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Chapter 4 Deadline for Seeking No-Action Relief

§ 4.01 Deadline for No-Action Request

[A] History of the Deadline

[B] Purpose of the Deadline

§ 4.02 Obtaining a Waiver of the Deadline

[A] Identifying the Key Issues

[B] Delay Caused by Proponent's Tardiness

[1] Grant of Waiver and Exclusion Allowed

[2] Grant of Waiver But No Exclusion Allowed

[C] Delay Caused by Company's Tardiness

[1] Decline to Waive Deadline But Address Other Bases

[2] Decline to Grant Waiver and Exclusion Not Allowed

§ 4.03 Exclusion Without Staff Relief

§ 4.04 Practice Pointers

Chapter 4 Deadline for Seeking No-Action Relief

Chapter 4 Deadline For Seeking No-action Relief

Rule 14a-8(j) — former Rule 14a-8(d)

(j) Question 10: What procedures must the company follow if it intends to exclude my proposal?

(1) If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.

§ 4.01 Deadline for No-Action Request

Under Rule 14a-8(j)(1), a company must submit its request to the Office of Chief Counsel no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the SEC.

Failure to comply with the 80-day deadline can result in the forfeiture of the right to exclude a proposal.

§ 4.01[A] History of the Deadline

In 1942, the SEC adopted the shareholder proposal rule, which included a provision that required proponents to provide reasonable notice of their intention to attend a meeting and present a proposal.[fn1]

In 1947, the SEC revised the rule to require proponents to submit their proposals and supporting statements to companies at the time they gave their notice that they intended to present a proposal at a meeting.[fn2]

In 1954, the SEC established a deadline for companies to request no-action relief, 20 days before they intend to file preliminary proxy materials with the SEC (or a shorter period if good cause could be shown).[fn3]

In 1972, the SEC increased the number of days that a company had to request no-action relief from 20 to 30 days before the proxy mailing date. The SEC also added a Note that recommended that proponents submit their proposals to companies by certified mail-return receipt requested and changed the proxy statement disclosure requirements so that the date of the proxy statement and address of the company's principal executive offices were on the front cover.[fn4]

In 1976, the SEC further extended the period to 50 days before filing preliminary proxy materials for a company to file a request for a no-action letter.[fn5]

In 1983, the SEC further extended the period to 80 days before filing definitive proxy materials for a company to file a request for a no-action letter.[fn6]

[fn1] Exchange Act Release No. 3347, 1942 SEC LEXIS 44 (Dec. 18, 1942).

[fn2] Exchange Act Release No. 4037, 1947 SEC LEXIS 424 (Dec. 17, 1947).

[fn3] Exchange Act Release No. 4979, 1954 SEC LEXIS 38 (Jan. 6, 1954).

[fn4] Exchange Act Release No. 9784, 1972 SEC LEXIS 155 (Sept. 22, 1972).

[fn5] Exchange Act Release No. 12,999, 1976 SEC LEXIS 326 (Nov. 22, 1976).

[fn6] Exchange Act Release No. 20,091, 1983 SEC LEXIS 1011 (Aug. 16, 1983).

§ 4.01[B] Purpose of the Deadline

The purpose of the 80-day deadline is to provide the SEC staff with sufficient time to process and review each no-action request it receives. After the staff provides its response, the parties may either need to take action as directed by the staff or may wish to appeal the staff's decision. As a result, a limited period of time for further action is built into the schedule.

All of these steps must be taken in a timely manner so that a company can print and deliver its proxy materials, allow shareholders adequate time to consider the matters on the ballot and vote their proxies before the shareholders' meeting. The proxy materials include a notice about the upcoming shareholders' meeting that is required by state law, and state law requires that this notice be delivered a certain period of time before a meeting.

§ 4.02 Obtaining a Waiver of the Deadline

A communication that seeks no specific action, but merely purports to express shareholders' views, is inconsistent with the purposes of Rule 14a-8 and is not a "proposal." In 1998, the SEC specifically overturned a prior no-action letter in which the staff had not allowed a company to exclude a "proposal" requesting that shareholders express their dissatisfaction with the company's public position on a controversial political referendum.[fn2]

[fn2] The overturned letter was Pacific Gas & Electric Company, 1997 SEC No-Act. LEXIS 140 (Jan. 21, 1997).

§ 4.02[A] Identifying the Key Issues

While the SEC staff tends to apply the 80-day deadline strictly, it will grant waivers of the deadline if "good cause" can be shown by a company for its failure to timely file its incoming request. This analysis of good cause is based on all the facts and circumstances.

