Facilitating Shareholder Director Nominations

1 17 CFR 200.82a.
2 17 CFR 240.14a–11.
3 17 CFR 240.14a–18.
4 17 CFR 240.14n et seq. 5 17 CFR 240.14n–101. 6 17 CFR 232.13. 7 17 CFR 232.10 et seq. 8 17 CFR 240.13a–11. 9 17 CFR 240.13d–1. 10 17 CFR 240.14a–2. 11 17 CFR 240.14a–4. 12 17 CFR 240.14a–5. 13 17 CFR 240.14a–6. 14 17 CFR 240.14a–8. 15 17 CFR 240.14a–9. 16 17 CFR 240.14a–12. 17 17 CFR 240.15d–11. 18 17 CFR 240.13d–102. 19 17 CFR 240.14a–101. 20 17 CFR 249.308. 21 15 U.S.C. 78a et seq. (the ‘‘Exchange Act’’). Part 200 Subpart D—Information and Requests and Regulation S–T are also promulgated under the Securities Act of 1933 [15 U.S.C. 77a et seq.] (the ‘‘Securities Act’’). 22 17 CFR 240.14c–101. SECURITIES AND EXCHANGE COMMISSION 17 CFR PARTS 200, 232, 240 and 249 [Release Nos. 33–9136; 34–62764; IC– 29384; File No. S7–10–09] RIN 3235–AK27 Facilitating Shareholder Director Nominations AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting changes to the Federal proxy rules to facilitate the effective exercise of shareholders’ traditional State law rights to nominate and elect directors to company boards of directors. The new rules will require, under certain circumstances, a company’s proxy materials to provide shareholders with information about, and the ability to vote for, a shareholder’s, or group of shareholders’, nominees for director. We believe that these rules will benefit shareholders by improving corporate suffrage, the disclosure provided in connection with corporate proxy solicitations, and communication between shareholders in the proxy process. The new rules apply only where, among other things, relevant state or foreign law does not prohibit shareholders from nominating directors. The new rules will require that specified disclosures be made concerning nominating shareholders or groups and their nominees. In addition, the new rules provide that companies must include in their proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure in the company’s governing documents for the inclusion of one or more shareholder director nominees in the company’s proxy materials. We also are adopting related changes to certain of our other rules and regulations, including the existing solicitation exemptions from our proxy rules and the beneficial ownership reporting requirements. DATES: Effective Date: November 15, 2010. Compliance Dates: November 15, 2010, except that companies that qualify as ‘‘smaller reporting companies’’ (as defined in 17 CFR 240.12b–2) as of the effective date of the rule amendments will not be subject to Rule 14a–11 until three years after the effective date. FOR FURTHER INFORMATION CONTACT:
Lillian Brown, Tamara Brightwell, or Ted Yu, Division of Corporation Finance, at (202) 551–3200, or, with regard to investment companies, Kieran G. Brown, Division of Investment Management, at (202) 551–6784, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adding new Rule 82a of Part 200 Subpart D—Information and Requests,1 and new Rules 14a–11,2 and 14a–18,3 and new Regulation 14N 4 and Schedule 14N,5 and amending Rule 13 6 of Regulation S–T,7 Rules 13a–11,8 13d–1,9 14a–2,10 14a–4,11 14a–5,12 14a–6,13 14a–8,14 14a–9,15 14a–12,16 and 15d– 11,17 Schedule 13G,18 Schedule 14A,19 and Form 8–K,20 under the Securities Exchange Act of 1934.21 Although we are not amending Schedule 14C22 under the Exchange Act, the amendments will affect the disclosure provided in
Schedule 14C, as Schedule 14C requires
disclosure of some items contained in
Schedule 14A.
Table of Contents
I. Background and Overview of Amendments
A. Background
B. Our Role in the Proxy Process
C. Summary of the Final Rules
II. Changes to the Proxy Rules
A. Introduction
B. Exchange Act Rule 14a–11

1. Overview
2. When Rule 14a–11 Will Apply
   a. Interaction With State or Foreign Law b. Opt-In Not Required
   c. No Opt-Out
   d. No Triggering Events e. Concurrent Proxy Contests
3. Which Companies Are Subject to Rule
   14a–11 a. General b. Investment Companies
   c. Controlled Companies
   d. ‘‘Debt Only’’ Companies e. Application of Exchange Act Rule 14a– 11 to Companies That Voluntarily Register a Class of Securities Under Exchange Act Section 12(g) f. Smaller Reporting Companies
4. Who Can Use Exchange Act Rule 14a–
   11 a. General b. Ownership Threshold
   i. Percentage of Securities
   ii. Voting Power
   iii. Ownership Position
   iv. Demonstrating Ownership
   c. Holding Period
   d. No Change in Control Intent e. Agreements With the Company f. No Requirement To Attend the Annual or Special Meeting g. No Limit on Resubmission
5. Nominee Eligibility Under Exchange Act
   Rule 14a–11 a. Consistent With Applicable Law and Regulation b. Independence Requirements and Other Director Qualifications
   c. Agreements With the Company
   d. Relationship Between the Nominating Shareholder or Group and the Nominee e. No Limit on Resubmission of Shareholder Director Nominees
6. Maximum Number of Shareholder
   Nominees To Be Included in Company Proxy Materials a. General b. Different Voting Rights With Regard to Election of Directors
   c. Inclusion of Shareholder Nominees in
   Company Proxy Materials as Company Nominees
7. Priority of Nominations Received by a
   Company a. Priority When Multiple Shareholders Submit Nominees b. Priority When a Nominating Shareholder or Group or a Nominee Withdraws or Is Disqualified
8. Notice on Schedule 14N
   a. Proposed Notice Requirements b. Comments on the Proposed Notice Requirements
   c. Adopted Notice Requirements
   i. Disclosure
   ii. Schedule 14N Filing Requirements
9. Requirements for a Company That
   Receives a Notice From a Nominating Shareholder or Group a. Procedure If Company Plans To Include Rule 14a–11 Nominee b. Procedure If Company Plans To Exclude Rule 14a–11 Nominee
   c. Timing of Process
   d. Information Required in Company Proxy Materials
   i. Proxy Statement
   ii. Form of Proxy
   e. No Preliminary Proxy Statement
10. Application of the Other Proxy Rules
    to Solicitations by the Nominating Shareholder or Group a. Rule 14a–2(b)(7) b. Rule 14a–2(b)(8)
11. 2011 Proxy Season Transition Issues
    C. Exchange Act Rule 14a–8(i)(8)
12. Background
13. Proposed Amendment
14. Comments on the Proposal
15. Final Rule Amendment
16. Disclosure Requirements

23See Facilitating Shareholder Director Nominations, Release No. 33–9046, 34–60089 (June 10, 2009) [74 FR 29024] (‘‘Proposal’’ or ‘‘Proposing Release’’). The Proposing Release was published for comment in the Federal Register on June 18, 2009, and the initial comment period closed on August 17, 2009. The Commission re-opened the comment period as of December 18, 2009 for thirty days to provide interested persons the opportunity to comment on additional data and related analyses that were included in the public comment file at or following the close of the original comment period. In total, the Commission received approximately 600 comment letters on the proposal. The public comments we received are available on our Web site at http://www.;sec.gov/comments/s7-10-09/ s71009.shtml. Comments also are available for Web site viewing and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 24See, e.g., Securit[ies] and Exchange Commission Proxy Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the House Comm. on Interstate and Foreign Commerce, 78th Cong., 1st Sess., at 17–19 (1943) (Statement of the Honorable Ganson Purcell, Chairman, Securities and Exchange Commission) (explaining the initial Commission rules requiring the inclusion of shareholder proposals in company proxy materials:
‘‘We give [a stockholder] the right in the rules to put his proposal before all of his fellow stockholders along with all other proposals * * * so that they can see then what they are and vote accordingly.

• • • The rights that we are endeavoring to assure
      to the stockholders are those rights that he has traditionally had under State law, to appear at the meeting; to make a proposal; to speak on that proposal at appropriate length; and to have his proposal voted on. But those rights have been rendered largely meaningless through the process of dispersion of security ownership through[out] the country. * * * [T]he assurance of these fundamental rights under State laws which have been, as I say, completely ineffective * * * because of the very dispersion of the stockholders’ interests throughout the country[;] whereas formerly * * * a stockholder might appear at the meeting and address his fellow stockholders[, t]oday he can only address the assembled proxies which are lying at the head of the table. The only opportunity that the stockholder has today of expressing his judgment comes at the time he considers the execution of his proxy form, and we believe * * * that this is the time when he should have the full information before him and ability to take action as he sees fit.’’); see also S. Rep. 792, 73d Cong., 2d Sess., 12 (1934) (‘‘[I]t is essential that [the stockholder] be enlightened not only as to the financial condition of the corporation, but also as to the major questions of policy, which are decided at stockholders’ meetings.’’). 25 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, § 971, 124 Stat. 1376 (2010) (‘‘Dodd-Frank Act’’). D. Other Rule Changes

1. Disclosure of Dates and Voting
   Information
2. Beneficial Ownership Reporting
   Requirements
3. Exchange Act Section 16
4. Nominating Shareholder or Group Status
   as Affiliates of the Company E. Application of the Liability Provisions in the Federal Securities Laws to Statements Made by a Nominating Shareholder or Nominating Shareholder Group
   III. Paperwork Reduction Act
   A. Background
   B. Summary of the Final Rules and Amendments
   C. Summary of Comment Letters and
   Revisions to Proposal
   D. Revisions to PRA Reporting and Cost Burden Estimates
5. Rule 14a–11
6. Amendment to Rule 14a–8(i)(8)
7. Schedule 14N and Exchange Act Rule
   14a–18
8. Amendments to Exchange Act Form 8–
   K
9. Schedule 13G Filings
10. Form ID Filings
    E. Revisions to PRA Reporting and Cost Burden Estimates
    IV. Cost-Benefit Analysis
    A. Background
    B. Summary of Rules
    C. Factors Affecting Scope of the New
    Rules
    D. Benefits
11. Facilitating Shareholders’ Ability To
    Exercise Their State Law Rights To Nominate and Elect Directors
12. Minimum Uniform Procedure for
    Inclusion of Shareholder Director Nominations and Enhanced Ability for Shareholders To Adopt Director Nomination Procedures
13. Potential Improved Board Performance
    and Company Performance
14. More Informed Voting Decisions in
    Director Elections Due to Improved Disclosure of Shareholder Director Nominations and Enhanced Shareholder Communications E. Costs
15. Costs Related to Potential Adverse
    Effects on Company and Board Performance
16. Costs Related to Additional Complexity
    of Proxy Process
17. Costs Related to Preparing Disclosure,
    Printing and Mailing and Costs of Additional Solicitations and Shareholder Proposals
    V. Consideration of Burden on Competition
    and Promotion of Efficiency, Competition and Capital Formation
    VI. Final Regulatory Flexibility Analysis
    A. Need for the Amendments B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Rules
    D. Reporting, Recordkeeping and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities
    VII. Statutory Authority and Text of the
    Amendments
    I. Background and Overview of
    Amendments
    A. Background
    On June 10, 2009, we proposed a number of changes to the Federal proxy rules designed to facilitate shareholders’ traditional State law rights to nominate and elect directors. Our proposals sought to accomplish this goal in two ways: (1) By facilitating the ability of shareholders with a significant, long￾term stake in a company to exercise their rights to nominate and elect directors by establishing a minimum standard for including disclosure concerning, and enabling shareholders to vote for, shareholder director nominees in company proxy materials; and (2) by narrowing the scope of the Commission rule that permitted companies to exclude shareholder proposals that sought to establish a procedure for the inclusion of shareholder nominees in company proxy materials.23 We recognized at that time that the financial crisis that the nation and markets had experienced heightened the serious concerns of many shareholders about the accountability and responsiveness of some companies and boards of directors to shareholder interests, and that these concerns had resulted in a loss of investor confidence. These concerns also led to questions about whether boards were exercising appropriate oversight of management, whether boards were appropriately focused on shareholder interests, and whether boards need to be more accountable for their decisions regarding issues such as compensation structures and risk management. A principal way that shareholders can hold boards accountable and influence matters of corporate policy is through the nomination and election of directors. The ability of shareholders to effectively use their power to nominate and elect directors is significantly affected by our proxy regulations because, as has long been recognized, a federally-regulated corporate proxy solicitation is the primary way for public company shareholders to learn about the matters to be decided by the shareholders and to make their views known to company management.24 As discussed in detail below, in light of these concerns, we reviewed our proxy regulations to determine whether they should be revised to facilitate shareholders’ ability to nominate and elect directors. We have taken into consideration the comments received on the proposed amendments as well as subsequent congressional action 25 and are adopting final rules that will, for the first time, require company proxy materials, under certain circumstances, to provide shareholders with information about, and the ability to vote for a shareholder’s, or group of shareholders’, nominees for director. We also are amending our proxy rules to provide shareholders the ability to include in company proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure in the company’s governing documents for the inclusion of one or more shareholder director

26For example, the Commission has considered changes to the proxy rules related to the election of directors in recent years. See Security Holder Director Nominations, Release No. 34–48626 (October 14, 2003) [68 FR 60784] (‘‘2003 Proposal’’); Shareholder Proposals, Release No. 34–56160 (July 27, 2007) [72 FR 43466] (‘‘Shareholder Proposals Proposing Release’’); Shareholder Proposals Relating to the Election of Directors, Release No. 34–56161 (July 27, 2007) [72 FR 43488] (‘‘Election of Directors Proposing Release’’); and Shareholder Proposals Relating to the Election of Directors, Release No. 34–56914 (December 6, 2007) [72 FR 70450] (‘‘Election of Directors Adopting Release’’). When we refer to the ‘‘2007 Proposals’’ and the comments received in 2007, we are referring to the Shareholder Proposals Proposing Release and the Election of Directors Proposing Release and the comments received on those proposals, unless otherwise specified. 27Professor Karmel has described the Commission’s proxy rules as having the purpose ‘‘to make the proxy device the closest practicable substitute for attendance at the [shareholder] meeting.’’ Roberta S. Karmel, The New Shareholder and Corporate Governance: Voting Power Without Responsibility or Risk: How Should Proxy Reform Address the De-Coupling of Economic and Voting Rights?, 55 Vill. L. Rev. 93, 104 (2010). 28Historically, a shareholder’s voting rights generally were exercised at a shareholder meeting. As discussed in the Proposing Release, in passing the Exchange Act, Congress understood that the securities of many companies were held through dispersed ownership, at least in part facilitated by stock exchange listing of shares. Although voting rights in public companies technically continued to be exercised at a meeting, the votes cast at the meeting were by proxy and the voting decision was made during the proxy solicitation process. This structure continues to this day. 29See letters from American Federation of Labor and Congress of Industrial Organizations (‘‘AFL– CIO’’); California Public Employees’ Retirement System (‘‘CalPERS’’); Council of Institutional Investors (‘‘CII’’); Lynne L. Dallas (‘‘L. Dallas’’); Los Angeles County Employees Retirement Association (‘‘LACERA’’); Laborers’ International Union of North America (‘‘LIUNA’’); The Nathan Cummings Foundation (‘‘Nathan Cummings Foundation’’); Pax World Management Corp. (‘‘Pax World’’); Pershing Square Capital Management, L.P. (‘‘Pershing Square’’); Relational Investors, LLC (‘‘Relational’’); RiskMetrics Group, Inc. (‘‘RiskMetrics’’); Shareowner Education Network and Shareowners.org (‘‘Shareowners.org’’); Social Investment Forum (‘‘Social Investment Forum’’); State of Wisconsin Investment Board (‘‘SWIB’’); International Brotherhood of Teamsters (‘‘Teamsters’’); Trillium Asset Management Corporation (‘‘Trillium’’); Universities Superannuation Scheme—UK (‘‘Universities Superannuation’’); Washington State Investment Board (‘‘WSIB’’). 30For a discussion of
the Commission’s previous actions in this area, see the Proposing Release and the 2003 Proposal. 31See letters from CII; Colorado Public Employees’ Retirement Association (‘‘COPERA’’); CtW Investment Group (‘‘CtW Investment Group’’);
L. Dallas; Thomas P. DiNapoli (‘‘T. DiNapoli’’);
Florida State Board of Administration (‘‘Florida State Board of Administration’’); International Corporate Governance Network (‘‘ICGN’’); Denise L. Nappier (‘‘D. Nappier’’); Ohio Public Employees Retirement System (‘‘OPERS’’); Pax World; Teamsters. 32 Id. 33See letters from AFL–CIO; CalPERS; California State Teachers’ Retirement System (‘‘CalSTRS’’); CII;
L. Dallas; LACERA; LIUNA; Nathan Cummings
Foundation; Pax World; Pershing Square; Relational; RiskMetrics; Shareowners.org; Social Investment Forum; SWIB; Teamsters; Trillium; Universities Superannuation; WSIB. 34See letters from Group of 26 Corporate Secretaries and Governance Professionals (‘‘26 Corporate Secretaries’’); 3M Company (‘‘3M’’); Advance Auto Parts, Inc. (‘‘Advance Auto Parts’’); The Allstate Corporation (‘‘Allstate’’); Avis Budget Group, Inc. (‘‘Avis Budget’’); American Express Company (‘‘American Express’’); Anadarko Petroleum Corporation (‘‘Anadarko’’); Association of Corporate Counsel (‘‘Association of Corporate Counsel’’); AT&T Inc. (‘‘AT&T’’); Lawrence Behr (‘‘L. Behr’’); Best Buy Co., Inc. (‘‘Best Buy’’); The Boeing Company (‘‘Boeing’’); Business Roundtable (‘‘BRT’’); Robert N. Burt (‘‘R. Burt’’); State Bar of California, Corporations Committee of Business Law Section (‘‘California Bar’’); Sean F. Campbell (‘‘S. Campbell’’); Carlson (‘‘Carlson’’); Caterpillar Inc. (‘‘Caterpillar’’); U.S. Chamber of Commerce Center for Capital Markets Competitiveness (‘‘Chamber of Commerce/CMCC’’); Chevron Corporation (‘‘Chevron’’); CIGNA Corporation (‘‘CIGNA’’); W. Don Cornwell (‘‘W. Cornwell’’); CSX Corporation (‘‘CSX’’); Cummins Inc. (‘‘Cummins’’); Davis Polk & Wardwell LLP (‘‘Davis Polk’’); Dewey & LeBoeuf (‘‘Dewey’’); E.I. du Pont de Nemours and Company (‘‘DuPont’’); Eaton Corporation (‘‘Eaton’’); Michael Eng (‘‘M. Eng’’); FedEx Corporation (‘‘FedEx’’); FMC Corporation (‘‘FMC Corp.’’); FPL Group, Inc. (‘‘FPL Group’’); Frontier Communications Corporation (‘‘Frontier’’); General Electric Company (‘‘GE’’); General Mills, Inc. (‘‘General Mills’’); Charles O. Holliday, Jr. (‘‘C. Holliday’’); Honeywell International Inc. (‘‘Honeywell’’); Constance J. nominees in the company’s proxy materials. Regulation of the proxy process was one of the original responsibilities that Congress assigned to the Commission as
part of its core functions in 1934. The
Commission has actively monitored the proxy process since receiving this authority and has considered changes when it appeared that the process was not functioning in a manner that adequately protected the interests of investors.26 One of the key tenets of the Federal proxy rules on which the Commission has consistently focused is whether the proxy process functions, as nearly as possible, as a replacement for an actual in-person meeting of shareholders.27 This is important because the proxy process represents shareholders’ principal means of participating effectively at an annual or special meeting of shareholders.28 In our Proposal we noted our concern that the Federal proxy rules may not be facilitating the exercise of shareholders’ State law rights to nominate and elect directors. Without the ability to effectively utilize the proxy process, shareholder nominees do not have a realistic prospect of being elected because most, if not all, shareholders return their proxy cards in advance of the shareholder meeting and thus, in essence, cast their votes before the meeting at which they may nominate directors. Recognizing that this failure of the proxy process to facilitate shareholder nomination rights has a practical effect on the right to elect directors, the new rules will enable the proxy process to more closely approximate the conditions of the shareholder meeting. In addition, because companies will be required to include shareholder-nominated candidates for director in company proxy materials, shareholders will receive additional information upon which to base their voting decisions. Finally, we believe these changes will significantly enhance the confidence of shareholders who link the recent financial crisis to a lack of responsiveness of some boards to shareholder interests.29 The Commission has, on a number of prior occasions, considered whether its proxy rules needed to be amended to facilitate shareholders’ ability to nominate directors by having their nominees included in company proxy materials.30 Most recently, in June 2009, we proposed amendments to the proxy rules that included both a new proxy rule, Exchange Act Rule 14a–11, that would require a company’s proxy materials to provide shareholders with information about, and the ability to vote for, candidates for director nominated by long-term shareholders or groups of long-term shareholders with significant holdings, and amendments to Rule 14a–8(i)(8) to prohibit exclusion of certain shareholder proposals seeking to establish a procedure in the company’s governing documents for the inclusion of one or more shareholder director nominees in the company’s proxy materials. We received significant comment on the proposed amendments. Overall, commenters were sharply divided on the necessity for, and the workability of, the proposed amendments. Supporters of the amendments generally believed that, if adopted, they would facilitate shareholders’ ability to exercise their State law
right to nominate directors and provide meaningful opportunities to effect changes in the composition of the board.31 These commenters predicted that the amendments would lead to more accountable, responsive, and effective boards.32 Many commenters saw a link between the recent economic crisis and shareholders’ inability to have nominees included in a company’s proxy materials.33 Commenters opposed to our Proposal believed that recent corporate governance developments, including increased use of a majority voting standard for the election of directors and certain State law changes, already provide shareholders with meaningful opportunities to participate in director elections.34 These commenters viewed

