of the judicial doctrine
concerning ``deputized directors.'' \740\
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    \737\ See letters from ICI; Schulte Roth & Zabel; ValueAct
Capital.
    \738\ See letters from ICI; Schulte Roth & Zabel.
    \739\ See letters from ABA; Alston & Bird; CII; Seven Law Firms.
    \740\ See letters from ABA; CII; Seven Law Firms.
---------------------------------------------------------------------------

    After considering the comments, we continue to believe that an
exclusion from Section 16 is not appropriate for groups formed solely
for the purpose of nominating a director pursuant to Rule 14a-11,
soliciting in connection with the election of that nominee, or having
that nominee elected as director. We also believe that it is not
necessary to change the existing analysis of whether a group has formed
and whether Section 16 applies. Because the ownership threshold we are
adopting for Rule 14a-11 eligibility is significantly less than 10%,
shareholders will be able to form groups with holdings sufficient to
meet the Rule 14a-11 threshold without reaching the 10% threshold in
Section 16. Thus, we do not believe that Section 16 commonly will be a
deterrent to use of Rule 14a-11. As such, we believe that shareholders
forming a group to submit a nominee for director pursuant to Rule 14a-
11 should be analyzed in the same way as any other group for purposes
of determining whether group members are 10% owners subject to Section
16. Similarly, we are not adopting standards regarding application of
the ``deputized director'' doctrine, which will be left to existing
case law and courts.
4. Nominating Shareholder or Group Status as Affiliates of the Company
    We proposed that Rule 14a-11(a) contain a safe harbor providing
that a nominating shareholder would not be deemed an ``affiliate'' of
the company under the Securities Act or the Exchange Act solely as a
result of using Rule 14a-11.\741\ Under the Proposal, this safe harbor
would apply not only to the nomination of a candidate, but also where
that candidate is elected, provided that the nominating shareholder or
group does not have an agreement or relationship with that director
otherwise than relating to the nomination. We were concerned that,
without such a safe harbor, some nominating shareholders may be
deterred from using Rule 14a-11.
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    \741\ This safe harbor was set forth in Instruction 1 to
proposed Rule 14a-11(a). The safe harbor was intended to operate
such that the determination of whether a shareholder or group is an
``affiliate'' of the company would continue to be made based upon
all of the facts and circumstances regarding the relationship of the
shareholder or group to the company, but a shareholder or group
would not be deemed an affiliate ``solely'' by virtue of having
nominated that director.
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    We solicited comment on the appropriateness of the proposed safe
harbor and posed some specific questions concerning its application. We
also asked whether we should include a similar safe harbor provision
for nominating shareholders that submit a nominee for inclusion in a
company's proxy materials pursuant to an applicable State law provision
or a company's governing documents rather than using the proposed rule.
    Three commenters provided statements of general support for the
proposed safe harbor.\742\ One commenter believed that a safe harbor
also would be warranted for shareholders submitting nominees pursuant
to State law or a company's governing documents.\743\ Another commenter
believed the safe harbor should not be available once the shareholder
nominee is elected.\744\ One commenter recommended that Instruction 1
to Rule 14a-11(a) clarify that the presence of agreements, other than
those relating only to the nomination, between a nominating shareholder
and a candidate or director

would not necessarily confer affiliate status on the nominating
shareholder, and that Rule 14a-11 is not intended to change the current
law regarding affiliate status.\745\
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    \742\ See letters from CII; Protective; Schulte Roth & Zabel.
    \743\ See letter from CII.
    \744\ See letter from Protective.
    \745\ See letter from Schulte Roth & Zabel. The commenter
explained that nominees often request agreements, such as
indemnification agreements, that clearly relate only to their
nomination. In other situations, however, nominees and nominating
shareholders enter into other agreements, including compensation
agreements, which may not relate exclusively to the nomination.
---------------------------------------------------------------------------