The staff generally interprets the "good cause" standard narrowly, making it difficult for companies to satisfy their burden of proof.

The SEC staff considers waiver requests and exclusion requests independently, so it is not uncommon for the staff to decline to grant a waiver, yet provide a no-action response that allows a company to exclude a proposal on another basis.

§ 4.02[B] Delay Caused by Proponent's Tardiness

Most commonly, a company's argument that the proponent's own tardiness in submitting the proposal adequately justifies a waiver of the deadline for seeking relief. In these cases, companies often argue that they can exclude a proposal because the proponent missed the 120-day deadline to submit the proposal to the company, as required under Rule 14a-8(e). The SEC staff routinely grants waivers on this basis, but only if a company acts expeditiously after receiving the late proposal.

EXAMPLE:

In Fab Industries, Inc.,[fn7] the company was allowed to exclude a proposal requiring the company to retain an outside expert to prepare a study on the liquidation and sale of the company. The proposal was received fewer than 80 days prior to the intended mailing date of the proxy material and therefore the staff granted the request to waive the 80-day requirement. The company stated that the reason for its waiver request was the tardiness of the proponent's proposal.

[fn7] 2000 SEC No-Act. LEXIS 427 (Mar. 23, 2000).

§ 4.02[B][1] Grant of Waiver and Exclusion Allowed

Even though the SEC staff considers waiver and exclusion requests independently, the staff may grant the waiver of the deadline and also allow a company to exclude the proposal pursuant to one of the substantive or procedural bases.

EXAMPLES:

In Captec Net Lease Realty, Inc.,[fn8] the staff granted the waiver because the proponent never established his eligibility to submit a proposal and company had waited for his response before seeking relief.
In Phillips-Van Heusen Corporation,[fn9] the staff granted a waiver because of the nature of the proposal, which sought the discontinuance of all bonuses immediately, and of all options, rights and SARs after termination of any existing programs for top management, as well as the termination of severance contracts. The company noted that its board's compensation committee would need to meet to consider the proponent's request and that the committee was not available before the 80-day deadline. The company argued that the proposal should not by itself accelerate the committee's and board's evaluation of management's compensation.

[fn8] 2000 SEC No-Act. LEXIS 654 (May 22, 2000).

[fn9] 2000 SEC No-Act. LEXIS 580 (Apr. 21, 2000).

§ 4.02[B][2] Grant of Waiver But No Exclusion Allowed

Sometimes the staff grants a waiver of the deadline, but does not allow a company to exclude the proposal.

EXAMPLE:

In CCBT Bancorp, Inc.,[fn10] the proponent successfully included a proposal that had been received fewer than 80 days prior to the company's intended proxy material mailing date. The company argued that because it had received the proposal late, there was no way it could have timely filed its no-action request. The staff did waive the 80-day requirement in this case, but declined to grant any no-action relief on the substantive bases advanced by the company.

[fn10] 1999 SEC No-Act. LEXIS 449 (Apr. 20, 1999).

§ 4.02[C] Delay Caused by Company's Tardiness

§ 4.02[C][1] Decline to Waive Deadline But Address Other Bases

One approach taken by the SEC staff in waiver situations is to decline to grant the waiver, but still provide its advice on the availability of one of the other bases for exclusion. Assuming the staff states that the company has a basis to omit the proposal, this approach leaves companies with a dilemma. On the one hand, the staff has stated that the company can exclude the proposal; on the other hand, the staff has noted that there was a violation of Rule 14a-8 since the request was not timely filed with the staff. If the company chooses to exclude the proposal, the proponent may sue and seek an injunction based on the company's rule violation. As a practical matter, however, it is unlikely that a court would grant an injunction under these circumstances.

Proponents have criticized the staff for its practice of commenting on the availability of an exclusion after rejecting a waiver request because it is inconsistent with staff practice in dealing with proponent tardiness under Rule 14a-8(e).[fn11] In those cases, the staff applies the 120-day deadline strictly. The staff's rationale for its differing approaches is that the 80-day deadline is largely for its own convenience in processing incoming requests, whereas the 120-day deadline is intended to allow sufficient time for companies to prepare for their shareholders' meetings. As a result, the staff only harms itself if it does not apply the 80-day deadline strictly.