Horner (‘‘C. Horner’’); International Business Machines Corporation (‘‘IBM’’); Jones Day (‘‘Jones Day’’); Keating Muething & Klekamp PLL (‘‘Keating Muething’’); James M. Kilts (‘‘J. Kilts’’); Reatha Clark King, Ph.D. (‘‘R. Clark King’’); Ned C. Lautenbach (‘‘N. Lautenbach’’); MeadWestvaco Corporation (‘‘MeadWestvaco’’); MetLife, Inc. (‘‘MetLife’’); Motorola, Inc. (‘‘Motorola’’); O’Melveny & Myers LLP (‘‘O’Melveny & Myers’’); Office Depot, Inc. (‘‘Office Depot’’); Pfizer Inc. (‘‘Pfizer’’); Protective Life Corporation (‘‘Protective’’); Sullivan & Cromwell LLP (‘‘S&C’’); Safeway Inc. (‘‘Safeway’’); Sara Lee Corporation (‘‘Sara Lee’’); Shearman & Sterling LLP (‘‘Shearman & Sterling’’); The Sherwin￾Williams Company (‘‘Sherwin-Williams’’); Sidley Austin LLP (‘‘Sidley Austin’’); Simpson Thacher & Bartlett LLP (‘‘Simpson Thacher’’); Tesoro Corporation (‘‘Tesoro’’); Textron Inc. (‘‘Textron’’); Texas Instruments Corporation (‘‘TI’’); Gary L. Tooker (‘‘G. Tooker’’); UnitedHealth Group Incorporated (‘‘UnitedHealth’’); Unitrin, Inc. (‘‘Unitrin’’); U.S. Bancorp (‘‘U.S. Bancorp’’); Wachtell, Lipton, Rosen & Katz (‘‘Wachtell’’); Wells Fargo & Company (‘‘Wells Fargo’’); West Chicago Chamber of Commerce & Industry (‘‘West Chicago Chamber’’); Weyerhaeuser Company (‘‘Weyerhaeuser’’); Xerox Corporation (‘‘Xerox’’); Yahoo! (‘‘Yahoo’’). 35See letters from 26 Corporate Secretaries; American Bar Association (‘‘ABA’’); ACE Limited (‘‘ACE’’); Advance Auto Parts; AGL Resources (‘‘AGL’’); Aetna Inc. (‘‘Aetna’’); Allstate; Alston & Bird LLP (‘‘Alston & Bird’’); American Bankers Association (‘‘American Bankers Association’’); The American Business Conference (‘‘American Business Conference’’); American Electric Power Company, Inc. (‘‘American Electric Power’’); Anadarko; Applied Materials, Inc. (‘‘Applied Materials’’); Artistic Land Designs LLC (‘‘Artistic Land Designs’’); Association of Corporate Counsel; Avis Budget; Atlantic Bingo Supply, Inc. (‘‘Atlantic Bingo’’); L. Behr; Best Buy; Biogen Idec Inc. (‘‘Biogen’’); James H. Blanchard (‘‘J. Blanchard’’); Boeing; Tammy Bonkowski (‘‘T. Bonkowski’’); BorgWarner Inc. (‘‘BorgWarner’’); Boston Scientific Corporation (‘‘Boston Scientific’’); The Brink’s Company (‘‘Brink’s’’); BRT; Burlington Northern Santa Fe Corporation (‘‘Burlington Northern’’); R. Burt; California Bar; Callaway Golf Company (‘‘Callaway’’); S. Campbell; Carlson; Carolina Mills (‘‘Carolina Mills’’); Caterpillar; Chamber of Commerce/CMCC; Chevron; Rebecca Chicko (‘‘R. Chicko’’); CIGNA; Comcast Corporation (‘‘Comcast’’); Competitive Enterprise Institute’s Center for Investors and Entrepreneurs (‘‘Competitive Enterprise Institute’’); W. Cornwell; CSX; Edwin Culwell (‘‘E. Culwell’’); Cummins; Darden Restaurants, Inc. (‘‘Darden Restaurants’’); Daniels Manufacturing Corporation (‘‘Daniels Manufacturing’’); Davis Polk; Delaware State Bar Association (‘‘Delaware Bar’’); Tom Dermody (‘‘T. Dermody’’); Devon Energy Corporation (‘‘Devon’’); DTE Energy Company (‘‘DTE Energy’’);
Eaton; The Edison Electric Institute (‘‘Edison Electric Institute’’); Eli Lilly and Company (‘‘Eli Lilly’’); Emerson Electric Co. (‘‘Emerson Electric’’); M. Eng; Erickson Retirement Communities, LLC (‘‘Erickson’’); ExxonMobil Corporation (‘‘ExxonMobil’’); FedEx; Financial Services Roundtable (‘‘Financial Services Roundtable’’); Flutterby Kissed Unique Treasures (‘‘Flutterby’’); FPL Group; Frontier; GE; Allen C. Goolsby (‘‘A. Goolsby’’); C. Holliday; IBM; Investment Company Institute (‘‘ICI’’); Intelect Corporation (‘‘Intelect’’); JPMorgan Chase & Co. (‘‘JPMorgan Chase’’); Jones Day; R. Clark King; Leggett & Platt Incorporated (‘‘Leggett’’); Teresa Liddell (‘‘T. Liddell’’); Little Diversified Architectural Consulting (‘‘Little’’); McDonald’s Corporation (‘‘McDonald’s’’); MeadWestvaco; MedFaxx, Inc. (‘‘MedFaxx’’); Medical Insurance Services (‘‘Medical Insurance’’); MetLife; Mary S. Metz (‘‘M. Metz’’); Microsoft Corporation (‘‘Microsoft’’); John R. Miller (‘‘J. Miller’’); Marcelo Moretti (‘‘M. Moretti’’); Motorola; National Association of Corporate Directors (‘‘NACD’’); National Association of Manufacturers (‘‘NAM’’); National Investor Relations Institute (‘‘NIRI’’); O’Melveny & Myers; Office Depot; Omaha Door & Window (‘‘Omaha Door’’); The Procter & Gamble Company (‘‘P&G’’); PepsiCo, Inc. (‘‘PepsiCo’’); Pfizer; Realogy Corporation (‘‘Realogy’’); Jared Robert (‘‘J. Robert’’); Marissa Robert (‘‘M. Robert’’); RPM International Inc. (‘‘RPM’’); Ryder System, Inc. (‘‘Ryder’’); Safeway; Ralph S. Saul (‘‘R. Saul’’); Shearman & Sterling; Sherwin-Williams; Raymond F. Simoneau (‘‘R. Simoneau’’); Society of Corporate Secretaries and Governance Professionals, Inc. (‘‘Society of Corporate Secretaries’’); The Southern Company (‘‘Southern Company’’); Southland Properties, Inc. (‘‘Southland’’); The Steele Group (‘‘Steele Group’’); Style Crest Enterprises, Inc. (‘‘Style Crest’’); Tesoro; Textron; Theragenics Corporation (‘‘Theragenics’’); TI; Richard Trummel (‘‘R. Trummel’’); Terry Trummel (‘‘T. Trummel’’); Viola Trummel (‘‘V. Trummel’’); tw telecom inc. (‘‘tw telecom’’); Laura D’Andrea Tyson (‘‘L. Tyson’’); United Brotherhood of Carpenters and Joiners of America (‘‘United Brotherhood of Carpenters’’); UnitedHealth; U.S. Bancorp; VCG Holding Corporation (‘‘VCG’’); Wachtell; The Way to Wellness (‘‘Wellness’’); Wells Fargo; Whirlpool Corporation (‘‘Whirlpool’’); Xerox; Yahoo; Jeff Young (‘‘J. Young’’). 36See letters from ABA; American Mailing Service (‘‘American Mailing’’); All Cast, Inc. (‘‘All Cast’’); Always N Bloom (‘‘Always N Bloom’’); American Carpets (‘‘American Carpets’’); John Arquilla (‘‘J. Arquilla’’); Beth Armburst (‘‘B. Armburst’’); Artistic Land Designs; Charles Atkins (‘‘C. Atkins’’); Book Celler (‘‘Book Celler’’); Kathleen G. Bostwick (‘‘K. Bostwick’’); Brighter Day Painting (‘‘Brighter Day Painting’’); Colletti and Associates (‘‘Colletti’’); Commercial Concepts (‘‘Commercial Concepts’’); Complete Home Inspection (‘‘Complete Home Inspection’’); Debbie
Courtney (‘‘D. Courtney’’); Sue Crawford (‘‘S. Crawford’’); Crespin’s Cleaning, Inc. (‘‘Crespin’’); Don’s Tractor Repair (‘‘Don’s’’); Theresa Ebreo (‘‘T. Ebreo’’); M. Eng; eWareness, Inc. (‘‘eWareness’’); Evans Real Estate Investments, LLC (‘‘Evans’’); Fluharty Antiques (‘‘Fluharty’’); Flutterby; Fortuna Italian Restaurant & Pizza (‘‘Fortuna Italian Restaurant’’); Future Form Inc. (‘‘Future Form Inc.’’); Glaspell Goals (‘‘Glaspell’’); Cheryl Gregory (‘‘C. Gregory’’); Healthcare Practice Management, Inc. (Healthcare Practice’’); Brian Henderson (‘‘B. Henderson’’); Sheri Henning (‘‘S. Henning’’); Jaynee Herren (‘‘J. Herren’’); Ami Iriarte (‘‘A. Iriarte’’); Jeremy J. Jones (‘‘J. Jones’’); Juz Kidz Nursery and Preschool (‘‘Juz Kidz’’); Kernan Chiropractic Center (‘‘Kernan’’); LMS Wine Creators (‘‘LMS Wine’’); Tabitha Luna (‘‘T. Luna’’); Mansfield Children’s Center, Inc. (‘‘Mansfield Children’s Center’’); Denise McDonald (‘‘D. McDonald’’); Meister’s Landscaping (‘‘Meister’’); Merchants Terminal Corporation (‘‘Merchants Terminal’’); Middendorf Bros. Auctioneers and Real Estate (‘‘Middendorf’’); Mingo Custom Woods (‘‘Mingo’’); Moore Brothers Auto Truck Repair (‘‘Moore Brothers’’); Mouton’s Salon (‘‘Mouton’’); Doug Mozack (‘‘D. Mozack’’); Ms. Dee’s Lil Darlins Daycare (‘‘Ms. Dee’’); Gavin Napolitano (‘‘G. Napolitano’’); NK Enterprises (‘‘NK’’); Hugh S. Olson (‘‘H. Olson’’); Parts and Equipment Supply Co. (‘‘PESC’’); Pioneer Heating & Air Conditioning (‘‘Pioneer Heating & Air Conditioning’’); RC Furniture Restoration (‘‘RC’’); RTW Enterprises Inc. (‘‘RTW’’); Debbie Sapp (‘‘D. Sapp’’); Southwest Business Brokers (‘‘SBB’’); Security Guard IT&T Alarms, Inc. (‘‘SGIA’’); Peggy Sicilia (‘‘P. Sicilia’’); Slycers Sandwich Shop (‘‘Slycers’’); Southern Services (‘‘Southern Services’’); Steele Group; Sylvron Travels (‘‘Sylvron’’); Theragenics; Erin White Tremaine (‘‘E. Tremaine’’); Wagner Health Center (‘‘Wagner’’); Wagner Industries (‘‘Wagner Industries’’); Wellness; West End Auto Paint & Body (‘‘West End’’); Y.M. Inc. (‘‘Y.M.’’); J. Young. 37See, e.g., letters from 26 Corporate Secretaries; 3M; Advance Auto Parts; Allstate; Avis Budget; American Express; Anadarko; Association of Corporate Counsel; AT&T; L. Behr; Best Buy; Boeing; BRT; R. Burt; California Bar; S. Campbell; Carlson; Caterpillar; Chamber of Commerce/CMCC; Chevron; CIGNA; W. Cornwell; CSX; Cummins; Davis Polk; Dewey; DuPont; Eaton; M. Eng; FedEx; FMC Corp.; FPL Group; Frontier; GE; General Mills; Joseph A. Grundfest, Stanford Law School (July 24,
2009) (‘‘Grundfest’’); C. Holliday; Honeywell; C.
Horner; IBM; Jones Day; Keating Muething; J. Kilts; R. Clark King; N. Lautenbach; MeadWestvaco; Metlife; Motorola; O’Melveny & Myers; Office Depot; Pfizer; Protective; S&C; Safeway; Sara Lee; Shearman & Sterling; Sherwin-Williams; Sidley Austin; Simpson Thacher; Tesoro; Textron; TI; G. Tooker; UnitedHealth; Unitrin; U.S. Bancorp; Wachtell; Wells Fargo; West Chicago Chamber; Weyerhaeuser; Xerox; Yahoo. 38We refer to Delaware law frequently because of the large percentage of public companies incorporated under that law. The Delaware Division of Corporations reports that over 50% of U.S. public companies are incorporated in Delaware. See http://www.corp.delaware.gov. 39 Del. Code Ann. tit. 8, § 112. In December 2009, the Committee on Corporate Laws of the American Bar Association Section of Business Law Committee adopted amendments to the Model Act that explicitly authorize bylaws that prescribe Continued the amendments as inappropriately intruding into matters traditionally governed by State law or imposing a ‘‘one size fits all’’ rule for all companies and expressed concerns about ‘‘special interest’’ directors, forcing companies to focus on the short-term rather than the creation of long-term shareholder value, and other perceived negative effects of the amendments, if adopted, on boards and companies.35 Finally, commenters worried about the impact of the proposed amendments on small businesses.36 After considering the comments and weighing the competing interests of facilitating shareholders’ ability to exercise their State law rights to nominate and elect directors against potential disruption and cost to companies, we are convinced that adopting the proposed amendments to the proxy rules serves our purpose to regulate the proxy process in the public interest and on behalf of investors. We are not persuaded by the arguments of some commenters that the provisions of Rule 14a–11 are unnecessary.37 Those commenters argued that changes in corporate governance over the past six years have obviated the need for a Federal rule to allow shareholders to place their nominees in company proxy materials and that shareholders should be left to determine whether, on a company-by-company basis, such a rule is necessary at any particular company. While we recognize that some states, such as Delaware,38 have amended their state corporate law to enable companies to adopt procedures for the inclusion of shareholder director nominees in company proxy materials,39 as was

shareholder access to company proxy materials or reimbursement of proxy solicitation expenses. See ABA Press Release, ‘‘Corporate Laws Committee Adopts New Model Business Corporation Act Amendments to Provide For Proxy Access And Expense Reimbursement,’’ December 17, 2009, available at http://www.abanet.org/abanet/media/ release/news_release.cfm?releaseid=848. In addition, in 2007, North Dakota amended its corporate code to permit 5% 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. N.D. Cent. Code § 10–35–08 (2009); see North Dakota Publicly Traded Corporations Act, N.D. Cent. Code § 10–35 et al. (2007). 40See letters from American Federation of State, County and Municipal Employees (‘‘AFSCME’’); AllianceBernstein L.P. (‘‘AllianceBernstein’’); Amalgamated Bank LongView Funds (‘‘Amalgamated Bank’’); Association of British Insurers (‘‘British Insurers’’); CalPERS; CII; The Corporate Library (‘‘Corporate Library’’); L. Dallas; Florida State Board of Administration; ICGN; LIUNA; D. Nappier; Paul M. Neuhauser (‘‘P. Neuhauser’’); Comment Letter of Nine Securities and Governance Law Firms (‘‘Nine Law Firms’’); Pax World; Pershing Square; theRacetotheBottom.org (‘‘RacetotheBottom’’); RiskMetrics; Schulte Roth & Zabel LLP (‘‘Schulte Roth & Zabel’’); Sodali (‘‘Sodali’’); Teachers Insurance and Annuity Association of America and College Retirement Equities Fund (‘‘TIAA–CREF’’); United States Proxy Exchange (‘‘USPE’’); ValueAct Capital, LLC (‘‘ValueAct Capital’’). 41 Despite the rate of adoption of a majority voting standard for director elections by companies in the S&P 500, only a small minority of firms in the Russell 3000 index have adopted them. See discussion in footnote 69 in the Proposing Release. 42See letters from AFSCME; AllianceBernstein; CalPERS; CII; L. Dallas; D. Nappier; P. Neuhauser; RiskMetrics; TIAA–CREF. One commenter characterized a majority voting standard as a mechanism for ‘‘registering negative sentiment’’ about an incumbent board nominee, not a mechanism to ensure board accountability. See letter from AFSCME. 43See letters from CII; Sodali; USPE. 44For a list of these commenters, see footnotes 677, 678, and 679 below. 45See letters from CII; USPE. 46See letters from 26 Corporate Secretaries; ABA; ACE; Advance Auto Parts; AGL; Aetna; Allstate; Alston & Bird; American Bankers Association; American Business Conference; American Electric Power; Anadarko; Applied Materials; Artistic Land Designs; Association of Corporate Counsel; Avis Budget; Atlantic Bingo; L. Behr; Best Buy; Biogen; J. Blanchard; Boeing; T. Bonkowski; BorgWarner; Boston Scientific; Brink’s; BRT; Burlington Northern; R. Burt; California Bar; Callaway; S. Campbell; Carlson; Carolina Mills; Caterpillar; Chamber of Commerce/CMCC; Chevron; R. Chicko; CIGNA; Comcast; Competitive Enterprise Institute; W. Cornwell; CSX; E. Culwell; Cummins; Darden
Restaurants; Daniels Manufacturing; Davis Polk; Delaware Bar; T. Dermody; Devon; DTE Energy; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; M. Eng; Erickson; ExxonMobil; FedEx; Financial Services Roundtable; Flutterby; FPL Group; Frontier; GE; A. Goolsby; Grundfest; C. Holliday; IBM; ICI; Intelect; JPMorgan Chase; Jones Day; R. Clark King; Leggett; T. Liddell; Little; McDonald’s; MeadWestvaco; MedFaxx; Medical Insurance; Metlife; M. Metz; Microsoft; J. Miller; M. Moretti; Motorola; NACD; NAM; NIRI; O’Melveny & Myers; Office Depot; Omaha Door; P&G; PepsiCo; Pfizer; Realogy; J. Robert; M. Robert; RPM; Ryder; Safeway; R. Saul; Shearman & Sterling; Sherwin￾Williams; R. Simoneau; Society of Corporate Secretaries; Southern Company; Southland; Steele Group; Style Crest; Tesoro; Textron; Theragenics; TI; R. Trummel; T. Trummel; V. Trummel; tw telecom; L. Tyson; United Brotherhood of Carpenters; UnitedHealth; U.S. Bancorp; VCG; Wachtell; Wellness; Wells Fargo; Whirlpool; Xerox; Yahoo; J. Young. 47See id. 48For example, quite a few aspects of Delaware corporation law are mandatory (i.e., not capable of modification by agreement or provision in the certificate of incorporation or bylaws), including: (i) The requirement to hold an annual election of directors (Del. Code Ann., tit. 8, § 211(b); Jones Apparel Group v. Maxwell Shoe Co., 883 A.2d 837, highlighted by a number of commenters, other states have not.40 These commenters noted that, as a result, companies not incorporated in Delaware could frustrate shareholder efforts to establish procedures for shareholders to place board nominees in the company’s proxy materials by litigating the validity of a shareholder proposal establishing such procedures, or possibly repealing shareholder-adopted bylaws establishing such procedures. In addition, due to the difficulty that shareholders could have in establishing such procedures, we believe that it would be inappropriate to rely solely on an enabling approach to facilitate shareholders’ ability to exercise their State law rights to nominate and elect directors. Even if bylaw amendments to permit shareholders to include nominees in company proxy materials were permissible in every state, shareholder proposals to so amend company bylaws could face significant obstacles. We also considered whether the move by many companies away from plurality voting to a general policy of majority voting in uncontested director elections should lead to a conclusion that our actions are unnecessary or whether we should premise our actions on the failure of a company to adopt majority voting.41 We agree with commenters 42 who argued that a majority voting standard in director elections does not address the need for a rule to facilitate the inclusion of shareholder nominees for director in company proxy materials. While majority voting impacts shareholders’ ability to elect candidates put forth by management, it does not affect shareholders’ ability to exercise their
right to nominate candidates for director. We also do not believe that the recent amendments to New York Stock Exchange (NYSE) Rule 452, which eliminated brokers’ discretionary voting authority in director elections, negate the need for the rule. Certain commenters specifically noted their concurrence with us on this point.43 The amendments to NYSE Rule 452 address who exercises the right to vote rather than shareholders’ ability to have their nominees put forth for a vote. While these and other changes have been important events, they bolster shareholders’ ability to elect directors who are already on the company’s proxy card, not their ability to affect who appears on that card. We therefore are convinced that the Federal proxy rules should be amended to better facilitate the exercise of shareholders’ rights under State law to nominate directors. We also considered whether we should amend Rule 14a–8 to narrow the ‘‘election exclusion,’’ without also adopting Rule 14a–11. We note that a significant number of commenters supported the proposed amendments to Rule 14a–8(i)(8).44 We concluded, however, as certain commenters pointed out, that adopting only the proposed amendments to Rule 14a–8(i)(8), without Rule 14a–11, would not achieve the Commission’s stated objectives.45We believe that the amendments to Rule 14a–8(i)(8) will provide shareholders with an important mechanism for including in company proxy materials proposals that would address the inclusion of shareholder director nominees in the company’s proxy materials in ways that supplement Rule 14a–11, such as with a lower ownership threshold, a shorter holding period, or to allow for a greater number of nominees if shareholders of a company support such standards. We recognize that many commenters advocated that shareholders’ ability to include nominees in company proxy materials should be determined exclusively by what individual companies or their shareholders affirmatively choose to provide, or that companies or their shareholders should be able to opt out of Rule 14a–11 or otherwise alter its terms for individual companies (the ‘‘private ordering’’ arguments).46 After careful consideration of the numerous comments advocating this perspective,47 we believe that the arguments in favor of this perspective are flawed for several reasons. First, corporate governance is not merely a matter of private ordering. Rights, including shareholder rights, are artifacts of law, and in the realm of corporate governance some rights cannot be bargained away but rather are imposed by statute. There is nothing novel about mandated limitations on private ordering in corporate governance.48