    Two commenters opposed the safe harbor.\746\ One commenter believed
that we should not adopt such a safe harbor without addressing the
issue of affiliate status more broadly.\747\ It argued that as long as
the Commission follows the historical, facts-and-circumstances analysis
for the determination of affiliate status in other contexts, it also
should follow this practice in the context of Rule 14a-11. Both
commenters opposing the safe harbor also did not believe that proposed
Instruction 1 to Rule 14a-11(a) would significantly reduce the
interpretive analysis needed to determine whether a nominating
shareholder is an ``affiliate.'' \748\ They argued that it rarely would
be clear whether a nominating shareholder's relationship with the
company would consist ``solely'' of its nominating and soliciting
activities, no matter how a safe harbor may be worded. They also
expressed concern that the safe harbor would discourage nominating
shareholders from participating in potentially fruitful discussions
with the company, for fear that such participation would go beyond
``solely'' nominating and soliciting for a director candidate.
---------------------------------------------------------------------------

    \746\ See letters from ABA; Seven Law Firms.
    \747\ See letter from ABA.
    \748\ See letters from ABA; Seven Law Firms.
---------------------------------------------------------------------------

    After considering the comments, we do not believe that the proposed
safe harbor would provide a level of certainty to nominating
shareholders concerning their potential ``affiliate'' status sufficient
to warrant a departure from the current application of the term. We
believe it is more appropriate to conduct a facts-and-circumstances
analysis in this regard, as would currently be the case in other
situations. We agree with commenters' views on the limited utility of
the safe harbor's application in practice, acknowledging that a
nominating shareholder would be obligated to conduct a facts-and-
circumstance analysis to determine affiliate status even if we were to
adopt the safe harbor as proposed. We also recognize that some
nominating shareholders or members of nominating shareholder groups may
be reluctant to engage in certain activities that would further the
general purpose of Rule 14a-11 due to concerns that such activities
would jeopardize their ability to use the safe harbor.
    In this light, it does not appear that the proposed safe harbor
would meaningfully facilitate use of Rule 14a-11, if at all, and may,
in fact, deter it because some nominating shareholders or members of
nominating shareholder groups may limit their activities out of concern
that their activities would jeopardize reliance on the safe harbor.
Accordingly, we have decided neither to adopt a safe harbor under the
rule nor to adopt a similar safe harbor for shareholders submitting
nominees pursuant to State law or a company's governing instruments.
Instead, as is currently the case in other contests, those who use the
rule will need to analyze affiliate status on a case-by-case basis,
taking into consideration all relevant facts and circumstances,
including the circumstances surrounding a nomination and election of a
shareholder nominee.

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 or foreign law provision, or a
company's governing documents to include a nominee in company proxy
materials be liable for any statement included in the Schedule 14N or
other related communications, or which it causes to be included in a
company's proxy materials, which, at the time and in light of the
circumstances under which it is made, is false or misleading with
respect to any material fact or omits to state any material fact
necessary to make the statements therein not false or misleading. To
this end, we proposed to add a new paragraph (c) to Rule 14a-9 to
specifically address a nominating shareholder's or group's liability
when providing information on a Schedule 14N to be included in a
company's proxy materials pursuant to Rule 14a-11.
    As proposed, new paragraph (c) stated 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 a solicitation for the same meeting or subject matter which
has become false or misleading.''
    Commenters generally supported the proposal to impose Rule 14a-9
liability on nominating shareholders or groups that caused false or
misleading statements to be included in a company's proxy materials.
One commenter supported the use of Rule 14a-9 as the standard for
assigning liability, as the standards under that rule are well known
and therefore would promote uniformity.\749\ The commenter further
stated that Rule 14a-9(c) makes sufficiently clear that a nominating
shareholder or group would be liable for statements included in its
Schedule 14N or notice to the company that is included in the company's
proxy materials. As for the consequences of providing materially false
information or representations in a Schedule 14N, the commenter stated
that such a situation should be handled in the same way as materially
false statements or omissions in a Schedule 14A or other soliciting
material filed in connection with a proxy contest. Another commenter
suggested that the disclosure provided to the company by the nominating
shareholder or group and included in the company's proxy materials be
treated as the shareholder's or group's soliciting materials.\750\ The
commenter did not believe that Rule 14a-9(c) makes 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. One commenter stated that members of