EXAMPLES:

Declining to waive deadline but allowing exclusion on other basis even though company had no reasonable argument for being late

Mere inadvertence by the company — E.I. du Pont de Nemours and Company[fn12]
No arguments offered in support of waiver request — J.P. Morgan & Co., Incorporated[fn13]
Rescheduled board meeting to consider how to handle proposal — Weirton Steel Corporation[fn14]

EXAMPLES:

Declining to waive deadline but allowing exclusion on other basis even though company's argument was based on a problem that it created

In Exelon Corporation,[fn15] the company retained the same proposal deadline even though it had merged during the year and moved the annual shareholders' meeting to a later date. As a result, the deadline was only about 90 days before the meeting date. Since this made it difficult for the company to meet the 80-day deadline, it requested a waiver. The staff declined to grant the waiver but allowed exclusion of the proposal based on the company's other arguments.
In United Postal Service, Inc.,[fn16] the company noted that the proponent's letter had contained seven proposals and that rather than seeking to exclude all of them, the company had negotiated with the proponent to reduce the number of proposals to one as required under Rule 14a-8(c). However, this negotiation took several weeks and caused the company to miss its deadline. The staff declined to grant the waiver but allowed exclusion of the proposal based on the company's arguments under other bases.

[fn11] See infra Chapter 11.

[fn12] 2001 SEC No-Act. LEXIS 376 (Mar. 15, 2001).

[fn13] 2000 SEC No-Act. LEXIS 1026 (Dec. 22, 2000).

[fn14] 2000 SEC No-Act. LEXIS 565 (Apr. 21, 2000).

[fn15] 2001 SEC No-Act. LEXIS 382 (Mar. 15, 2001).

[fn16] 2001 SEC No-Act. LEXIS 347 (Mar. 6, 2001). The SEC lists this letter under "United Postal Service"; however, the correspondence makes clear that the company was United Parcel Service, Inc.

§ 4.02[C][2] Decline to Grant Waiver and Exclusion Not Allowed

Even though the SEC staff treats waiver and exclusion requests independently, sometimes the staff declines to waive the deadline and also does not allow a company to exclude the proposal.

EXAMPLES:

Company chose a deadline for proposals 45 days later than it was permitted under (e)(2) and company asked for proof of ownership to be furnished after only five days rather than the 14 days permitted — Qwest Communications International Inc.[fn17]
Company disclosed the wrong proposal deadline in its proxy statement, one that was two months later than actual deadline — 3Com Corporation[fn18]

[fn17] 2001 SEC No-Act. LEXIS 277 (Feb. 26, 2001).

[fn18] 2000 SEC No-Act. LEXIS 802 (Aug. 15, 2000).

§ 4.03 Exclusion Without Staff Relief

The introduction to Rule 14a-8 makes clear that companies can exclude shareholder proposals only after submitting their reasons to the SEC staff and receiving relief in the form of a no-action response. Not only is a failure to obtain no-action relief when excluding a proposal a violation of Rule 14a-8, it also may be considered a violation of Rule 14a-9.

A dissatisfied company may, nonetheless, choose to ignore the staff's denial of its no-action request and exclude a proposal, although such occurrences are rare. A company that decides to exclude a proposal without even asking for no-action relief faces the almost certain probability of an investigation from the SEC's Division of Enforcement. The staff then decides whether to bring an enforcement action against the company.

In a handful of cases, companies have inadvertently excluded proposals without requesting no-action relief. For example, a company may forget or not realize that it had received a proposal and the proponent was able to prove that the proposal was timely received.

In such cases, the staff informally works with both parties to find a solution, such as the company representing that it will include the inadvertently omitted proposal in the company's proxy materials the following year.

§ 4.04 Practice Pointers

Company Practice Pointers

Always request a waiver. Even if it does not have a sound basis, a company should always request a waiver of its tardiness. Since the staff addresses waiver requests and exclusion requests separately, a company may get permission to omit a proposal even if the staff rejects its request for a waiver. So far, no court has sided with a proponent to overturn a staff's decision because it allowed exclusion even though it did not grant a waiver.

File requests sooner rather than later. Rather than waiting until the deadline for submitting a no-action request, a company should submit a no-action request as soon as possible after it receives a proposal and determines that it will seek no-action relief. In fact, even companies that will be submitting multiple no-action requests should submit their requests individually or in small groups rather than waiting and sending them all at once since the SEC staff's ability to process requests is strained between December and February of each year.

Proponent Practice Pointers

Contest exclusion if waiver is denied. Proponents should consider legal action if a waiver is denied but the proposal is excluded. The staff's rejection of the waiver request provides a basis to challenge an exclusion — but it is unlikely that a court will overturn the staff's decision to allow an exclusion solely on this basis.

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