848–849 (Del. Ch. 2004) citing Rohe v. Reliance Training Network, Inc., 2000 Del. Ch. LEXIS 108 at *10–*11 (Del. Ch. July 21, 2000)); (ii) the limitation against dividing the board of directors into more than three classes (Del. Code Ann., tit. 8, § 141(d); see also Jones Apparel); (iii) the entitlement of stockholders to inspect the list of stockholders and other corporate books and records (Del. Code Ann., tit. 8, §§ 219(a) and 220(b); Loew’s Theatres, Inc. v. Commercial Credit Co., 243 A.2d 78, 81 (Del. Ch. 1968)); (iv) the right of stockholders to vote as a class on certain amendments to the certificate of incorporation (Del. Code Ann., tit. 8, § 242(b)(2)); (v) appraisal rights (Del. Code Ann., tit. 8, § 262(b)); and (vi) fiduciary duties of corporate directors (Siegman v. Tri-Star Pictures, Inc., C.A. No. 9477 (Del. Ch. May 5, 1989, revised May 30, 1989), reported at 15 Del. J. Corp. L. 218, 236 (1990); cf. Del. Code Ann., tit. 8, § 102(b)(7), permitting elimination of director liability for monetary damages for breach of the duty of care). See also Edward P. Welch and Robert S. Saunders, What We Can Learn From Other Statutory Schemes: Freedom And Its Limits In The Delaware General Corporation Law, 33 Del. J. Corp. L. 845, 857–859 (2008); Jeffrey N. Gordon, Contractual Freedom In Corporate Law: Articles & Comments; The Mandatory Structure Of Corporate Law, 89 Colum.
L. Rev. 1549, 1554 n.16 (1989) (identifying several
of these and other mandatory aspects of Delaware corporation law). 49See letters from Grundfest; Form Letter Type A. Cf. letter from Nine Law Firms. 50 In the case of a non-U.S. domiciled issuer that does not qualify as a foreign private issuer (as defined in Exchange Act Rule 3b–4), we will look to the underlying law of the jurisdiction of organization. See Rule 14a–11(a). 51 It has been argued to us, as a basis for excluding a shareholder proposal under Rule 14a– 8, that Delaware law does not permit a bylaw to deprive the board of directors of the power to amend or repeal it, where the corporation’s certificate of incorporation confers upon the board the power to adopt, amend and repeal bylaws. See, e.g., CVS Caremark Corp., No-Action Letter (March 9, 2010). See also Del. Code Ann., tit. 8, § 109(b) and Centaur Partners, IV v. National Intergroup, Inc., 582 A.2d 923, 929 (Del. 1990). 52See Beth Young, The Corporate Library, ‘‘The Limits of Private Ordering: Restrictions on Shareholders’ Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process’’ (November 2009), available at http://www.sec.gov/ comments/s7-10-09/s71009-568.pdf. See, e.g., Ind. Code § 23–1–39–1; Okla. Stat., tit. 18, § 18–1013. 53Throughout this release, when we refer to ‘‘a nomination pursuant to Rule 14a–11,’’ a ‘‘Rule 14a– 11 nomination,’’ or other similar statement, we are referring to a nomination submitted for inclusion in a company’s proxy materials pursuant to Rule 14a– 11. Second, the argument that there is an inconsistency between mandating inclusion of shareholder nominees in company proxy materials and our concern for the rights of shareholders under the Federal securities laws 49 mistakenly assumes that basic protections of, and rights of, particular shareholders provided under the Federal proxy rules should be able to be abrogated by ‘‘the shareholders’’ of a particular corporation, acting in the aggregate. The rules we adopt today provide individual shareholders the ability to have director nominees included in the corporate proxy materials if State law 50 and governing corporate documents permit a shareholder to nominate directors at the shareholder meeting and the requirements of Rule 14a–11 are satisfied. Those rules similarly facilitate the right of individual shareholders to vote for those nominated, whether by management or another shareholder, if the shareholder has voting rights under State law and the company’s governing documents. The rules we adopt today reflect our judgment that the proxy rules should better facilitate shareholders’ effective exercise of their traditional State law rights to nominate directors and cast their votes for nominees. When the Federal securities laws establish protections or create rights for security holders, they do so individually, not in some aggregated capacity. No provision of the Federal securities laws can be waived by referendum. A rule that would permit some shareholders (even a
majority) to restrict the Federal securities law rights of other shareholders would be without precedent and, we believe, a fundamental misreading of basic premises of the Federal securities laws. In addition, allowing some shareholders to impair the ability of other shareholders to have their director nominees included in company proxy materials cannot be reconciled with the purpose of the rules we are adopting today. In our view, it would be no more appropriate to subject a Federal proxy rule that provides the ability to include nominees in the company proxy statement to a shareholder vote than it would be to subject any other aspect of the proxy rules—including the other required disclosures—to abrogation by shareholder vote. Third, the net effect of our rules will be to expand shareholder choice, not limit it. Our rules will result in a greater number of nominees appearing on a proxy card. Shareholders will continue to have the opportunity to vote solely for management candidates, but our rules will also give shareholders the opportunity to vote for director candidates who otherwise might not have been included in company proxy materials. In addition to these basic conclusions, we note that there are other significant concerns raised by a private ordering approach. A company-by-company shareholder vote on the applicability of Rule 14a–11 would involve substantial direct and indirect, market-wide costs, and it is possible that boards of directors, or shareholders acting with their explicit or implicit encouragement, might seek such shareholder votes, perhaps repeatedly, at no financial cost to themselves but at considerable cost to the company and its shareholders. Another concern relates to the nature of the shareholder vote on whether to opt out of Rule 14a–11: Specifically, in that context management can draw on the full resources of the corporation to promote the adoption of an opt-out, while disaggregated shareholders have no similarly effective platform from which to advocate against an opt-out. In addition, the path to shareholder adoption of a procedure to include nominees in company proxy materials is by no means free of obstructions. While shareholders may ordinarily have the State law right to adopt bylaws providing for inclusion of shareholder nominees in company proxy materials even in the absence of an explicit authorizing statute like Delaware’s, the existence of that right in the absence of such a statute may be challenged. Moreover, we understand that under Delaware law, the board of directors is ordinarily free, subject to its fiduciary duties, to amend or repeal any shareholder-adopted bylaw.51 In addition, not all state statutes confer upon shareholders the power to adopt and amend bylaws, and even where shareholders have that power it is frequently limited by requirements in the company’s governing documents that bylaw amendments be approved by a supermajority shareholder vote.52 After careful consideration of the options
that commenters have suggested, we have determined that the most effective way to facilitate shareholders’ exercise of their traditional State law rights to nominate and elect directors would be through Rule 14a–11 and the related amendments to the proxy rules that we proposed in June 2009. We have concluded that the ability to include shareholder nominees in company proxy materials pursuant to Rule 14a– 11 53 must be available to shareholders who are entitled under State law to nominate and elect directors, regardless of any provision of State law or a company’s governing documents that purports to waive or prohibit the use of Rule 14a–11. In this regard, we note that although the rules we are adopting do not permit a company or its shareholders to opt out of or alter the application of Rule 14a–11, the amendments do contemplate that any additional ability to include shareholder nominees in the company’s proxy materials that may be established in a company’s governing documents will be permissible under our rules. Moreover, our amendments to Rule 14a–8 will facilitate the presentation of proposals

54 In the case of a non-U.S. domiciled issuer that does not qualify as a foreign private issuer, we will look to the underlying law of the jurisdiction of organization. See footnote 50 above. 55See letters from Ameriprise; AT&T; L. Behr; BRT; Burlington Northern; CMCC; Dewey; M. Eng; FedEx; Grundfest; Keating Muething; OPLP; Sidley Austin. 56When it adopted Section 14(a) of the Exchange Act, Congress determined that the exercise of shareholder voting rights via the corporate proxy is a matter of Federal concern, and the statute’s grant of authority is not limited to regulating disclosure. Roosevelt v. E.I. DuPont de Nemours & Co., 958 F.2d 416, 421–422 (D.C. Cir. 1992) (Congress ‘‘did not narrowly train [S]ection 14(a) on the interest of stockholders in receiving information necessary to the intelligent exercise of their’’ State law rights;
Section 14(a) also ‘‘shelters use of the proxy
solicitation process as a means by which stockholders * * * may communicate with each other.’’); see also, e.g., TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 n.10 (1976) (Section 14(a) is a grant of ‘‘broad statutory authority’’). The adoption of Rule 14a–11 reflects our continuing purpose to ensure that proxies are used as a means to enhance the ability of shareholders to make informed choices, especially on the critical subject of who sits on the board of directors. 57 Dodd-Frank Act § 971(a) and (b). These provisions expressly provide that the Commission may issue rules permitting shareholders to use an issuer’s proxy solicitation materials for the purpose of nominating individuals to membership on the board of directors of the issuer. 58Exchange Act § 14(a) and Investment Company Act § 20(a). 59 Dodd-Frank Act § 971(b). 60See letter from BRT. 61Pacific Gas and Electric Company v. Public Utilities Comm’n of California, 475 U.S. 1, 14 n.10 (1986) (emphasis in original). 62Nor does Rule 14a–11 violate the Fifth Amendment, as it does not constitute a regulatory taking. See, e.g., Lingle v. Chevron U.S.A., 544 U.S. 528, 546–47 (2005); Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978). 63Throughout this release, the terms ‘‘proxy contest,’’ ‘‘election contest,’’ and ‘‘contested election’’ refer to any election of directors in which another party commences a solicitation in opposition subject to Exchange Act Rule 14a–12(c). specific procedures for including shareholder nominees for director in company proxy materials, and our adoption of new Exchange Act Rule 14a–18 (which requires disclosure concerning the nominating shareholder or group and the nominee or nominees that generally is consistent with that currently required in an election contest) will help assure that investors are adequately informed about shareholder nominations made through such procedures. In contrast, if State law 54 or a provision of the company’s governing documents were ever to prohibit a shareholder from making a nomination (as opposed to including a validly nominated individual in the company’s proxy materials), Rule 14a–11 would not require the company to include in its proxy materials information about, and the ability to vote for, any such nominee. The rule defers entirely to State law as to whether shareholders have the right to nominate directors and what voting rights shareholders have in the election of directors. While we have concluded that we should provide shareholders the means to have nominees included in proxy materials in certain circumstances, we also are mindful that to accomplish this goal the regulatory structure must arrive at a solution that ultimately is workable. Accordingly, we are adopting a number of significant changes to the rules we proposed in order to address the many thoughtful and constructive comments we received on the specifics of our proposed amendments. The changes that we are making to the amendments are
described in detail throughout this release. There also were a number of suggested changes that we considered and decided not to adopt, as detailed below. B. Our Role in the Proxy Process Several commenters challenged our authority to adopt Rule 14a–11.55 We considered those comments carefully but continue to believe that we have the authority to adopt Rule 14a–11 under
Section 14(a) as originally enacted.56 In
any event, Congress confirmed our authority in this area and removed any doubt that we have authority to adopt a rule such as Rule 14a–11.57 As described more fully below, Rule 14a– 11 is necessary and appropriate in the public interest and for the protection of investors.58 Additionally, as explained below, the terms and conditions of Rule 14a–11 are also in the interests of shareholders and for the protection of investors.59 Therefore, this challenge is now moot. Although our statutory authority to adopt Rule 14a–11 is no longer at issue, the constitutionality of Rule 14a–11 also has been challenged by commenters. We disagree with their arguments.60 Proxy regulations do not infringe on corporate First Amendment rights both because ‘‘management has no interest in corporate property except such interest as derives from the shareholders,’’ and because such regulations ‘‘govern speech by a corporation to itself’’ and therefore ‘‘do not limit the range of information that the corporation may contribute to the public debate.’’ 61 Even if statements in proxy materials are viewed as more than merely internal communications, this communication is of a commercial—not political—nature, and regulation of such statements through Rule 14a–11 is consistent with applicable First Amendment standards.62
C. Summary of the Final Rules
As noted above, we carefully considered the comments and have decided to adopt new Exchange Act Rule 14a–11 with significant modifications in response to the comments. We believe that the new rule will benefit shareholders and protects investors by improving corporate suffrage, the disclosure provided in connection with corporate proxy solicitations, and communication between shareholders in the proxy process. Consistent with the Proposal, Rule 14a–11 will apply only when applicable State law or a company’s governing documents do not prohibit shareholders from nominating a candidate for election as a director. In addition, as adopted, the rule will apply to a foreign issuer that is otherwise subject to our proxy rules only when applicable foreign law does not prohibit shareholders from making such nominations. Also consistent with the Proposal, companies may not ‘‘opt out’’ of the rule—either in favor of a different framework for inclusion of shareholder director nominees in company proxy materials or no framework. In addition, as was proposed, the rule will apply regardless of whether any specified event has occurred to trigger the rule and will apply regardless of whether the company is subject to a concurrent proxy contest.63 Also as proposed, the final rule will apply to companies that are subject to the Exchange Act proxy rules, including investment companies and controlled companies, but will not apply to ‘‘debt-only’’ companies. The rule will apply to smaller reporting companies, but we have decided to delay the rule’s application to these companies for three years. We believe that a delayed effective date for smaller reporting companies should allow those companies to observe how the rule operates for other companies and should allow them to better prepare for implementation of the rules. Delayed implementation for these companies also will allow us to evaluate the implementation of Rule 14a–11 by larger companies and provide us with the additional opportunity to consider whether adjustments to the rule would be appropriate for smaller reporting companies before the rule becomes applicable to them. To use Rule 14a–11, a nominating shareholder or group will be required to satisfy an ownership threshold of at least 3% of the voting power of the company’s securities entitled to be voted at the meeting. Shareholders will be able to aggregate their shares to meet the threshold. The

64 In the case of an investment company, the nominee may not be an ‘‘interested person’’ of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a– 2(a)(19)). See Section II.B.3.b. for a more detailed discussion of the applicability of Rule 14a–11 to registered investment companies. required ownership threshold has been modified from the Proposal, which would have required that a nominating shareholder or group hold 1%, 3%, or 5% of the company’s securities entitled to be voted on the election of directors, depending on accelerated filer status or, in the case of registered investment companies, depending on the net assets of the company. The final rule requires that a nominating shareholder or group must hold both investment and voting power, either directly or through any person acting on their behalf, of the securities. In calculating the ownership percentage held, under certain conditions, a nominating shareholder or member of the nominating shareholder group would be able to include securities loaned to a third party in the calculation of ownership. In determining the total voting power held by the nominating shareholder or any member of the nominating shareholder group, securities sold short (as well as securities borrowed that are not otherwise excludable) must be deducted from the amount of securities that may be counted towards the required ownership threshold. In addition, a nominating shareholder (or in the case of a group, each member of the group) will be required to have held the qualifying amount of securities continuously for at least three years as of the date the nominating shareholder or group submits notice of its intent to use Rule 14a–11 (on a filed Schedule 14N), rather than for one year, as was proposed. Consistent with the proposed amendments, we are adopting a requirement that the nominating shareholder or members of the group must continue to own the qualifying amount of securities through the date of the meeting at which directors are elected and provide disclosure concerning their intent with regard to continued ownership of the securities after the election of directors. In addition, the nominating shareholder (or where there is a nominating shareholder group, any member of the nominating shareholder group) may not be 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 company could be required to include under Rule 14a–11, and may not have a direct or indirect agreement with the company regarding the nomination of the nominee or nominees prior to filing the
Schedule 14N.
The nominating shareholder or group must provide notice to the company of its intent to use Rule 14a–11 no earlier than 150 days prior to the anniversary of the mailing of the prior year’s proxy statement and no later than 120 days prior to this date. The final rule differs from the Proposal, which would have required the nominating shareholder or group to provide notice to the company no later than 120 days prior to the anniversary of the mailing of the prior year’s proxy statement or in accordance with the company’s advance notice provision, if applicable. As was proposed, under the final rule the nominating shareholder or group will be required to file on EDGAR and transmit to the company its notice on Schedule 14N on the same date. The rule also includes certain requirements applicable to the shareholder nominee. Consistent with the Proposal, the final rule provides that the company will not be required to include any nominee whose candidacy or, if elected, board membership would violate controlling state or Federal law, or the applicable standards of a national securities exchange or national securities association, except with regard to director independence requirements that rely on a subjective determination by the board, and such violation could not be cured during the provided time period.64 In addition, the rule we are adopting provides that a company will not be required to include any nominee whose candidacy or, if elected, board membership would violate controlling foreign law. As we proposed, the rule does not include any restrictions on the relationships between the nominee and the nominating shareholder or group. As was proposed, under Rule 14a–11, a company will not be required to include more than one shareholder nominee, or a number of nominees that represents up to 25% of the company’s board of directors, whichever is greater. Where there are multiple eligible nominating shareholders, the nominating shareholder or group with the highest percentage of the company’s voting power would have its nominees included in the company’s proxy materials, rather than the nominating shareholder or group that is first to submit a notice on Schedule 14N, as we had proposed. We also have clarified in the final rule that when a company has a classified (staggered) board, the 25% calculation would still be based on the total number of board seats. In addition, in response to public comment, we have added a provision to the rule designed to prevent the potential unintended consequences of discouraging dialogue and negotiation between company management and nominating shareholders. Under this provision, shareholder nominees of an eligible nominating shareholder or group with the highest qualifying voting power percentage that a company agrees to include as company nominees after the filing of the Schedule 14N would count toward the 25%. The notice on Schedule 14N will be required to include:

