September 16, 2004

Corp Fin Issues New Staff

Yesterday, Corp Fin issued its third Staff Legal Bulletin on shareholder proposals – SLB 14B. The big news is that Corp Fin has followed-up on its warnings and “clarified” its views on Rule 14a-8(i)(3) – which is the exclusion basis for false and misleading statements – by creating a more objective and higher standard for companies that seek to modify proposals and supporting statements.

Noting that nearly half of no-action requests now argue for modification under (i)(3) – which is a huge resource drain for Corp Fin – the Staff has narrowed (i)(3) so that it will only entertain modification of proposals and supporting statements if a company argues that they are materially false and misleading under the following 4 categories (the labels are mine):

1. Reputation Killer – statements directly or indirectly impugn character, integrity, or personal reputation, or directly or indirectly make charges concerning improper, illegal, or immoral conduct or association, without factual foundation

2. Objectively False Fact – the company demonstrates objectively that a factual statement is materially false or misleading

3. Crazy – the resolution contained in the proposal is so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires — this objection also may be appropriate where the proposal and the supporting statement, when read together, have the same result

4. Unrelated Supporting Statement – substantial portions of the supporting statement are irrelevant to a consideration of the subject matter of the proposal, such that there is a strong likelihood that a reasonable shareholder would be uncertain as to the matter on which she is being asked to vote

The SLB also contains a list of circumstances under which it won’t entertain (i)(3)
arguments anymore, such as unsupported or disputed facts, opinions, or facts that companies don’t like. The bottom line is that companies now face a much greater burden of proof to convince the Staff that something is false and misleading – so warn your CEO and IR officers now that next year’s proxy statement may contain language that they don’t like.

The SLB also contains a reminder about how to draft defect notices, such as pulling directly from Rule 14a-8(b). It addresses when supporting legal opinions should be submitted – and how it might entertain requests that don’t meet the 80-day deadline in Rule 14a-8(j) for “good cause.”

How the Staff Processes No-Action Requests

The final part of Staff Legal Bulletin 14B sheds light on how Corp Fin processes no-action requests – and this includes some interesting items, such as:

– Since all materials are eventually placed in the public domain, the Staff seeks all arguments in writing and states that it won’t discuss substantive matters over the phone.

– The Staff might fax a response – rather than mail it, which often means that commercial databases find it first – if you include all your contact info as well as all the contact info of the proponent. In other words, if you want it faxed – which you do so that you find out first what the response is – obtain the proponent’s fax number and provide that to the Staff.

Stock Ownership Guidelines With “Hold ‘Til Retirement” Provisions

On, we have posted two new practice pointers from Robbi Fox regarding “hold ’til retirement” stock ownership guidelines – one that is a survey and one that lists companies that presently have such provisions in their guidelines. To see all the practice pointers we have posted, see this chronological list that you can check under the “Practice Pointers” button on the home page.

To access these pointers today, register for the October 20th Major Compensation Conference now!