By Cydney Posner

The SEC has just posted a new staff legal bulletin, SLB 14D, regarding shareholder proposals under Rule 14A-8. The SLB adds the following guidance to the staff's prior legal bulletins regarding rule 14a-8:

Shareholder proposals that recommend, request or require that the board amend the company’s charter.

If a proposal recommends, requests or requires the board of directors to amend the company’s charter, the company may be able to omit the proposal in reliance on rule 14a-8(i)(1) (improper under state law), rule 14a-8(i)(2) (violation of law), or rule 14a-8(i)(6) (absence of authority), so long as the company establishes that applicable state law requires any the amendment to be initiated by the board and then approved by shareholders. (Think Delaware Section 242.) However, the staff will typically allow the proponent to revise the proposal to provide that the board of directors "take the steps necessary" to amend the company’s charter. If timely revised, the modification would eliminate those bases for exclusion. (And therefore, any proponent that has done its homework will phrase the proposal accordingly.) The SLB cites SBC Communications, Inc. (June 11, 2004), Gyrodyne Co. of America, Inc. (August 18, 1999) and Sears Roebuck and Co. (February 17, 1989) as examples of its longstanding practice with regard to this issue.

E-mail of rule 14a-8 no-action requests and related correspondence.

The SEC has established a new e-mail address for the receipt of no-action requests and correspondence related to rule 14a-8: shareholderproposals@sec.gov. This mailbox should not be used to submit other types of no-action requests or correspondence. Any submission directed to this mailbox should include the author's name and telephone number. E-mail submissions are not confidential and may be intercepted and read by others. The staff will process no-action requests and related correspondence received through this mailbox in the same manner as requests and correspondence submitted in paper.

Requirement to provide notice of defect to proponents regarding ineligibility.

If a proponent is listed in a company’s records as a registered holder, the company can confirm that the proponent’s holdings do satisfy the ownership eligibility requirements of rule 14a-8(b). However, if the company's records indicate insufficient shares to satisfy the ownership eligibility requirement in rule 14a-8(b), the records are not necessarily determinative because the proponent can also hold the company’s securities beneficially in street name. As a result, if the company’s records indicate that the proponent does not satisfy the ownership eligibility requirement in rule 14a-8(b), the company must inform the proponent that it must provide proof of ownership that satisfies the requirements of rule 14a-8(b) if the company intends to exclude the proposal based upon the proponent’s failure to satisfy those requirements.

Correspondence from proponents.

Rule 14a-8(k) requires a proponent to provide the company with a copy of any correspondence submitted in response to the company’s no-action request. In addition, as stated in section G.9 of SLB No. 14, both the company and the proponent should promptly forward to each other copies of all correspondence provided to the SEC in connection with rule 14a-8 no-action requests. The staff encourages companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to the SEC.

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