• Disclosure concerning:
• The amount and percentage of
  voting power of the company’s securities entitled to be voted by the nominating shareholder or group and the length of ownership of those securities;
• Biographical and other information
  about the nominating shareholder or group and the shareholder nominee or nominees, similar to the disclosure currently required in a contested election;
• Whether or not the nominee or
  nominees satisfy the company’s director qualifications, if any (as provided in the company’s governing documents);
• Certifications that, after reasonable
  inquiry and based on the nominating shareholder’s or group’s knowledge, the:
• Nominating shareholder (or where
  there is a nominating shareholder group, each member of the nominating shareholder group) is not holding any of 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 company could be required to include under Rule 14a–11;
• Nominating shareholder or group
  otherwise satisfies the requirements of Rule 14a–11, as applicable; and
• Nominee or nominees satisfy the
  requirements of Rule 14a–11, as applicable;
• A statement that the nominating
  shareholder or group members will continue to hold the qualifying amount of securities through the date of the meeting and a statement with regard to the nominating shareholder’s or group member’s intended ownership of the securities following the election of directors (which may be contingent on the

results of the election of directors); and

• A statement in support of each
  shareholder nominee, not to exceed 500 words per nominee (the statement would be at the option of the nominating shareholder or group). These requirements for Schedule 14N are largely consistent with the Proposal, with some modifications made in response to comments. Among the modifications is the new disclosure requirement concerning whether, to the best of the nominating shareholder’s or group’s knowledge, the nominee or nominees satisfy the company’s director qualifications, if any (as provided in the company’s governing documents). We also have revised the certifications to require certification not only with regard to control intent, but also with regard to the other nominating shareholder and nominee eligibility requirements. A company that receives a notice on
  Schedule 14N from an eligible
  nominating shareholder or group will be required to include in its proxy statement disclosure concerning the nominating shareholder or group and the shareholder nominee or nominees, and include on its proxy card the names of the shareholder nominees. The nominating shareholder or group will be liable for any statement in the notice on
  Schedule 14N 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 that omits to state any material fact necessary to make the statements therein not false or misleading, including when that information is subsequently included in the company’s proxy statement. The company will not be responsible for this information. These liability provisions are included in the final rules largely as proposed, but with two changes in response to comments. Final Rule 14a– 9(c) makes clear that the nominating shareholder or group will be liable for any statement in the Schedule 14N or any other related communication that is false or misleading with respect to any material fact, or that omits to state any material fact necessary to make the statements therein not false or misleading, regardless of whether that information is ultimately included in the company’s proxy statement. In addition, consistent with the existing approach in Rule 14a–8, under Rule 14a–11 as adopted, a company will not be responsible for any information provided by the nominating shareholder or group and included in the company’s proxy statement. Under the Proposal, a company would not have been responsible for any information provided by the nominating shareholder or group except where the company knows or has reason to know that the information is false or misleading. A company will not be required to include a nominee or nominees if the nominating shareholder or group or the nominee fails to satisfy the eligibility requirements of Rule 14a–11. A company that determines it may exclude a nominee or nominees must provide a notice to the Commission regarding its intent to exclude the nominee or nominees. The company also may submit a request for the staff’s informal view with respect to the company’s determination that it may exclude the nominee or nominees (commonly referred to as ‘‘no-action’’ requests). In addition, a company could exclude a nominating shareholder’s or group’s statement of support if the statement exceeds 500 words per nominee and could seek a no-action letter from the staff with regard to this determination if it so desired. In the event that a nominating shareholder or group or nominee withdraws or is disqualified prior to the time the company commences printing the proxy materials, under certain circumstances companies will be required to include a substitute nominee if there are other eligible nominees. Therefore, companies seeking a no-action letter from the staff with respect to their decision to exclude any Rule 14a–11 nominee or nominees would need to seek a no-action letter on all nominees that they believe they can exclude at the outset. We also have adopted two new exemptions, slightly modified from the Proposal, to the proxy rules for solicitations in connection with a Rule 14a–11 nomination. The first exemption applies to written and oral solicitations by shareholders who are seeking to form a nominating shareholder
  group. Reliance on this new exemption will require:
• That the shareholder not be 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;
• Limiting the content of written
  communications to certain information specified in the rule;
• Filing all written soliciting
  materials sent to shareholders in reliance on the exemption with the Commission or, in the case of oral communications, a filing under cover of
  Schedule 14N with the appropriate box
  checked before or at the same time as the first solicitation in reliance on the new exemption; and
• No solicitations in connection with
  the subject election of directors other than pursuant to the provisions of Rule 14a–11 and the new exemption described below. Shareholders that do not want to rely on this new exemption could opt to rely on other exemptions from the proxy rules (e.g., Rule 14a–2(b)(2), which is limited to solicitations of not more than 10 persons). The second new exemption applies to written and oral solicitations by or on behalf of a nominating shareholder or group whose nominee or nominees are or will be included in the company’s proxy materials pursuant to Rule 14a–11 in favor of shareholder nominees or for or against company nominees. Reliance on this new exemption will require:
• That the nominating shareholder or
  group does not seek the power to act as a proxy for another shareholder;
• Disclosing certain information
  (including the identity of the nominating shareholder or group, and a prominent legend about availability of the proxy materials) in all written communications;
• Filing all written soliciting
  materials sent to shareholders in reliance on the exemption with the Commission under cover of Schedule 14N with the appropriate box checked; and
• No solicitations in connection with
  the subject election of directors other than pursuant to the provisions of Rule 14a–11 and this new exemption. Consistent with the Proposal, we also are amending our beneficial ownership reporting rules so that shareholders relying on Rule 14a–11 would not become ineligible to file a Schedule 13G, in lieu of filing a Schedule 13D, solely as a result of activities in connection with inclusion of a nominee under Rule 14a–11. Also consistent with the proposed amendments, we are not adopting an exclusion from Exchange Act Section 16 for activities in connection with a nomination under Rule 14a–11 that may trigger a filing requirement by nominating shareholders. In addition, after considering the comments, we are not adopting a specific exclusion from the definition of affiliate for nominating shareholders. Finally, consistent with the Proposal, we are narrowing the scope of the exclusion in Rule 14a–8(i)(8) relating to the election of directors. The revised rule will provide that companies must include in their proxy materials, under

65See Section II.C.5. below.
66See discussion in footnote 50 above. 67Under State law, a company’s governing documents may have various names. When we refer to governing documents throughout the release and rule text, we generally are referring to a company’s charter, articles of incorporation, certificate of incorporation, declaration of trust, and/or bylaws, as applicable. 68We are not aware of any law in any state or in the District of Columbia or in any country that currently prohibits shareholders from nominating directors. Nonetheless, should any such law be enacted in the future, Rule 14a–11 will not apply. 69See discussion in Section II.C.5. below. 70As would currently be the case if a State law permitted a company to prohibit shareholders from nominating candidates for director, a shareholder proposal seeking to prohibit shareholder nominations for director generally or, conversely, to allow shareholder nominations for director, would not be excludable pursuant to Rule 14a–8(i)(8). 71See the Proposing Release; the 2003 Proposal; the Election of Directors Proposing Release; and the Shareholder Proposals Proposing Release. See also the Roundtable on the Federal Proxy Rules and State Corporation Law and the Roundtable on Proposals of Shareholders available at http:// www.sec.gov/spotlight/proxyprocess.htm. 72See letters from CII; COPERA; CtW Investment Group; L. Dallas; T. DiNapoli; Florida State Board of Administration; ICGN; D. Nappier; OPERS; Pax World; Teamsters. 73See letters from ABA; Advance Auto Parts; Atlas Industries, Inc. (‘‘Atlas’’); J. Blanchard; Samuel W. Bodman (‘‘S. Bodman’’); Boeing; Brink’s; BRT; Burlington Northern; Callaway; Cargill (‘‘Cargill’’); Carlson; Carolina Mills; Chamber of Commerce/ CMCC; Jaime Chico (‘‘J. Chico’’); Consolidated Edison, Inc. (‘‘Con Edison’’); Anthony Conte (‘‘A. Conte’’); W. Cornwell; Crown Battery Manufacturing Co. (‘‘Crown Battery’’); CSX; Darden Restaurants; Eaton; FedEx; FPL Group; Frontier; Hickory Furniture Mart (‘‘Hickory Furniture’’); IBM; Keating Muething; Little; Louisiana Agencies LLC (‘‘Louisiana Agencies’’); Massey Services, Inc. (‘‘Massey Services’’); John B. McCoy (‘‘J. McCoy’’); D. McDonald; MedFaxx; Metlife; M. Metz; Norfolk Southern Corporation (‘‘Norfolk Southern’’); O3 Strategies, Inc. (‘‘O3 Strategies’’); Office Depot; Victor Pelson (‘‘V. Pelson’’); PepsiCo; Pfizer; Ryder; Sidley Austin; Southland; Style Crest; Tenet Healthcare Corporation (‘‘Tenet’’); TI; tw telecom; L. Tyson; United Brotherhood of Carpenters; T. White. 74See letters from ABA; Anonymous letter dated June 26, 2009 (‘‘Anonymous #2’’); Atlas; AT&T; Book Celler; Carlson; Carolina Mills; Chamber of Commerce/CMCC; Chevron; Crespin; M. Eng; Erickson; ExxonMobil; Fenwick & West LLP (‘‘Fenwick’’); GE; General Mills; Glass, Lewis & Co., LLC (‘‘Glass Lewis’’); Glaspell Goals (‘‘Glaspell’’); Intelect; R. Clark King; Koppers Inc. (‘‘Koppers’’); MCO Transport, Inc. (‘‘MCO’’); MeadWestvaco; MedFaxx; Medical Insurance; Merchants Terminal; Dana
Merilatt (‘‘D. Merilatt’’); NAM; NIRI; NK; O3 Strategies; Roppe Holding Company (‘‘Roppe’’); Rosen Hotels and Resorts (‘‘Rosen’’); Safeway; Sara Lee; Schneider National, Inc. (‘‘Schneider’’); Southland; Style Crest; Tenet; TI; tw telecom; Rick VanEngelenhoven (‘‘R. VanEngelenhoven’’); Wachtell; Wells Fargo; Weyerhaeuser; Yahoo. certain circumstances, shareholder proposals that seek to establish a procedure in the company’s governing documents for the inclusion of one or more shareholder director nominees in a company’s proxy materials. As we proposed, the final rules provide that a nominating shareholder that is relying on a procedure under State law or a company’s governing documents to include a nominee in a company’s proxy materials would be required to provide disclosure concerning the nominating shareholder and nominee or nominees to the company on Schedule 14N and file the
Schedule 14N on EDGAR. In response to
comment, we have clarified that the disclosure also would be required for nominations made pursuant to foreign law.65 The disclosure requirements on
Schedule 14N for nominations made
pursuant to a procedure under state or foreign law, or a company’s governing documents largely mirror those for a Rule 14a–11 nomination. As with Rule 14a–11 nominees, a company would include in its proxy materials disclosure concerning the nominating shareholder or group and shareholder nominee similar to the disclosure currently required in a contested election. The nominating shareholder or group would have liability for any statement in the notice on Schedule 14N or in information otherwise provided to the company and included in the 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 that omits to state any material fact necessary to make the statements therein not false or misleading. The company would not be responsible for the information provided to the company and required to be included in the company proxy statement.
II. Changes to the Proxy Rules
A. Introduction
After careful consideration of the comments received on the Proposal, we are adopting amendments to the proxy rules to facilitate the effective exercise of shareholders’ traditional State law rights to nominate and elect directors to company boards of directors. Under the new rules, shareholders meeting certain requirements will have two ways to more fully exercise their right to nominate directors. First, we are adopting a new proxy rule, Rule 14a–11, which will, under certain circumstances, require companies to provide shareholders with information about, and the ability to vote for, a shareholder’s, or group of shareholders’, nominees for director in the companies’ proxy materials. This requirement will apply unless State law, foreign law,66 or a company’s governing documents 67 prohibits shareholders from nominating directors.68 In addition to the standards provided in new Rule 14a–11, provisions under State law, foreign law, or a company’s governing documents 69 could provide an additional avenue for shareholders to submit nominees for inclusion in company proxy materials, but would not act as a substitute for Rule 14a–11. Thus, Rule 14a–11 will continue to be available to shareholders regardless of whether they also can avail themselves of a provision under State law, foreign law, or a company’s governing documents. Second, we are amending Rule 14a– 8(i)(8) to preclude companies from relying on Rule 14a–8(i)(8) to exclude from their proxy materials shareholder proposals by qualifying shareholders that seek 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. A company must include such a shareholder proposal under the final rules as long as the procedural requirements of Rule 14a–8 are met and the proposal is not subject to exclusion under one of the other substantive bases. In this regard, a shareholder proposal seeking to limit or remove the availability of Rule 14a–11 would be subject to exclusion under Rule 14a–8.70 As described throughout this release, we have made many changes to the final rules in response to comments received. We believe the final rules reflect a careful balancing of the policy, workability, and other comments we received on the Proposal. B. Exchange Act Rule 14a–11

1. Overview
   Based on the comments received in response to our solicitation of public input on the Proposal and on prior releases and in roundtables,71 we understand that shareholders face significant obstacles to effectively exercising their rights to nominate and elect directors to corporate boards. We have received significant public comment supporting the view that including shareholder nominees for director in company proxy materials would be the most direct and effective method of facilitating shareholders’ rights in connection with the nomination and election of directors.72 On the other hand, many commenters have expressed concern that mandating shareholder access to company proxy materials would lead to more proxy contests or ‘‘politicized elections,’’ 73 which would be distracting, expensive, time-consuming, and inefficient for companies, boards, and management.74

75See letters from 3M; ABA; American Electric Power; Atlantic Bingo; AT&T; Avis Budget; Biogen; Boeing; BRT; Burlington Northern; Callaway; Carlson; Chamber of Commerce/CMCC; CIGNA; Columbine Health Plan (‘‘Columbine’’); Cummins; CSX; John T. Dillon (‘‘J. Dillon’’); Emerson Electric; Erickson; ExxonMobil; FedEx; Headwaters Incorporated (‘‘Headwaters’’); C. Holliday; IBM; Intelect; R. Clark King; Lange Transport (‘‘Lange’’); Louisiana Agencies; MetLife; NIRI; O3 Strategies; V. Pelson; PepsiCo; Pfizer; Roppe; Rosen; Ryder; Sara Lee; Sidley Austin; tw telecom; Wachtell; Wells Fargo; Weyerhaeuser; Yahoo. 76See letters from Ameriprise; Anonymous #2; Artistic Land Designs; Chamber of Commerce/ CMCC; Crown Battery; Evelyn Y. Davis (‘‘E. Davis’’); Kernan; Medical Insurance; Mouton; Unitrin; R. VanEngelenhoven; Wells Fargo. 77See new Exchange Act Rule 14a–11. 78See letters from S&C; Curtis, Mallet-Prevost, Colt & Mosle LLP (‘‘Curtis’’). 79See footnote 70 above. 80New Schedule 14N, which is described further in Section II.B.8. below, includes check boxes where a nominating shareholder or group must specify whether it is seeking to include the nominee or nominees in the company’s proxy materials under Rule 14a–11 or pursuant to a provision in State law, foreign law, or a company’s governing documents. 81See letters from 26 Corporate Secretaries; ABA; ACE; Advance Auto Parts; AGL; Aetna; Allstate; Alston & Bird; American Bankers Association; Commenters also opined that the increased likelihood of a contested election could discourage experienced and capable individuals from serving on boards, making it more difficult for companies to recruit qualified directors or create boards with the proper mix of experience, skills, and characteristics.75 The current filing and other requirements applicable to shareholders who wish to propose an alternate slate are, in the view of these commenters, more appropriate than including shareholder nominees for director in company proxy materials.76 As we also noted in the Proposing Release, we recognize that there are long-held and deeply felt views on every side of these issues. To the extent shareholders have the right to nominate directors at meetings of shareholders, the Federal proxy rules should facilitate the exercise of this right. We believe the rules we are adopting today will better accomplish this goal and will further our mission of investor protection. New Rule 14a–11 will require companies to include information about shareholder nominees for director in company proxy statements, and the names of the nominee or nominees as choices on company proxy cards, under specified conditions.77 The rule will permit companies to exclude a nominee or nominees from the company’s proxy materials under certain circumstances, such as when a nominating shareholder or group fails to satisfy the eligibility requirements of the rule. In the following sections we describe, in detail, the final rules, comments received on the
Proposal, and changes made in response to the comments.
2. When Rule 14a–11 Will Apply
In this section, we address the rule’s application, including when there are conflicting or overlapping provisions under state or foreign law or a company’s governing documents, during concurrent proxy contests, and in the absence of any specific triggering events. We also address the reasons why neither an opt-in nor opt-out provision is necessary or appropriate. a. Interaction With State or Foreign Law While we are not aware of any law in any state or in the District of Columbia that prohibits shareholders from nominating directors, consistent with the Proposal, a company to which the rule would otherwise apply will not be subject to Rule 14a–11 if applicable State law or the company’s governing documents prohibit shareholders from nominating candidates for the board of directors. The final rule also clarifies that, in the case of a non-U.S. domiciled issuer that does not meet the definition of foreign private issuer under the Federal securities laws, the rule will not apply if applicable foreign law prohibits shareholders from nominating a candidate for election as a director.78 If a company’s governing documents prohibit shareholder nominations, shareholders could seek to amend the provision by submitting a shareholder proposal under Rule 14a–8.79 Consistent with the Proposal, Rule 14a–11 will apply regardless of whether state or foreign law or a company’s governing documents prohibit inclusion of shareholder director nominees in company proxy materials or set share ownership or other terms that are more restrictive than Rule 14a–11 under which shareholder director nominees will be included in company proxy materials. For example, if applicable state or foreign law or a company’s governing documents were to require that shareholder nominees be included in company proxy materials only if submitted by a 10% shareholder of the company, a shareholder who does not meet the 10% threshold but does meet the requirements of Rule 14a–11, including the 3% ownership threshold described below, would be able to submit their nominee or nominees for inclusion in the company’s proxy materials pursuant to Rule 14a–11. If, on the other hand, applicable state or foreign law or a company’s governing documents sets the ownership threshold lower than the 3% ownership threshold required under Rule 14a–11, then Rule 14a–11 would not be available to holders with ownership below the Rule 14a–11 threshold. Those shareholders meeting the lower ownership threshold would have the ability to have their nominees included in the company’s proxy materials to whatever extent is provided under applicable state or foreign law or the company’s governing documents. In this instance, new Exchange Act Rule 14a–18, discussed in
Section II.C.5. below, would require
specified disclosures concerning the nominating shareholder or group and the shareholder nominee or nominees. There also may be situations where applicable state or foreign law or a company’s governing documents are more permissive in certain respects, and more restrictive in other respects, than Rule 14a–11. For example, applicable state or foreign law or a company’s governing documents could require 10% ownership to have a nominee or nominees included in a company’s proxy materials, but allow a shareholder that owns 10% to have nominees up to the full number of board seats included in a company’s proxy materials or to otherwise have a change in control intent. While Rule 14a–11 would continue to be available in that case for a shareholder that is eligible to use it, a shareholder could choose to proceed under the alternate procedure and standards. In this instance, a shareholder would be required to clearly evidence its intent to rely either on Rule 14a–11 or on the applicable state or foreign law or company’s governing documents, and then meet all of the requirements of whichever procedure it selects.80 A shareholder could not ‘‘pick and choose’’ different aspects of different procedures. If a shareholder chooses to rely on a provision under applicable state or foreign law or a company’s governing documents to include a nominee in a company’s proxy materials, it would be required to satisfy the disclosure requirements of new Rule 14a–18. b. Opt-In Not Required In the Proposing Release, we requested comment on whether Rule 14a–11 should apply only if shareholders of a company elect to have it apply at their company. While commenters did not specifically address the possibility of shareholders opting into Rule 14a–11, many commenters opposed the Commission’s Proposal on the basis that it would create a ‘‘one size fits all’’ Federal rule that intrudes into matters that traditionally have been the province of state or local law.81 Those

American Business Conference; American Electric Power; Anadarko; Applied Materials; Artistic Land Designs; Association of Corporate Counsel; Avis Budget; Atlantic Bingo; L. Behr; Best Buy; Biogen; J. Blanchard; Boeing; T. Bonkowski; BorgWarner; Boston Scientific; Brink’s; BRT; Burlington Northern; R. Burt; California Bar; Callaway; S. Campbell; Carlson; Carolina Mills; Caterpillar; Chamber of Commerce/CMCC; Chevron; R. Chicko; CIGNA; Comcast; Competitive Enterprise Institute; W. Cornwell; CSX; E. Culwell; Cummins; Darden Restaurants; Daniels Manufacturing; Davis Polk; Delaware Bar; T. Dermody; Devon; DTE Energy; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; M. Eng; Erickson; ExxonMobil; FedEx; Financial Services Roundtable; Flutterby; FPL Group; Frontier; GE; A. Goolsby; Grundfest; C. Holliday; IBM; ICI; Intelect; JPMorgan Chase; Jones Day; R. Clark King; Leggett; T. Liddell; Little; McDonald’s; MeadWestvaco; MedFaxx; Medical Insurance; MetLife; M. Metz; Microsoft; J. Miller; M. Moretti; Motorola; NACD; NAM; NIRI; O’Melveny & Myers; Office Depot; Omaha Door; P&G; PepsiCo; Pfizer; Realogy; J. Robert; M. Robert; RPM; Ryder; Safeway; R. Saul; Shearman & Sterling; Sherwin￾Williams; R. Simoneau; Society of Corporate Secretaries; Southern Company; Southland; Steele Group; Style Crest; Tesoro; Textron; Theragenics; TI;. R. Trummel; T. Trummel; V. Trummel; tw telecom; L. Tyson; United Brotherhood of Carpenters; UnitedHealth; U.S. Bancorp; VCG; Wachtell; Wellness; Wells Fargo; Whirlpool; Xerox; Yahoo; J. Young. 82See letters from ABA; BRT; Davis Polk; Delaware Bar; Frontier; IBM; Protective. 83See letters from 13D Monitor (‘‘13D Monitor’’); AFL–CIO; CalPERS; CFA Institute Centre for Market Integrity (‘‘CFA Institute’’); CII; Florida State Board of Administration; ICGN; LIUNA; D. Nappier; P. Neuhauser; OPERS; Pax World; RiskMetrics; SWIB; Teamsters; USPE. 84See letters from ABA; Advance Auto Parts; Aetna; American Bankers Association; American Electric Power; American Express; Applied Materials; Association of Corporate Counsel; Best Buy; BRT; California Bar; Carlson; J. Chico; Cleary Gottlieb Steen & Hamilton LLP (‘‘Cleary’’); Comcast; Con Edison; CSX; Cummins; L. Dallas; Davis Polk; Devon; Dupont; ExxonMobil; Financial Services Roundtable; FPL Group; IBM; JPMorgan Chase; Keating Muething; Koppers; Alexander Krakovsky (‘‘A. Krakovsky’’); Group of 10 Harvard Business School and Harvard Law School Professors (‘‘Lorsch et al.’’); Brett H. McDonnell (‘‘B. McDonnell’’); Motorola; O’Melveny & Myers; P&G; Pfizer; S&C; Sara Lee; Group of Seven Law Firms (‘‘Seven Law Firms’’); Shearman & Sterling; Securities Industry and Financial Markets Association (‘‘SIFMA’’); Society of Corporate Secretaries; Southern Company; U.S. Bancorp; Wachtell. 85See letters from ABA; BRT; Delaware Bar. 86See letters from DTE Energy (endorsing the opt￾out approach described in the letter submitted by the Society of Corporate Secretaries); JPMorgan Chase; P&G; Seven Law
Firms; Society of Corporate Secretaries; U.S. Bancorp. 87See letters from 13D Monitor; AFL–CIO; CalPERS; CFA Institute; CII; Florida State Board of Administration; ICGN; LIUNA; D. Nappier; P. Neuhauser; Pax World; OPERS; RiskMetrics; SWIB; Teamsters; USPE. 88See letters from 13D Monitor; AFL–CIO; CalPERS; CFA Institute; CII; Florida State Board of Administration; ICGN; LIUNA; D. Nappier; P. Neuhauser; Pax World; OPERS; RiskMetrics; SWIB; Teamsters; USPE. 89See letters from AFL–CIO; Amalgamated Bank; William Baker (‘‘W. Baker’’); Florida State Board of Administration; International Association of Machinists and Aerospace Workers (‘‘IAM’’); The Marco Consulting Group (‘‘Marco Consulting’’); P. Neuhauser; Nine Law Firms; Norges Bank Investment Management (‘‘Norges Bank’’); Relational; Shamrock Capital Advisors, Inc. (‘‘Shamrock’’); TIAA–CREF; USPE; ValueAct Capital. 90See letters from Florida State Board of Administration; P. Neuhauser; Shamrock. 91See letter from Shamrock. 92See letter from P. Neuhauser. 93Letter from Nine Law Firms. commenters asked the Commission to permit private ordering so that companies and shareholders could devise, if they chose to, a process for the inclusion of shareholder director nominees in company proxy materials that best suits their particular circumstances. Commenters also expressed fears that the Commission’s Proposal, if adopted, would stifle future innovations relating to inclusion of shareholder director nominees in company proxy materials and corporate governance in general.82 On the other hand, some commenters expressed general support for uniform applicability of proposed Rule 14a–11, unless State law or the company’s governing documents prohibit shareholders from nominating candidates to the board.83 Though we considered commenters’ views concerning a private ordering approach, as discussed in Section I.A. above, we have concluded that our rules should provide shareholders the ability to include director nominees in company proxy materials without the need for shareholders to bear the burdens of overcoming the substantial obstacles to creating that ability on a company-by-company basis. Rule 14a– 11 is designed to facilitate the effective exercise of shareholder director nomination and election rights. Requiring shareholders to persuade other shareholders to opt into a system that better facilitates such State law rights would frustrate the benefits that our new rule seeks to promote.
c. No Opt-Out
In the Proposing Release, we sought comment on whether Rule 14a–11 should be inapplicable where a company has or adopts a provision in its governing documents that provides for, or prohibits, the inclusion of shareholder director nominees in the company’s proxy materials. We also sought comment on whether Rule 14a– 11 should apply in various circumstances, such as where shareholders approve provisions in the governing documents that are more or less restrictive than Rule 14a–11. Commenters were divided on whether companies and shareholders should be permitted to adopt alternative requirements for shareholder director nominations, or to completely opt out of Rule 14a–11. Many commenters generally supported a provision that would permit companies and shareholders to adopt alternative requirements for shareholder director nominations that could be either more restrictive or less restrictive than those of Rule 14a–11.84 Among these commenters, some argued that creating a ‘‘one-size-fits-all’’ rule that cannot be altered by companies and shareholders conflicts with the traditional enabling approach of state corporation laws and denies shareholder choice.85 Some commenters advocated allowing companies to opt out of Rule 14a–11 through a shareholder-approved bylaw (including through a Rule 14a–8 shareholder proposal), with some suggesting that Rule 14a–11 apply initially only to companies that have not opted out through a shareholder￾approved process by the time of the first annual meeting held after the adoption of the proposed rules.86 On the other hand, several commenters expressed support for the uniform applicability of Rule 14a–11.87 These commenters expressed general support for the Commission’s Proposal that Rule 14a–11 apply to all companies subject to the Federal proxy rules unless State law or the company’s governing documents prohibit shareholders from nominating candidates to the board.88 Several commenters stated they oppose a provision that would permit companies to opt out of Rule 14a–11.89 Some commenters expressed a general concern that if companies are allowed to opt out of the rule, boards would adopt provisions in a company’s governing documents that are so restrictive that it would be impossible for shareholders to have their candidates included in company proxy materials,90 with one commenter noting that the laws of most states would allow a board to adopt such provisions in a company’s bylaws without a shareholder vote.91 Further, a commenter warned that boards would use corporate funds to defeat shareholders’ attempts to change such board-adopted provisions through shareholder proposals.92 One commenter argued that the ‘‘idea that individual corporations should be given the right to ‘opt out’ of the proposed regulations through bylaws or otherwise is contrary to the Commission’s entire regulatory scheme’’ and referred to
Section 14 of the Securities Act,93
which voids ‘‘[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this

94 15 U.S.C. 77n.
95Business Roundtable v. SEC, 905 F.2d 406, 410 (D.C. Cir. 1990). 96Our view in this regard has been sharply criticized. E.g., Joseph A. Grundfest, The SEC’s Proposed Proxy Access Rules: Politics, Economics, and the Law, 65 Bus. Law. 361, 370 (2010) (this
article also was included as an attachment to the
January 18, 2010 letter from Joseph A. Grundfest (‘‘Grundfest II’’)) (‘‘there is no intellectually credible argument that shareholders are * * * competent to elect directors but incompetent to determine the rules governing the election of directors. There is also no support for the proposition that shareholders can be trusted to relax the mandatory minimum standards established by the Commission, but not to strengthen them.’’). In our view, these assertions are flawed. This is not an issue of shareholder competence. It is, instead, a recognition that permitting a company or a group of shareholders to prevent shareholders from effectively participating in governing the corporation through participation in the proxy process is fundamentally inconsistent with the goal of Federal proxy regulation. See Business Roundtable, 905 F.2d at 410. 97See letters from 26 Corporate Secretaries; ABA; ACE; Advance Auto Parts; AGL; Aetna; Allstate; Alston & Bird; American Bankers Association; American Business Conference; American Electric Power; Anadarko; Applied Materials; Artistic Land Designs; Association of Corporate Counsel; Avis Budget; Atlantic Bingo; L. Behr; Best Buy; Biogen; J. Blanchard; Boeing; T. Bonkowski; BorgWarner; Boston Scientific; Brink’s; BRT; Burlington Northern; R. Burt; California Bar; Callaway; S. Campbell; Carlson; Carolina Mills; Caterpillar; Chamber of Commerce/CMCC; Chevron; R. Chicko; CIGNA; Comcast; Competitive Enterprise Institute; W. Cornwell; CSX; E. Culwell; Cummins; Darden Restaurants; Daniels Manufacturing; Davis Polk; Delaware Bar; T. Dermody; Devon; DTE Energy; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; M. Eng; Erickson; ExxonMobil; FedEx; Financial Services Roundtable; Flutterby; FPL Group; Frontier; GE; A. Goolsby; C. Holliday; IBM; ICI; Intelect; JPMorgan Chase; Jones Day; R. Clark King; Leggett; T. Liddell; Little; McDonald’s; MeadWestvaco; MedFaxx; Medical Insurance; Metlife; M. Metz; Microsoft; J. Miller; M. Moretti; Motorola; NACD; NAM; NIRI; O’Melveny & Myers; Office Depot; Omaha Door; P&G; PepsiCo; Pfizer; Realogy; J. Robert; M. Robert; RPM; Ryder; Safeway; R. Saul; Shearman & Sterling; Sherwin-Williams; R. Simoneau; Society of Corporate Secretaries; Southern Company; Southland; Steele Group; Style Crest; Tesoro; Textron; Theragenics; TI;. R. Trummel; T. Trummel; V. Trummel; tw telecom; L. Tyson; United Brotherhood of Carpenters; UnitedHealth; U.S. Bancorp; VCG; Wachtell; Wellness; Wells Fargo; Whirlpool; Xerox; Yahoo; J. Young. 98This triggering event could not occur in a contested election to which Rule 14a–12(c) would apply or an election to which the proposed shareholder nomination procedure would have applied. title or of the rules and regulations of the Commission* * *.’’ 94 After carefully considering the comments, we have determined that Rule 14a–11 should not provide an exemption for companies that have or adopt a provision in their governing documents that provides for or prohibits the
inclusion of shareholder director nominees in the company’s proxy materials. Thus, regardless of whether a company has a provision for the inclusion of shareholder nominees in its proxy materials, Rule 14a–11 will apply. As noted, the only exception is if state or foreign law or a company’s governing documents prohibits shareholders from making director nominations. We believe the rights to nominate and elect directors are traditional State law rights of all shareholders and we believe the current proxy rules could better facilitate the effective exercise of these State law rights. We do not believe that it is appropriate for our rules to permit a company’s board or a majority of shareholders to elect to opt out of Rule 14a–11 and thus deprive other shareholders of an effective means to exercise their State law right to nominate directors and to freely exercise their franchise rights. Thus, allowing a vote to opt out of the rule would contravene a fundamental rationale of Rule 14a–11—improving the degree to which shareholders participating through the proxy process are able ‘‘to control the corporation as effectively as they might have by attending a shareholder meeting.’’ 95 When shareholders have the right to nominate candidates for director at a shareholder meeting, we believe shareholder choice is enhanced if our rules facilitate the ability of shareholders to nominate candidates for director through the proxy process. Allowing a company or a majority of its shareholders to opt out of the rule would diminish the rights of shareholders who participate by proxy by preventing shareholder nominees from being included in company proxy materials, thus reducing shareholder choice in the critical area of director elections. Similarly, allowing a company or a majority of its shareholders to opt out of the rule would diminish the ability of shareholders to vote for nominees put forth by other shareholders. In addition, companies and their shareholders do not have the option to elect to opt out of other Federal proxy rules and we do not believe they should have the ability to do so with this rule. In our view, shareholders’ electoral rights through the proxy process should not be impaired by a unilateral act of the board of directors, or even by a shareholder vote supported by management. Further, as we describe above, allowing some portion of shareholders to alter the application of Rule 14a–11 would effectively reduce choices for shareholders who do not favor that decision.96 Finally, we considered the objections of some commenters to a ‘‘one-size-fits￾all’’ rule and concerns that for some companies with various capital structures the rule may raise more complex issues.97 As we have noted, no Federal proxy rule allows shareholders or boards to alter how the rules apply to companies. The concept that our rules are not subject to company-by￾company variation is entirely consistent with our mandate to protect all investors. In this regard, we are not
persuaded that we should allow our rules to be altered by shareholders or boards to the potential detriment of other shareholders. We believe that having a uniform standard that applies to all companies subject to the rule will simplify use of the rule for shareholders and allowing different procedures and requirements to be adopted by each company could add significant complexity and cost for shareholders and undermine the purposes of our new rule. While other procedures and standards could be adopted by companies or shareholders to supplement Rule 14a–11, shareholders would benefit from the predictability of the uniform application of Rule 14a–11 at all companies. It is important to note that while Rule 14a–11 facilitates the existing rights of shareholders and we do not believe the rule should be altered, it is not the exclusive way by which a candidate other than a management nominee may be put to a shareholder vote. Shareholders may continue to choose to conduct traditional proxy contests. Regardless of whether a shareholder uses Rule 14a–11 or conducts a traditional proxy contest to nominate a candidate for director, a company concerned about how such a shareholder nominee fits into its particular capital structure or other unique fact patterns presumably would address that concern in its proxy materials. d. No Triggering Events Under the Commission’s 2003 Proposal, a company would have been subject to the shareholder director nomination requirements after the occurrence of one or both of two possible triggering events. The first triggering event was that at least one of the company’s nominees for the board of directors for whom the company solicited proxies received withhold votes from more than 35% of the votes cast at an annual meeting of shareholders at which directors were elected.98 The second triggering event was that a shareholder proposal submitted under Rule 14a–8 providing that a company become subject to the proposed shareholder nomination procedure was submitted for a vote of

99Only votes for and against a proposal would have been included in the calculation of the shareholder vote. 100See letters from AFSCME; CalSTRS; CFA Institute; CII; COPERA; T. DiNapoli; Florida State Board of Administration; ICGN; N. Lautenbach; LIUNA; D. Nappier; Nathan Cummings Foundation; OPERS; Pax World; Relational; Sodali; SWIB; TIAA–CREF; G. Tooker; USPE; ValueAct Capital. 101See letters from AFSCME; CFA Institute; CII; T. DiNapoli; LIUNA. 102See letters from Automatic Data Processing, Inc. (‘‘ADP’’); Alaska Air Group, Inc. (‘‘Alaska Air’’); Allstate; American Electric Power; Anadarko; AT&T; Avis Budget; Barclays Global Investors (‘‘Barclays’’); Biogen; Boeing; BRT; Burlington Northern; R. Burt; Callaway; Chevron; CIGNA; CNH Global N.V. (‘‘CNH Global’’); Comcast; Cummins; Deere & Company (‘‘Deere’’); Eaton; ExxonMobil; FedEx; FMC Corp.; FPL Group; Frontier; General Mills; C. Holliday; IBM; ITT Corporation (‘‘ITT’’); J. Kilts; Ellen J. Kullman (‘‘E.J. Kullman’’); N. Lautenbach; McDonald’s; J. Miller; Motorola; Office Depot; O’Melveny & Myers; P&G; PepsiCo; Pfizer; Protective; Ryder; Sara Lee; Sherwin-Williams; Theragenics; TI; tw telecom; G. Tooker; UnitedHealth; Xerox. 103See letters from CII; Florida State Board of Administration; Sodali; USPE. 104See letters from ABA; American Express; Biogen; BorgWarner; BRT; Davis Polk; Dewey; Eli Lilly; Fenwick; Honeywell; JPMorgan Chase; Leggett; PepsiCo; Seven Law Firms; Society of Corporate Secretaries; Tenet; U.S. Bancorp; Verizon; Wachtell. 105See letter from CII. 106See letter from Florida State Board of Administration. 107See letters from ABA; BRT; Davis Polk; Eli Lilly; Seven Law Firms; Society of Corporate Secretaries. 108See Eastbourne Capital LLC No-Action Letter (March 30, 2009) and Icahn Associates Corp. No￾Action Letter (March 30, 2009). 109Release No. 33–9052, 34–60280 (July 10, 2009) [74 FR 35076]. 110See letters from ABA; Eli Lilly; JPMorgan Chase; Society of Corporate Secretaries. 111See letters from ABA; Society of Corporate Secretaries. 112See letters from ABA; BRT; Davis Polk; Eli Lilly; PepsiCo; Seven Law Firms; Society of Corporate Secretaries. shareholders at an annual meeting by a shareholder or group of shareholders that held more than 1% of the company’s securities entitled to vote on the proposal and the shareholder or group of shareholders held those securities for one year as of the date the proposal was submitted, and the proposal received more than 50% of the votes cast on that proposal at the meeting.99 In 2003, these triggering events were included because they were believed to be indications that a company had a demonstrated corporate governance issue, such that shareholders should have the opportunity to include director nominees in the company’s proxy materials. Unlike the 2003 Proposal, our current proposal did not include a triggering event requirement in Rule 14a–11. As noted in the Proposing Release, we did not include such a requirement because we were
concerned that the Federal proxy rules may be impeding the exercise of shareholders’ ability under State law to nominate and elect directors at all companies, not just those with demonstrated governance issues. In addition, we noted our concern, and the concern expressed by commenters on the 2003 Proposal, that the inclusion of triggering events would result in unnecessary complexity and would delay the operation of the rule. However, we solicited comment about whether triggers for the application of Rule 14a–11 would be appropriate. Many commenters opposed the inclusion of a triggering event requirement,100 with some commenters expressing concern that triggering events would cause significant delays and introduce undue complexity into the rule.101 On the other hand, other commenters supported the inclusion of a triggering event requirement, believing that such a requirement would serve as a useful indicator of the companies with demonstrated governance issues (e.g., companies that do not act within a certain time period on a shareholder proposal that received majority support).102 We remain concerned that the Federal proxy rules may not be facilitating the exercise of shareholders’ ability under State law to nominate and elect directors and this concern is not limited to shareholders’ ability to nominate directors at companies with demonstrated governance issues. Indeed, allowing shareholders to include nominees in company proxy materials before there are demonstrated governance failures could have the benefit of increasing director responsiveness and avoiding future governance failures. In addition, we share the concerns of some commenters that inclusion of triggering events would introduce undue complexity to the rule. Therefore, we are adopting the rule as proposed, without a triggering event requirement. e. Concurrent Proxy Contests As proposed, Rule 14a–11 would apply regardless of whether a company is engaged in, or anticipates being engaged in, a concurrent proxy contest; however, we requested comment on whether a company should be exempted from complying with Rule 14a–11 if another party commences or evidences its intent to commence a solicitation in opposition subject to Rule 14a–12(c). Of the commenters that responded, a few stated that shareholders of a company that is the subject of a traditional proxy contest should be allowed to use Rule 14a–11 to have nominees included in the company’s proxy materials,103 and others stated that shareholders of a company engaged in a traditional proxy contest should not be allowed to use Rule 14a–11 to have nominees included in the company’s proxy materials.104 In support of enabling shareholders to use Rule 14a–11 during a traditional proxy contest, one commenter argued that exempting companies subject to a traditional proxy contest from Rule 14a– 11 would be inconsistent with the Commission’s objective of changing the proxy process to better reflect the rights shareholders would have at a
shareholder meeting, and that dissatisfied shareholders who are not seeking a change in control and who otherwise meet the eligibility criteria under Rule 14a–11 would be disenfranchised.105 The commenter stated that dissatisfied shareholders should not be forced to make a choice between a change in control or ‘‘business as usual.’’ Another commenter stated that contested elections have been conducted successfully with more than two slates.106 On the other hand, commenters that sought a limitation on use of Rule 14a– 11 during a traditional proxy contest were concerned that Rule 14a–11 could have the effect of facilitating a change in control of the company.107 Commenters noted that under certain staff positions,108 as well as the Commission’s discussion of Rule 14a– 4(d)(4), as set forth in the Proxy Disclosure and Solicitation Enhancements proposing release,109 a dissident shareholder could ‘‘round out’’ its short-slate proxy card by seeking authority to vote for Rule 14a–11 shareholder nominees, thereby facilitating a change in control.110 Further, commenters believed that under the Proposal shareholders that submit nominees in reliance on Rule 14a–11 would not be barred from actively soliciting for the nominees of a shareholder using a traditional proxy contest and, conversely, a shareholder using a traditional proxy contest could actively engage in soliciting activities for Rule 14a–11 shareholder nominees.111 Commenters also worried that multiple groups of shareholders who simultaneously propose different directors for different purposes could lead to substantial confusion for other shareholders.112 Commenters warned that shareholder confusion would increase if there are two or more proxy cards with more than twice the number

113See letters from ABA; Davis Polk. 114See Section II.B.4. below for a further discussion of change in control intent and the certifications required by the new rules. 115Letter from Davis Polk. 116See letter from Society of Corporate Secretaries. 117See letters from BRT; Verizon. 118See letter from ABA. 119See letter from P. Neuhauser. 120See, e.g., letters from ABA; Seven Law Firms. 121See Instruction to Rule 14a–11(b). of nominees than available slots.113 According to these commenters, further confusion would result from any assumption by shareholders that the Rule 14a–11 slate is allied with the insurgent slate, despite the Rule 14a–11 representation regarding the lack of control intent.114 One commenter also argued that, despite the Rule 14a–11 representation regarding the lack of control intent, it is ‘‘easy to imagine that in some contested elections, a [R]ule 14a–11 nominee would be the swing vote, tipping the majority of the board and thus control of the company.’’ 115 Citing these same concerns, another commenter recommended that when a company’s board receives notice of a traditional proxy contest, the company should be permitted to exclude Rule 14a–11 nominees from the company’s proxy materials (and, if the proxy materials have already been distributed, to issue supplemental proxy materials eliminating these nominees from the company’s materials).116 Finally, some commenters argued that Rule 14a–11 is unnecessary when a company is engaged in a traditional proxy contest because the company’s shareholders are already effectively exercising their rights under State law to nominate and elect directors.117 One commenter stated that if the Commission decides not to prohibit a concurrent vote on Rule 14a–11 nominees and nominees presented through a traditional proxy contest, it should at least provide that the nominees presented through the traditional proxy contest be counted against the number of permissible Rule 14a–11 nominees to reduce the likelihood of a change in control.118 The commenter stated that if Rule 14a–11 could be used concurrently with a traditional proxy contest, the nominating shareholder should not be allowed to be a ‘‘participant’’ (as defined under Schedule 14A) in the traditional proxy contest or to engage in any soliciting activity for a nominee of another shareholder. The commenter also suggested that dissidents in a traditional proxy contest be precluded from including Rule 14a–11 nominees on their proxy card. Acknowledging the possibility of collusion, shareholder confusion, and change in control, one commenter expressed support for reasonable limitations on a Rule 14a–11 nomination if there is a simultaneous proxy contest.119 While we appreciate commenters’ concerns, we do not believe that our efforts to facilitate the exercise of shareholders’ State law right to nominate directors should be limited by the activities of other persons engaged in a traditional proxy contest. We also believe that, as described
below, Rule 14a–11 and the related rule amendments, together with our staff review process, can adequately address concerns about investor confusion and potential abuse of the process by those seeking a change in control. Therefore, we are adopting the rule as proposed, without an exception for companies that are subject to or anticipate being subject to a concurrent proxy contest. In this regard, we agree with those commenters that opposed including a limitation because to do so would be inconsistent with the goals of our rulemaking, which are not limited by the nomination activities of other persons. In addition, we note that there is no current limitation in the Federal proxy rules on the number of proxy contests that can take place simultaneously and we do not believe that there is sufficient reason to provide such a limitation in this circumstance. Companies and shareholders have been able, to date, to successfully navigate multiple slates on those occasions when more than one person undertakes a proxy contest. In addition, we believe that a company can address commenters’ concerns through disclosure in its proxy materials. For example, the company may disclose in its proxy statement potential effects of electing non-management nominees (whether those nominees are included in the company’s materials or in other soliciting persons’ materials), such as the potential to cause the company to violate law or the independence requirements of the exchange listing standards, and allow shareholders to consider that information when making their voting decisions. Similarly, we believe that appropriate disclosure in the company’s proxy materials, as well as the dissident’s proxy materials, could serve to potentially avoid shareholder confusion about how many nominees a shareholder may vote for and how to mark the card. We also have not revised Rule 14a–11, as suggested by commenters, to count nominees put forth by persons outside of Rule 14a–11 for purposes of the calculation of the maximum number of nominees required to be included in the company’s proxy materials pursuant to Rule 14a–11. We believe that to do so would, like an outright exception, be inconsistent with the goal of our rulemaking—to change the proxy process to better reflect the rights shareholders would have at a shareholder meeting, which are not limited by the nomination activities of other persons. While we are not adopting an exception from the rule for companies that are, or anticipate being, subject to a concurrent proxy contest, we do understand concerns about the possibility of confusion and abuse in this area absent clear guidance.120 Accordingly, we have made clear in our discussion, in Section II.B.10. below, that a nominating shareholder or group relying on new Rule 14a–2(b)(7) or (8) to engage in an exempt solicitation to form a nominating shareholder group or in connection with a nomination included in the company’s proxy materials pursuant to Rule 14a–11 would lose the
exemption if they engage in a non-Rule 14a–11 solicitation for directors or another person’s solicitation with regard to the election of directors. In addition, we are adopting an instruction to Rule 14a–11 121 to make clear that, in order to rely on Rule 14a– 11 to have a nominee or nominees included in a company’s proxy materials, a nominating shareholder or group or any member of the nominating shareholder or group may not be a member of any other group with persons engaged in solicitations or other nominating activities in connection with the subject election of directors; may not separately conduct 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; and may not act as a participant in another person’s solicitation in connection with the subject election of directors.
3. Which Companies Are Subject to
Rule 14a–11 a. General
In this section, we discuss which companies will be subject to new Rule 14a–11, including the rule’s application to investment companies, controlled companies, ‘‘debt-only’’ companies, voluntary registrants, and smaller reporting companies. New Rule 14a–11 will apply to companies that are subject to the Exchange Act proxy rules, including

122 15 U.S.C. 80a et seq. Registered investment companies currently are required to comply with the proxy rules under the Exchange Act when soliciting proxies, including proxies relating to the election of directors. See Investment Company Act Rule 20a–1 [17 CFR 270.20a–1] (requiring registered investment companies to comply with regulations adopted pursuant to Section 14(a) of the Exchange Act that would be applicable to a proxy solicitation if it were made in respect of a security registered pursuant to Section 12 of the Exchange Act). 123Exchange Act Rule 3a12–3 [17 CFR 240.3a12– 3] exempts securities of certain foreign issuers from
Section 14(a) of the Exchange Act.
124The Commission has considered the impact of this issue on investment companies on prior occasions. See, e.g., 2003 Proposal. 125See, e.g., letters from AFSCME; CalPERS; CII; Mutual Fund Directors Forum (‘‘MFDF’’); Julian Reid (‘‘J. Reid’’); Jennifer S. Taub (‘‘J. Taub’’); TIAA– CREF. 126See letter from MFDF. 127Letter from J. Reid. 128See letter from J. Taub. 129See, e.g., letters from AFSCME; J. Taub. 130See letter from J. Taub. 131See, e.g., letters from ABA; American Bar Association (September 18, 2009) (‘‘ABA II’’); Barclays; ICI; Investment Company Institute and Independent Directors Counsel (‘‘ICI/IDC’’); Independent Directors Council (‘‘IDC’’); S&C; T. Rowe Price Associates, Inc. (‘‘T. Rowe Price’’); The Vanguard Group, Inc. (‘‘Vanguard’’). One commenter opposed the inclusion of business development companies in the rule for the same reasons that it opposed including registered investment companies in the rule. See letter from ICI. Business development companies are a category of closed￾end investment companies that are not registered under the Investment Company Act, but are subject to certain provisions of that Act. See Sections 2(a)(48) and 54–65 of the Investment Company Act [15 U.S.C. 80a–2(a)(48) and 80a–53–64]. We are including business development companies in the rule for the same reasons provided below with respect to registered investment companies. 132See letters from ICI; ICI/IDC; IDC; T. Rowe Price; S&C. Among other things, commenters noted that 90% of fund complexes have boards that are 75% or more comprised of independent directors and the vast majority of fund boards have an independent director serving as chairman or as lead independent director. See letters from ICI/IDC; IDC. Two letters also cited a 1992 report by Commission staff that observed that the governance model embodied by the Investment Company Act is sound and should be retained with limited modifications. See letters from ICI; ICI/IDC. 133One joint comment letter noted that the Investment Company Act requires investment companies to obtain shareholder approval of contracts with the company’s investment adviser and distributor and to change from an open-end, closed-end, or diversified company; to borrow money; to issue senior securities; to underwrite securities issued by other persons; to purchase or sell real estate or commodities; to make loans to other persons, except in accordance with the policy in the company’s registration statement; to change the nature of its business so as to cease to be an investment company; or to deviate from a stated policy with respect to concentration of investments in an industry or industries, from any investment policy which is changeable only by shareholder vote, or from any stated fundamental policy. The commenters also noted that investment company shareholders have the right to bring an action against the company’s investment adviser for breach of fiduciary duty with respect to receipt of compensation. See letter
from ICI/IDC. 134See letters from ABA; Barclays; ICI; ICI/IDC; IDC; T. Rowe Price; S&C; Vanguard. However, we note that, in response to the 2003 Proposal, ABA and ICI indicated that there were no reasons to treat investment companies differently from non￾investment companies. See letter from Investment Company Institute (December 22, 2003) on File No. S7–19–03; letter from American Bar Association (January 7, 2004) on File No. S7–19–03. 135See letter from ABA. See also letter from S&C (urging that at a minimum Rule 14a–11 should not apply to open-end investment companies, ‘‘which do not generally hold regular meetings and for which compliance would be particularly burdensome’’). An open-end management investment company is an investment company, other than a unit investment trust or face-amount certificate company, that offers for sale or has outstanding any redeemable security of which it is the issuer. See Sections 4 and 5(a)(1) of the Investment Company Act [15 U.S.C. 80a–4 and 80a– 5(a)(1)]. 136See letters from ABA; ICI; ICI/IDC; IDC; MFDF; S&C; T. Rowe Price; Vanguard. Commenters noted that a recent survey of fund complexes representing 93% of the industry’s total net assets indicated that 83% of fund complexes had a unitary board structure and 17% of fund complexes had a cluster board structure. See letters from ICI/IDC; IDC. However, one comment letter included materials noting that, while the average number of registered investment companies per fund complex is five, the median number of registered investment companies per fund complex is one. See letter from ICI/IDC. In cases where the fund complex consists of only one company, commenters’ concerns about the loss of the unitary board would not be present. Commenters also noted that among fund complexes that use unitary or cluster boards there are other aspects of board organization that vary from complex to complex. See letter from ICI/IDC. For example, one board may oversee all of the open￾end funds in the complex and all but three of its closed-end funds, while a second board oversees the other closed-end funds. Alternatively, one board may oversee the open-end and closed-end fixed income funds advised by one particular adviser, while a second board oversees the open-end and closed-end equity and international funds advised by a second adviser, etc. However, the commenters did not note any specific issues that would be raised by the use of different structures among fund complexes using unitary or cluster boards if the Proposal were to be adopted. investment companies registered under
Section 8 of the Investment Company
Act of 1940.122 The rule also will apply to controlled companies and those companies that choose to voluntarily register a class of securities under
Section 12(g). Smaller reporting
companies will be subject to the rule, but on a delayed basis. Consistent with the Proposal, we have excepted from the rule’s application companies that are subject to the proxy rules solely because they have a class of debt registered under Section 12 of the Exchange Act. In addition, foreign private issuers are exempt from the Commission’s proxy rules with respect to solicitations of their shareholders, so the rule will not apply to these issuers.123 b. Investment Companies Under the Proposal, Rule 14a–11 would apply to registered investment companies. We sought comment on whether Rule 14a–11 should apply to these companies.124 Several commenters supported including registered investment companies in the rule.125 Commenters noted that investment company boards, like other boards, must be responsive and accountable to their shareholders; 126 that some investment company boards are ‘‘too cozy’’ with the company’s investment adviser; 127 and that the proposed rule will add competition to the board nomination process, which may create some traction in board negotiations with the company’s investment adviser.128 A number of commenters did not believe that the rule would result in unreasonable cost or an excessive number of contested elections.129 One commenter suggested that investment company shareholders would use the rule infrequently and then only if the investment company is experiencing a real governance or other failure.130 On the other hand, a number of commenters, largely from the investment company industry, opposed the inclusion of registered investment companies in the rule.131 Commenters asserted that the Commission had not presented any empirical evidence of governance problems with respect to investment companies that would support extending the rule to them and that the trend for investment company boards is to have strong governance practices.132 Commenters also argued that investment companies are subject to a unique regulatory regime under the Investment Company Act that provides additional protection to investors, such as the requirement to obtain shareholder approval to engage in certain transactions or activities,133 and that investment companies and their boards have very different functions from non￾investment companies and their boards.134 One commenter noted that the Proposal would be inappropriate and not particularly useful for most open-end management investment companies, because open-end management investment company shares are held on a short-term basis and open-end management investment companies are not typically required to hold annual meetings under State law.135 Commenters also were concerned about the costs of the Proposal, particularly for fund complexes that utilize a ‘‘unitary’’ board consisting of one group of individuals who serve on the board of every fund in the complex, or ‘‘cluster’’ boards consisting of two or more groups of individuals that each oversee a different set of funds in the complex.136
Commenters noted that if a

137Commenters noted that unitary and cluster boards can result in enhanced board efficiency and greater board knowledge of the many aspects of fund operations that are complex-wide in nature. See, e.g., letters from ABA; ICI; ICI/IDC; IDC; MFDF; S&C; T. Rowe Price; Vanguard. For instance, commenters noted that many of the same regulatory, valuation, compliance, disclosure, accounting, and business issues may arise for all of the funds that the unitary or cluster board oversees and that consistency among funds in the complex greatly enhances both board efficiency and shareholder protection. See, e.g., letter from ICI/ IDC. One joint comment letter also suggested that ‘‘[b]ecause they are negotiating on behalf of multiple funds, unitary and cluster boards have a greater ability than single fund boards to negotiate with management over matters such as fund expenses; the level of resources devoted to technology; and compliance and audit functions.’’ See id. 138See letter from S&C. 139We note that ‘‘unitary’’ or ‘‘cluster’’ boards are not required by State law. 140See Jones v. Harris Assocs., 130 S.Ct. 1418, 1423, 176 L. Ed. 2d 265, 273–274 (2010). See also S. Rep. No. 91–184; 91st Congress 1st Session; S. 2224 (1969) (‘‘This section is not intended to authorize a court to substitute its business judgment for that of the mutual fund’s board of directors in the area of management fees. * * * The directors of a mutual fund, like directors of any other corporation will continue to have * * * overall fiduciary duties as directors for the supervision of all of the affairs of the fund.’’); letter from ICI/IDC (‘‘The Investment Company Act of 1940 and the rules under it impose significant responsibilities on fund directors in addition to the duties of loyalty and care to which directors are typically bound under State law.’’). 141 In the 1992 report cited by two comment letters in footnote 132 above, the Commission staff also observed that the Investment Company Act ‘‘establishes a comprehensive regulatory framework predicated upon principles of corporate democracy’’ and was intended to provide an additional safeguard for investors by according ‘‘voting powers to investment company shareholders beyond those required by State corporate law.’’ Division of Investment Management, U.S. Securities and Exchange Commission, Protecting Investors: A Half Century of Investment Company Regulation, at pp. 251–52, 260 (May 1992) (emphasis added). 142See, e.g., Commission Guidance Regarding the Duties and Responsibilities of Investment Company Boards of Directors with Respect to Investment Adviser Portfolio Trading Practices, Release No. IC– 28345 (July 30, 2008) [73 FR 45646, 45649 (August 6, 2008)] (‘‘In addition to statutory and common law obligations, fund directors are also subject to specific fiduciary obligations relating to the special nature of funds under the Investment Company Act.

• • • A fund board has the responsibility, among
      other duties, to monitor the conflicts of interest facing the fund’s investment adviser and determine how the conflicts should be managed to help ensure that the fund is being operated in the best interest of the fund’s shareholders.’’) (footnotes omitted); Interpretive Matters Concerning Independent Directors of Investment Companies, Release No. IC– 24083 (October 14, 1999) [64 FR 59877, 59877–78 (November 3, 1999)] (listing various duties and responsibilities of the independent directors of an investment company and noting that ‘‘Each of these duties and responsibilities is vital to the proper functioning of fund operations and, ultimately, the protection of fund shareholders.’’). 143See letters from J. Reid; J. Taub. 144See letters from AFSCME; J. Taub. shareholder-nominated director were to be elected to a unitary or cluster board, the investment companies in the fund complex would incur significant additional administrative costs and burdens (e.g., the shareholder￾nominated director would have to leave during discussions that pertain to the other investment companies in the complex, board materials would have to be customized for the director, and the fund complex would face challenges in preserving the status of privileged information) and the benefits of the unitary or cluster board that result in the increased effectiveness of such boards would be lost.137 One commenter also stated that if a shareholder nomination causes an election to be ‘‘contested’’ under rules of the New York Stock Exchange, brokers would not be able to vote client shares on a discretionary basis, making it difficult and more expensive for investment companies to achieve a quorum for a meeting.138 After considering these comments, we agree with the commenters who believe that Rule 14a–11 should apply to registered investment companies, as was proposed. The purpose of Rule 14a–11 is to facilitate the exercise of shareholders’ traditional State law rights to nominate and elect directors to boards of directors and thereby enable shareholders to participate more meaningfully in the nomination and election of directors at the companies in which they invest. These State law rights apply to the shareholders of investment companies, including each investment company in a fund complex, regardless of whether or not the fund complex utilizes a unitary or cluster board.139 Moreover, although investment companies and their boards may have different functions from non￾investment companies and their boards, investment company boards, like the boards of other companies, have significant responsibilities in protecting shareholder interests, such as the approval of advisory contracts and fees.140 Therefore, we are not persuaded that exempting registered investment companies would be consistent with our goals. We also do not believe that the regulatory protections offered by the Investment Company Act (including requirements to obtain shareholder approval to engage in certain
      transactions and activities), the trend asserted by commenters for investment companies to have good governance practices, 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.141 In fact, the separate regulatory regime to which investment companies are subject emphasizes the importance of investment company directors in dealing with the conflicts of interest created by the external management structure of most investment companies.142 We also note that some commenters have raised governance concerns regarding the relationship between boards and investment advisers.143 We are cognizant of the fact that the rule will impose some costs on investment companies. We believe, however, that policy goals and the benefits of the rule justify these costs. As discussed above, we believe that facilitating the exercise of traditional State law rights to nominate and elect directors is as much of a concern for investment company shareholders as it is for shareholders of non-investment companies. We continue to believe that parts of the proxy process may frustrate the exercise of shareholders’ rights to nominate and elect directors arising under State law, and thereby fail to provide fair corporate suffrage. The new rules seek to facilitate shareholders’ effective exercise of their rights under State law to both nominate and elect directors. In this regard, we note that commenters have stated that interest in mutual fund governance has increased in recent years.144 We recognize that it may be more costly for investment companies to achieve a quorum at shareholder meetings if a shareholder director nomination causes an election to be ‘‘contested’’ under rules of the New York Stock Exchange and brokers cannot vote customer shares on a discretionary basis. Furthermore, for fund complexes that utilize unitary or cluster boards, the election of a shareholder director nominee may, in some circumstances, increase costs and potentially decrease the efficiency of the boards. We note, however, that these costs are associated with the State law right to nominate and elect directors, and are not costs incurred for including shareholder nominees in the company’s proxy statement. With respect to fund complexes utilizing unitary or cluster boards, we note that any increased costs and decreased efficiency of an investment company’s board as a result of the fund complex no longer having a unitary or cluster board would occur, if at all, only in the event that investment company shareholders elect the shareholder nominee. Investment companies may include information in the proxy materials making investors aware of the company’s views on the perceived benefits of a unitary or cluster board and the potential for increased

145Two commenters argued in a joint comment letter that there are a number of practical and legal issues that prevent confidentiality agreements from being sufficient to address the issues that arise when a shareholder-nominated director is elected to the board of an investment company in a fund complex using a unitary or cluster board. See letter from ICI/IDC. We emphasize that entering into a confidentiality agreement is only one method of preserving the confidentiality of information revealed in board meetings attended by the shareholder-nominated director. The fund complex can have separate meetings and board materials for the board with the shareholder-nominated director, especially if particularly sensitive legal or other matters will be discussed or to protect attorney￾client privilege. For a further discussion of this comment, see Section IV.E.1. 146See letters from ABA; MFDF. 147See letter from J. Taub. 148See letter from ABA. 149See letter from J. Taub. 150See letter from P. Neuhauser. 151See letters from ABA; Duane Morris; Media General, Inc. (‘‘Media General’’); The New York Times Company (‘‘New York Times’’). 152See letter from T. Rowe Price. 153See letters from ABA; AllianceBernstein; Cleary; Seven Law Firms; Duane Morris LLP (‘‘Duane Morris’’); Sidley Austin. 154See letters from ABA; AllianceBernstein; Cleary; Seven Law Firms; Duane Morris; Sidley Austin. 155See letters from ABA; Seven Law Firms. 156See letters from ABA; AllianceBernstein; Cleary; Seven Law Firms; Duane Morris; Sidley Austin. See, e.g., New York Stock Exchange Rule 303A.00 and NASDAQ Stock Market LLC Rule 5615(c) (defining ‘‘controlled companies’’ as a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company). 157See letters from AllianceBernstein; Duane Morris. costs and decreased efficiency if the shareholder nominees are elected. Moreover, we note that a fund complex can take steps to minimize the cost and burden of a shareholder-nominated director by, for example, entering into a confidentiality agreement in order to preserve the status of confidential information regarding the fund complex.145 We believe that the costs imposed on investment companies will be less significant than the costs imposed on other companies for three reasons. First, to the extent investment companies do not hold annual meetings as permitted by State law, investment company shareholders will have less opportunity to use the rule.146 Second, even when investment company shareholders do have the opportunity to use the rule, the disproportionately large and generally passive retail shareholder base of investment companies will probably mean that the rule will be used less frequently than will be the case with non-investment companies.147 Third, because we have sought to limit the cost and burden on all companies, including investment companies, by limiting use of Rule 14a–11 to shareholders who have maintained
significant continuous holdings in the company for at least three years, and because many funds, such as money market funds, are held by shareholders on a short-term basis,148 we believe that the situations where shareholders will meet the eligibility requirements will be limited. Although commenters argued that the election of a shareholder-nominated director to a unitary or cluster board will necessarily result in decreased effectiveness of the board, we disagree. In this regard, one commenter argued that competition in the board nomination process may improve efficiency by providing additional leverage for boards in negotiations with the investment adviser.149 In any event, we believe that investment company shareholders should have a more meaningful opportunity to exercise their traditional State law rights to elect a non-unitary or non-cluster board if they so choose.
c. Controlled Companies
As proposed, Rule 14a–11 would allow eligible shareholders to submit director nominees at all companies subject to the Exchange Act proxy rules other than companies that are subject to the proxy rules solely because they have a class of debt registered under Section 12 of the Exchange Act. We sought comment on whether Rule 14a–11 also should provide an exception for controlled companies. In response to our request for comment, one commenter argued that controlled companies should not be excluded from Rule 14a–11,150 acknowledging that while there may be no mathematical possibility of a shareholder nominee submitted pursuant to Rule 14a–11 being elected at a controlled company, in a controlled company there could be an even greater need for non-controlling shareholders to express their concerns. The commenter noted that a large—even if not a majority—vote by non-controlling shareholders could send an important message to the board. Other commenters noted that controlled companies are commonly structured with dual classes of stock, which allows shareholders of the non-controlling class of stock to elect a set number of directors that is less than the full board.151 Another commenter noted that dual-class companies with supervoting stock often can benefit the most from having the interests of non-controlling shareholders better represented in the boardroom.152 This commenter encouraged the Commission to include some means by which minority shareholders of dual￾class and parent-controlled companies could meaningfully avail themselves of the rule, even if a different set of eligibility or disclosure requirements is determined to be more appropriate in these cases. On the other hand, several commenters argued that controlled companies should be excluded from Rule 14a–11.153 According to these commenters, providing shareholders the ability to include nominees in company proxy materials in this context would be ineffective and needlessly disruptive and costly because there is no prospect that a shareholder nominee would be elected.154 Two of these commenters also noted that subjecting these companies to Rule 14a–11 would possibly cause investor confusion.155 These commenters remarked that shareholders would continue to have other avenues to express their views to the company, such as through the Rule 14a–8 process. Commenters who supported an exclusion for controlled companies suggested that for purposes of the exclusion the definition of ‘‘controlled company’’ should be similar to the definition used by the national securities exchanges in connection with director independence requirements.156 Some commenters suggested that if Rule 14a–11 excluded controlled companies using the same definition as the national securities exchanges in connection with director independence requirements, then the rule should contain an instruction providing that whether more than 50% of the voting power of a company is held by an individual, group, or other company would be
determined by any schedules filed under Section 13(d) of the Exchange Act.157 After considering the issue further, we are persuaded that Rule 14a–11 should apply to controlled companies, as we proposed. As commenters noted, it is common for companies structured with dual classes of stock to allow shareholders of the non-controlling class to elect a set number of directors that is less than the full board. In that situation, it may be useful for non￾controlling shareholders to be able to include shareholder nominations in company proxy materials with respect to the directors the non-controlling class is entitled to elect. In addition, though applying Rule 14a–11 to controlled companies would be unlikely to result in the election of shareholder￾nominated directors in cases in which these are not directors elected exclusively by the non-controlling shareholders, we appreciate that shareholders at controlled companies

158We note that controlled companies are not excluded from Rule 14a–8 despite the same improbability that a shareholder proposal will receive the approval of the majority of the votes cast at a controlled company. Shareholders may use Rule 14a–8 to submit a proposal to the board even though controlling shareholders may vote against the proposal and prevent it from being approved. 159See letters from ABA; CII; Cleary; S&C. 160See letters from ABA; Cleary; S&C. 161See letter from S&C. This commenter also stated that Rule 14a–11 should not apply to those reporting companies who voluntarily continue to file Exchange Act reports while they are not required to do so under Exchange Act Section 13(a) or Section 15(d). It argued that these voluntary filers should be treated the same as companies with Exchange Act reporting obligations relating solely to debt securities. We note that Rule 14a–11 will not apply to a company filing Exchange Act reports when neither Exchange Act Section 13(a) nor
Section 15(d) requires that it do so (for example, to
comply with a covenant contained in an indenture relating to outstanding debt securities). 162A company must register a class of equity securities under Section 12(g) if, on the last day of its fiscal year, the class of equity securities is held by 500 or more record holders and the company has total assets of more than $10 million. An issuer may, however, register any class of equity securities under Section 12(g) even if these thresholds have not been met. Reporting after this form of voluntary registration is distinguished from a company that continues to file Exchange Act reports when neither Exchange Act Section 13(a) nor Section 15(d) requires that it do so. See footnote 161 above. 163See letters from ABA; CII; USPE. 164See letter from USPE. 165See letter from ABA. 166The Commission has considered this issue on prior occasions. See, e.g., 2003 Proposal; Division of Corporation Finance, Briefing Paper for Roundtable Discussion on the Proposed Security Holder Director Nominations Rules, February 25, 2004, available at http://www.sec.gov/spotlight/dir￾nominations/dir-nom-briefing.htm. 167See letters from ABA; American Mailing; All Cast; Always N Bloom; American Carpets; J. Arquilla; B. Armburst; Artistic Land Designs; C. Atkins; Book Celler; K. Bostwick; Brighter Day Painting; Colletti; Commercial Concepts; Complete Home Inspection; D. Courtney; S. Crawford; Crespin; Don’s; T. Ebreo; M. Eng; eWareness; Evans; Fluharty; Flutterby; Fortuna Italian Restaurant; Future Form; Glaspell; C. Gregory; Healthcare Practice; B. Henderson; S. Henning; J. Herren; A. Iriarte; J. Jones; Juz Kidz; Kernan; LMS Wine; T. Luna; Mansfield Children’s Center; D. McDonald; Meister; Merchants Terminal; Middendorf; Mingo; Moore Brothers; Mouton; D. Mozack; Ms. Dee; G. Napolitano; NK; H. Olson; PESC; Pioneer Heating & Air Conditioning; RC; RTW; D. Sapp; SBB; SGIA; P. Sicilia; Slycers Sandwich Shop; Southern Services; Steele Group; Sylvron; Theragenics; E. Tremaine; Wagner; Wagner Industries; Wellness; West End; Y.M.; J. Young. 168See letter from ABA. A large accelerated filer is an issuer that, as of the end of its fiscal year, had an aggregate worldwide market value of voting and non-voting common equity held by its non-affiliates of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter; has been subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act for at least 12 calendar months; has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Act; and is not eligible to use may have other reasons for nominating candidates for director.158 d. ‘‘Debt Only’’ Companies As proposed, Rule 14a–11 would allow eligible shareholders to submit director nominees at all companies subject to the Exchange Act proxy rules other than companies that are subject to the proxy rules solely because they have a class of debt securities registered under Section 12 of the Exchange Act. We
sought comment on whether this exclusion from Rule 14a–11 was appropriate. Commenters that specifically addressed this question agreed with our approach and stated generally that Rule 14a–11 should not apply to companies subject to the Federal proxy rules solely because they have a class of debt securities registered under Exchange Act Section 12.159 Most of these commenters stated that the ability to submit nominees for inclusion in a company’s proxy materials should be limited to holders of equity securities registered under the Exchange Act.160 One commenter warned that subjecting companies with a registered class of debt securities to Rule 14a–11 would deter private companies from accessing the public debt market and, in any case, private companies typically have shareholder agreements and other arrangements in place that address the election of directors.161 We are adopting this exclusion as proposed. We note that this approach was supported by investor and corporate commenters. We believe that Rule 14a–11 should not apply to companies that are subject to the Federal proxy rules solely because they have a class of debt securities registered under Section 12 of the Exchange Act. e. Application of Exchange Act Rule 14a–11 to Companies That Voluntarily Register a Class of Securities Under Exchange Act Section 12(g) In the Proposing Release, we noted that Rule 14a–11 would apply to companies that have voluntarily registered a class of equity securities pursuant to Exchange Act Section 12(g); however, we solicited comment on whether Rule 14a–11 should apply to these companies.162 We also asked whether nominating shareholders of these companies should be subject to the same ownership eligibility thresholds as those shareholders of companies that were required to register a class of equity securities pursuant to
Section 12, or whether we should adjust
any other aspects of Rule 14a–11 for these companies. Three commenters stated that Rule 14a–11 should apply to companies that voluntarily register a class of equity securities under Exchange Act Section 12(g).163 One explained that investors in securities registered under Section 12 should be provided some assurance that the company is subject to various rules safeguarding their interests, such as the proposed rule, and expressed concern that less than uniform application could lead to investor confusion.164 One commenter stated that nominating shareholders of voluntarily-registered companies should be subject to the same ownership thresholds as shareholders of companies that were required to register a class of securities under Exchange Act Section 12.165 We agree with the commenters that Rule 14a–11 generally should apply to those companies that choose to avail themselves of the obligations and benefits of Section 12(g) registration. As
Section 12 registrants, these companies
are subject to the full panoply of the Exchange Act, including Section 14(a), and their shareholders receive proxy materials in connection with annual and special meetings of shareholders in accordance with the proxy rules. We believe disparate treatment among these
Section 12 registrants is unwarranted
and shareholders of these companies should enjoy the same protections generally available to shareholders of other companies with a class of equity securities registered pursuant to Section
12. Accordingly, Rule 14a–11 will apply
to companies that have voluntarily registered a class of equity securities pursuant to Exchange Act Section 12(g), with the same ownership eligibility thresholds as those of companies that were required to register a class of equity securities pursuant to Section 12. f. Smaller Reporting Companies Under the Proposal, Rule 14a–11 would apply to all companies subject to the proxy rules, other than companies that are subject to the proxy rules solely because they have a class of debt registered under Exchange Act Section
12. Thus, Rule 14a–11, as proposed,
would apply to smaller reporting companies. We sought comment in the Proposal on what effect, if any, the application of Rule 14a–11 would have on any particular group of companies, and in particular, smaller reporting companies.166 A number of commenters stated generally that Rule 14a–11 should not apply to small businesses.167 One commenter argued that Rule 14a–11 should be limited to accelerated filers and that there should possibly be a transition period where the rule was only applicable to large accelerated filers.168 That commenter believed that

the requirements for smaller reporting companies for its annual and quarterly reports. See Exchange Act Rule 12b–2(2). 169See letter from Theragenics. See also letter from Alston & Bird, recommending that we consider adopting a phase-in approach, whereby companies would be permitted to follow a phase￾in schedule for mandatory compliance based on their size, similar to the Commission’s rules regarding internal controls reporting and XBRL. See Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, Release No. 33– 8238; 34–47968 [69 FR 9722] (June 5, 2003) and Interactive Data to Improve Financial Reporting, Release No. 33–9002; 34–59324 [74 FR 6776] (Jan. 30, 2009). 170See letters from AFSCME; CII; D. Nappier. 171See letter from CII. 172See letters from AFSCME; D. Nappier. 173See letter from USPE. 174 Dodd-Frank Act §§ 971(a) and (b). 175 Dodd-Frank Act § 971(c). A comment letter on July 28, 2010 from the Society of Corporate Secretaries & Governance Professionals invoked this new legislation in support of a request to re-open the period for comment on the Proposal as it relates to small companies. As noted, we did specifically request comment in the Proposal on the rule’s effect on smaller reporting companies, and we received and have considered numerous comments on this topic. Accordingly, we believe we have substantially achieved the objective stated in that letter, namely to identify and evaluate any ‘‘unique and significant challenges that access to the proxy will create for small and mid-sized companies.’’ Moreover, our determination to delay implementation of Rule 14a–11 in respect of smaller companies will further allow us to evaluate the implementation of Rule 14a–11 by larger companies and provide us with the additional opportunity to consider whether adjustments to the rule would be appropriate for smaller reporting companies. 176See Exchange Act Rule 12b–2. A smaller reporting company is defined as ‘‘an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that: had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non￾affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or in the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a
Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.’’ Whether or not an issuer is a smaller reporting company is determined on an annual basis. smaller companies would have trouble recruiting directors because the pool of qualified directors is already small for smaller companies, and directors would not want to risk the exposure to a proxy contest. Another commenter argued that we should implement Rule 14a–11 on a pilot basis for large accelerated filers for two years and then revisit whether application of the rule would be appropriate for smaller companies.169 Other commenters stated that smaller reporting companies should not be excluded from the application of Rule 14a–11.170 One commenter agreed with the Commission that exempting small entities would be inconsistent with the stated goals of the Proposal and the costs and burden for such entities would be minimal.171 Other commenters believed that small companies are ‘‘just as likely’’ to have poorly functioning boards as their larger counterparts.172 Another commenter argued that Rule 14a–11 would not impose a material burden on any company subject to the proxy rules because companies already have to distribute proxy cards and it would not be an imposition if they were required to add additional nominees to those cards.173 In the recently enacted Dodd-Frank Act, Congress confirmed our authority to require inclusion of shareholder nominees for director in company proxy materials.174 In addition, in Section 971(c) of the Dodd-Frank Act Congress specifically provided the Commission with the authority to exempt an issuer or class of issuers from requirements adopted for the inclusion of shareholder director nominations in company proxy materials. In doing so, this provision instructs the Commission to take into account whether such requirement for the inclusion of shareholder nominees for director in company proxy materials disproportionately burdens small issuers.175 After considering the comments, amended Section 14(a), and Section 971(c) of the Dodd-Frank Act, we continue to believe that Rule 14a–11 should apply regardless of company size, as was proposed. As noted above, the purpose of Rule 14a–11 is to facilitate the exercise of shareholders’ traditional State law rights to nominate and elect directors to company boards of directors and thereby enable shareholders to participate more meaningfully in the nomination and election of directors at the companies in which they invest. We are not persuaded that exempting smaller reporting companies would be consistent with these goals. As stated above, we expect the rule changes will
further investor protection by facilitating shareholder rights to nominate and elect directors and providing shareholders a greater voice in the governance of the companies in which they invest. We believe shareholders of smaller reporting companies should be afforded these same protections. Nonetheless, we recognize that smaller reporting companies may have had less experience with existing forms of shareholder involvement in the proxy process (e.g., Rule 14a–8 proposals), and thus may have less developed infrastructures for managing these matters. We believe that a delayed effective date for smaller reporting companies should allow those companies to observe how the rule operates for other companies and should allow them to better prepare for implementation of the rules. We also believe that delayed implementation for these companies will allow us to evaluate the implementation of Rule 14a–11 by larger companies and provide us with the additional opportunity to consider whether adjustments to the rule would be appropriate for smaller reporting companies before the rule becomes applicable to them. Therefore, we are delaying implementation for companies that meet the definition of smaller reporting company in Exchange Act Rule 12b–2.176 New Rule 14a–11 will become effective for these companies three years after the date that the rules become effective for companies other than smaller reporting companies. In addition, as discussed below, in an effort to limit the cost and burden on all companies subject to the rule, including smaller reporting companies, we have limited use of Rule 14a–11 to nominations by shareholders who have maintained significant continuous holdings in the company for an extended period of time. As discussed further below, we have extended the required holding period to at least three years at the time the notice of nomination is filed with the Commission and transmitted to the company. In addition, we have made modifications to the ownership threshold that, in combination with the three-year holding period, we believe should facilitate shareholders’ ability to exercise their State law rights to nominate and elect directors without unduly burdening companies, including smaller reporting companies. We proposed a tiered ownership threshold that included a 5% ownership threshold for non-accelerated filers; however, we are adopting a 3% ownership threshold for all companies subject to the rule. In adopting the uniform 3% ownership threshold, we carefully considered, among other factors, the potential that

177 In some circumstances, the requirements of Rule 14a–11 applicable to a nominating shareholder group must be satisfied by each member of the group individually (e.g., no member of the group may be holding the company’s securities with the purpose of, or with the effect, of changing control of the company or to gain more than the maximum number of nominees that the registrant would be required to include under the rule). See also Section II.B.4. 178Throughout this release, when we say ‘‘as of the date of the notice on Schedule 14N’’ we mean the date the nominating shareholder or group files the Schedule 14N with the Commission and transmits the notice to the company. See Section II.B.8.c.ii. below for a further discussion of the timing requirements for filing a Schedule 14N. 179The manner in which a nominating shareholder or group would establish its eligibility to use new Rule 14a–11 is discussed further in
Section II.B.4.b.iv. below.
180See Instruction 3 to new Rule 14a–11(b)(1). 181See new Rule 14a–11(b)(1). 182See new Rule 14a–11(b)(2). The three-year holding period requirement applies only to the amount of securities that are used for purposes of determining the ownership threshold. 183See new Rule 14a–11(b)(2). 184See new Rule 14a–11(b)(6). 185See new Rule 14a–11(b)(7). 186See Section II.B.8. for a discussion of new
Schedule 14N and the disclosures required to be
filed. The Schedule 14N may be filed by an individual shareholder that meets the ownership threshold, an individual shareholder that is a member of a nominating shareholder group that is aggregating the individual members’ securities to meet the ownership threshold but is choosing to file the notice on Schedule 14N individually, or a nominating shareholder group through their authorized representative, as provided for in Rule 14n–1(b)(1). 187The dates would be calculated by determining the release date disclosed in the previous year’s proxy statement, increasing the year by one, and counting back 150 calendar days and 120 calendar days for the beginning and end of the window period, respectively. In this regard, we note that the deadline could fall on a Saturday, Sunday or holiday. In such cases, the deadline should be treated as the first business day following the Saturday, Sunday or holiday, similar to the treatment filing deadlines receive under Exchange Act Rule 0–3. See Instruction 1 to Rule 14a– 11(b)(10). If the 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, then the nominating shareholder or group must provide notice pursuant to new Item
5.08 a reasonable time before the company mails its
proxy materials, as specified by the company in a Form 8–K filed within four business days after the company determines the anticipated meeting date. See new Rule 14a–11(b)(10) and Instruction 2 to that paragraph. See further discussion in Section II.B.8.c.ii. 188See new Rule 14a–11(b)(11) and Item 8 of new
Schedule 14N. Pursuant to new Schedule 14N, the
nominating shareholder or group would be required to include in its notice to the company a certification that the nominating shareholder or group satisfies the requirements in Rule 14a–11. the rule would have a disproportionate impact on small issuers. Despite identifying that concern in the Proposal, however, the comments we received did not substantiate that concern, and comments from companies overwhelmingly supported uniform ownership thresholds for all public companies. Moreover, the data we examined did not indicate any substantial difference in share ownership concentrations between large accelerated filers and non-accelerated filers. Thus, we expect that the eligibility requirements will help achieve the stated objectives of the rule without disproportionately burdening any particular group of companies.
4. Who Can Use Exchange Act Rule
14a–11 a. General
In an effort to facilitate fair corporate suffrage, we could have proposed and adopted a rule pursuant to which the ability to use Rule 14a–11 would be conditioned solely on whether the shareholder lawfully could nominate a director, and not include any ownership thresholds or holding period. However, we believe it is appropriate to take a measured approach that balances competing interests and seeks to ensure investor protection. Accordingly, Rule 14a–11 will be available to shareholders that hold a significant, long-term interest in the company, have provided timely notice of their intent to include a nominee in the company’s proxy materials, and provide specified disclosure concerning themselves and their nominees. More specifically, as described in detail in this section, a company will be required to include a shareholder nominee or nominees if the nominating shareholder or group: 177

• Holds, as of the date of the
  shareholder notice on Schedule 14N,178 either individually or in the aggregate,179 at least 3% of the voting power (calculated as required under the rule) 180 of the company’s securities that are entitled to be voted on the election of directors at the annual meeting of shareholders (or, in lieu of such an annual meeting, a special meeting of shareholders) or on a written consent in lieu of a meeting; 181
• Has held the qualifying amount of
  securities used to satisfy the minimum ownership threshold continuously for at least three years as of the date of the shareholder notice on Schedule 14N (in the case of a shareholder group, each member of the group must have held the amount of securities that are used to satisfy the ownership threshold continuously for at least three years as of the date of the shareholder notice on
  Schedule 14N); 182
• Continues to hold the required
  amount of securities used to satisfy the ownership threshold through the date of the shareholder meeting; 183
• Is not holding any of 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 company could be required to include under Rule 14a–11; 184
• Does not have an agreement with
  the company regarding the nomination; 185
• Provides a notice to the company
  on Schedule 14N, and files the notice with the Commission,186 of the nominating shareholder’s or group’s intent to require that the company include that nominating shareholder’s or group’s nominee in the company’s proxy materials 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; 187 and
• Includes the certifications required
  in the shareholder notice on Schedule 14N.188 b. Ownership Threshold As proposed, a nominating shareholder or group would have been required to beneficially own 1%, 3%, or 5% of the company’s securities entitled to be voted on the election of directors at the shareholder meeting, depending on the company’s accelerated filer status or, in the case of registered investment companies, depending on the net assets of the company. We received significant comment on this topic, which we discuss further below, and have made alterations to the final rule to reflect the concerns expressed by commenters. As adopted, to rely on Rule 14a–11, a nominating shareholder or group will be required to hold, as of the date of the shareholder notice on Schedule 14N, either individually or in the aggregate, at least 3% of the voting power of the company’s securities that are entitled to be voted on the election of directors at the annual (or a special meeting in lieu of the annual) meeting of shareholders or on a written consent in lieu of a meeting. The nominating shareholder or group or member of a nominating shareholder group will be required to hold both the power to dispose of and the power to vote the securities, as discussed below. The nominating shareholder or member of a nominating shareholder group also will be required to have held the qualifying amount of securities for at least three years as of the date of the notice on Schedule 14N, and to hold that amount through the date of the election of directors. Each aspect of the ownership requirement is discussed further below.

189Similarly, we proposed tiered ownership thresholds for registered investment companies with the tiers based on net assets. 190See letters from 26 Corporate Secretaries; ABA; Australian Council of Superannuation Investors (‘‘ACSI’’); ADP; Advance Auto Parts; Aetna; Alaska Air; Alcoa Inc. (‘‘Alcoa’’); Allstate; American Express; Anadarko; Applied Materials; Association of Corporate Counsel; AT&T; Avis Budget; Barclays; Best Buy; J. Blanchard; Boeing; BorgWarner; BRT; Burlington Northern; R. Burt; Calvert Group, Ltd. (‘‘Calvert’’); Caterpillar; CFA Institute; Chevron; J. Chico; Committee on Investment of Employee Benefit Assets (‘‘CIEBA’’); CIGNA; Peter Clapman (‘‘P. Clapman’’); Cleary; CNH Global; Comcast; Con Edison; Capital Research and Management Company (‘‘CRMC’’); CSX; Cummins; Darden Restaurants; Davis Polk; Deere; Dewey; W. Brinkley Dickerson, Jr. (‘‘W. B. Dickerson’’); J. Dillon; DTE Energy; DuPont; Craig Dwight (‘‘C. Dwight’’); Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; eWareness; ExxonMobil; FedEx; Financial Services Roundtable; FMC Corp.; FPL Group; GE; General Mills; A. Goolsby; Home Depot; Honeywell; IBM; ICI; Intel; ITT; JPMorgan Chase; J. Kilts; Koppers; E.J. Kullman; N. Lautenbach; Leggett; Lionbridge Technologies, Inc. (‘‘Lionbridge Technologies’’); Lorsch et al.; M. Metz; McDonald’s; MeadWestvaco; J. Miller; Motorola; Norfolk Southern; Northrop Grumman Corporation (‘‘Northrop’’); Office Depot; PepsiCo; Pfizer; P&G; Praxair, Inc. (‘‘Praxair’’); Protective; Stephen Lange Ranzini (‘‘S. Ranzini’’); Rosen; Ryder; Sara Lee; S&C; Seven Law Firms; Shearman & Sterling; Sherwin￾Williams; SIFMA; Society of Corporate Secretaries; Southern Company; Tenet; Tesoro; Textron; TI; TIAA–CREF; Tidewater Inc. (‘‘Tidewater’’); Tompkins Financial Corporation (‘‘Tompkins’’); G. Tooker; T. Rowe Price; tw telecom; L. Tyson; UnitedHealth; U.S. Bancorp; ValueAct Capital; Vanguard; Verizon Communications Inc. (‘‘Verizon’’); Bruno de la Villarmois (‘‘B. Villarmois’’); Wachtell; Wells Fargo; Weyerhaeuser; Xerox. 191See letters from ACSI; ADP; Advance Auto Parts; Allstate; American Express; Applied Materials; Association of Corporate Counsel; AT&T; Avis Budget; Barclays; Best Buy; J. Blanchard; Boeing; BRT; Burlington Northern; R. Burt; Calvert; Caterpillar; CFA Institute; J. Chico; CIGNA; CNH Global; Comcast; Con Edison; CSX; Darden Restaurants; Davis Polk; Deere; Dewey; W. B. Dickerson; J. Dillon; DTE Energy; DuPont; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; ExxonMobil; FedEx; Financial Services Roundtable; FMC Corp.; FPL Group; General Mills; Home Depot; IBM; Intel; ITT; JPMorgan Chase; J. Kilts; E.J. Kullman; Lorsch et al.; McDonald’s; M. Metz; Motorola; N. Lautenbach; Office Depot; PepsiCo; Praxair; Protective; S. Ranzini; Sara Lee; S&C; Seven Law Firms; Shearman & Sterling; Sherwin￾Williams; Society of Corporate Secretaries; Southern Company; Tesoro; Textron; TI; TIAA– CREF; Tompkins; G. Tooker; T. Rowe Price; tw
telecom; L. Tyson; UnitedHealth; U.S. Bancorp; ValueAct Capital; Vanguard; Verizon; Weyerhaeuser; Xerox. 192See letters from ABA; ABA II; BRT; Business Roundtable (January 19, 2010) (‘‘BRT II’’); Cleary; Davis Polk; Honeywell; SIFMA. 193Letter from BRT II. 194Letter from California State Teachers’ Retirement System (Nov. 18, 2009)(‘‘CalSTRS II’’). 195See letters from Committee of Concerned Shareholders (‘‘Concerned Shareholders’’); L. Dallas; USPE. 196See letter from Shearman & Sterling. 197See, e.g., letters from ICI; S&C; T. Rowe Price. 198See letters from AFL–CIO; AFSCME; British Insurers; CalPERS; CalSTRS; COPERA; CRMC; Florida State Board of Administration; Glass Lewis; IAM; ICGN; LACERA; Marco Consulting; D. Nappier; Nathan Cummings Foundation; P. Neuhauser; Norges Bank; OPERS; Pax World; RiskMetrics; David E. Romine (‘‘D. Romine’’); Shamrock; Sodali; Teamsters; WSIB. 199See letter from CII. 200Letter from AFL–CIO. 201See letter from Deere. 202See letter from ADP. 203See letters from CSI; Calvert; CFA Institute; Labour Union Co-operative Retirement Fund (‘‘LUCRF’’); S. Ranzini. 204See letters from Advance Auto Parts; Alaska Air; American Express; Association of Corporate Counsel; Avis Budget; Best Buy; J. Blanchard; Boeing; BRT; Burlington Northern; Callaway; CIGNA; CNH Global; Comcast; Con Edison; Darden Restaurants; Dewey; J. Dillon; DTE Energy; DuPont; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; ExxonMobil; FedEx; FMC Corp.; FPL Group; General Mills; Home Depot; Intel Corporation (‘‘Intel’’); JPMorgan Chase; E.J. Kullman; McDonald’s; N. Lautenbach; PepsiCo; Praxair; Protective (recommending this threshold if its proposed 35% withhold vote triggering event is not included; if included, it recommended a 3% threshold); Sara Lee; Seven Law Firms; Sherwin￾Williams; Society of Corporate Secretaries; Textron; Tompkins; G. Tooker; Weyerhaeuser; Xerox. 205See letters from Applied Materials; R. Burt; CSX; Financial Services Roundtable; IBM (recommending 5% as one of the two acceptable thresholds); ITT; J. Kilts; Shearman & Sterling; Southern Company; Tesoro; TIAA–CREF; T. Rowe Price; tw telecom; UnitedHealth; U.S. Bancorp; Verizon. 206See letters from Applied Materials; U.S. Bancorp. 207See letters from S&C; TIAA–CREF. 208See letters from Davis Polk; Lorsch et al. 209See letters from Allstate; Caterpillar; J. Chico; W. B. Dickerson; IBM (recommending 10% as one of the two acceptable thresholds); ICI; M. Metz; Office Depot; L. Tyson; ValueAct Capital; Vanguard. 210See letter from Motorola. 211See letter from Barclays.
i. Percentage of Securities
We proposed tiered ownership thresholds for large accelerated, accelerated, and non-accelerated filers in an effort to address the possibility that certain companies could be affected disproportionately based on their size.189 Many commenters criticized the proposed ownership thresholds or recommended generally higher thresholds.190 Of these, most commenters criticized the tiered ownership thresholds and recommended a uniform ownership threshold generally higher than the proposed thresholds.191 Many of these commenters questioned whether the data on shareholdings discussed in the Proposal in relation to the proposed thresholds took into account the fact that shareholders could aggregate their holdings in order to use Rule 14a–11.192 One of these commenters described formation of a nominating group as ‘‘the most likely scenario’’ to qualify for use of Rule 14a–11,193 and another commenter submitted that with a significant ownership threshold an ‘‘inability to aggregate shareholders to reach the ownership threshold is unreasonable.’’ 194 A few commenters criticized generally the proposed thresholds as too high and recommended lower thresholds.195 One commenter opposed the tiered ownership thresholds because a number of companies regularly move from one category of filer to another as the aggregate worldwide market value of their voting and non-voting common equity changes from fiscal year to fiscal year, which the commenter believed would lead to uncertainty under the Commission’s tiered approach.196 Commenters from the investment company industry noted that the proposed eligibility thresholds were based on data for non-investment companies and were not supported by empirical data analysis for investment companies.197 On the other hand, we also received comment generally supporting the proposed tiered ownership thresholds.198 One commenter expressed general support for the proposed thresholds and stated that the proposed thresholds would achieve the Commission’s and commenter’s shared objective of facilitating the exercise of shareholders’ nomination rights.199 Another commenter explained that the thresholds would ‘‘ensure[ ] that only those long-term shareholders who are seriously concerned about the governance of portfolio companies will have a seat at the table.’’ 200 With regard to an appropriate uniform ownership threshold, commenters recommended a number of different possibilities, including:

• At least 1% of the company’s
  outstanding shares for an individual shareholder and 5% for a group of shareholders; 201
• At least 2% of a company’s voting
  securities; 202
• 3% of a company’s shares; 203
• 5% of the company’s voting
  securities for an individual shareholder and 10% for a group of shareholders; 204
• 5% of a company’s outstanding
  shares; 205
• 5% of a company’s outstanding
  shares for an individual shareholder and a higher but unspecified threshold for a group of shareholders; 206
• With regard to investment
  companies, a 5% threshold; 207
• From 5% to 10% of a company’s
  shares; 208
• 10% of the company’s shares; 209
• 10% of the company’s outstanding
  shares for an individual shareholder and 15% of the outstanding shares for a group of shareholders; 210
• 5% to 15% of the company’s
  outstanding shares; 211

212See letter from TI.
213See letter from AT&T.
214See letters from Concerned Shareholders; USPE. 215See letter from Concerned Shareholders. 216See letter from L. Dallas. 217See, e.g., Exchange Act Rule 14a–8(b) (requiring shareholders to 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 at least one year by the date’’ they submit a shareholder proposal); Exchange Act Rule 14a–6(g) (requiring a soliciting person that ‘‘owns beneficially securities of the class which is the subject of the solicitation with a market value of over $5 million’’ to file a notice with the Commission); Regulation S–K, Item 404(a) (requiring disclosure of transactions with related parties that exceed $120,000). 218See letter from Shearman & Sterling. 219See letters from General Mills; Tesoro; T. Rowe Price; ValueAct Capital; Verizon (explicitly opposing variation in percentage ownership requirement based on issuer size); and letters identified in footnotes 199–211 above (commenters supporting various uniform ownership thresholds). 220As noted in Section II.B.3.f., we have adopted a three-year delay in implementation for smaller reporting companies. 221The percentages in the table are derived from the data set described in the Proposing Release involving companies that have held meetings between January 1, 2008 and April 15, 2009 (the ‘‘Proposing Release data’’). See Section III.B.3. of the Proposing Release. The percentages have been adjusted, however, because the Proposing Release data did not give effect to any holding period requirement, and we have attempted to estimate what those percentages would have been had they given effect to the three-year holding period we are adopting. By the calculation described below, we have estimated a reasonable adjustment to the reported percentages in the Proposing Release data by using the data presented in a November 24, 2009 memorandum based on the analysis of Schedule 13F filings, data which did give effect to holding period requirements. See Memorandum from the Division of Risk, Strategy, and Financial Innovation regarding the Share Ownership and Holding Period Patterns in 13F data (November 24, 2009), available at http://www.sec.gov/comments/s7-10-09/s71009- 576.pdf (the ‘‘November 2009 Memorandum’’). The two data sets have overlapping statistics that can be used for comparison and adjustment: Both sets report percentages of a broad sample of public companies and identify percentages of companies having (i) at least one shareholder with holdings of 3% of more, (ii) at least two shareholders with holdings of 3% or more, (iii) at least one shareholder with holdings of 1% or more, and (iv) at least two shareholders with holdings of 1% or more. Comparing the percentages reflected in the November 2009 Memorandum (giving effect to a three-year holding period requirement) with the percentages in the Proposing Release data (not reflecting any holding period requirement), we observe
that the percentages reported in the Proposing Release data exceed the percentages reported in the November 2009 memorandum by amounts ranging from 56% to 69%. In order to derive the approximate percentages in the table, we adjusted downward by 62.5% the percentages reported in the Proposing Release data, to account at least approximately for the application of the three-year holding period requirement.

• 15% of the company’s shares; 212
  and
• 20% of a company’s shares.213
  Two of the commenters that criticized the proposed threshold as too high recommended that Rule 14a–11 have the same ownership threshold as Rule 14a–8,214 with one of these commenters expressing the belief that the proposal, with its ownership thresholds, would enable only institutional shareholders to access the corporate ballot.215 Another of the commenters opposing the proposed thresholds asserted that the threshold for non-accelerated filers is too high and cited figures indicating that a significant number of such filers do not have any shareholders that would satisfy the proposed threshold.216 This commenter suggested that for an individual shareholder or a group of shareholders, the threshold should be based on the dollar value of the shares held (e.g., $250,000) or a lower percentage of shares (e.g., 0.25%). After considering the comments, we believe that it is appropriate to apply a uniform 3% ownership threshold to all companies subject to the rule, regardless of whether they are classified as large accelerated, accelerated, or non￾accelerated filers under the Federal securities laws. As an initial matter, as we did at the time we issued the Proposing Release, we considered whether and why Rule 14a–11 should include any ownership threshold. Because the Commission’s proxy rules seek to enable the corporate proxy process to function, as nearly as possible, as a replacement for in-person participation at a meeting of shareholders, some may argue that once a shareholder has satisfied any procedural requirements to a director nomination that a company is allowed to impose under State law, then that nomination should be included in the company’s proxy materials. Each time we consider and adopt amendments to our rules, however, we balance competing interests. Based on our consideration of these competing interests, including balancing and facilitating shareholders’ ability to participate more fully in the nomination and election process against the potential cost and disruption of the amendments, we have determined that requiring a significant ownership threshold is appropriate to use Rule 14a–11. Indeed, we believe that the 3% ownership threshold—combined with the other requirements of the rule— properly addresses the potential practical difficulties of requiring inclusion of shareholder director nominations in a company’s proxy materials, and some concerns that both company management and other shareholders may have about the application of Rule 14a–11. Providing this balanced, practical, and measured limitation in Rule 14a–11 is consistent with the approach we have taken in many of our other proxy rules 217 and reflects our desire to proceed cautiously with these new amendments to our rules. We also considered whether the ownership threshold we adopt for Rule 14a–11 should be tiered based on the size and related filing status (or net assets) of the company, or uniform for all companies, and what percentage of ownership would be most
  appropriate. We have decided to adopt a uniform standard for all companies for several reasons. First, we determined that a uniform standard would reduce the complexities of Rule 14a–11. As noted by one commenter,218 the potential for the filing status of a company to change would result in uncertainty about the availability of the provisions of Rule 14a–11 as a result of market fluctuations in share prices, acquisitions, or divestitures. A uniform standard avoids that uncertainty and the resulting potential for the costs and burdens of disputes over the selection of the appropriate tier. Elimination of that uncertainty, moreover, would make the availability of Rule 14a–11 more predictable and therefore more useful for shareholders in planning nominations in reliance on the rule. A uniform standard also will avoid any ability on the part of management to structure corporate actions to modify the impact of Rule 14a–11 by placing the company in a different tier. The concern we expressed in the Proposal— that companies could be disproportionately affected by adoption of the rule based on their size—was not supported by comments of potentially affected companies; to the contrary, comments from companies overwhelmingly supported uniform ownership thresholds.219 In addition, as discussed below, we are deferring implementation of Rule 14a–11 for smaller reporting companies.220 A comparison of the share ownership concentrations in large accelerated filers and non-accelerated filers produced relatively minor observable difference. The results, adjusted to give effect to a three-year holding period requirement, are summarized in the table below: 221

222See letter from P. Neuhauser (suggesting only two ownership eligibility tiers because data show ‘‘almost no difference in ownership characteristics between smaller accelerated filers and non￾accelerated filers.’’). 223As noted in Section II.C., we are adopting an amendment to Rule 14a–8(i)(8) to preclude companies from relying on that basis to exclude from their proxy materials shareholder proposals that seek 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. Such a shareholder proposal would, of course, have to satisfy the other requirements of the rule, like other Rule 14a–8 shareholder proposals. 224See letters from ACSI (advocating a uniform 3% threshold); Calvert (same); LUCRF (same); S. Ranzini (same); TIAA–CREF (advocating a uniform 5% threshold); T. Rowe Price (same). 225Letter from TIAA–CREF. 226Letter from T. Rowe Price. 227Letters from SCSI and LUCRF. 228Letter from CFA Institute. 229See letters from CFA Institute; P. Neuhauser; RiskMetrics. 230See letters from CSX; ITT; Southern Company; Tesoro; tw telecom; UnitedHealth; Verizon. 231See letters from Advance Auto Parts; Alaska Air; American Express; Association of Corporate Counsel; Avis Budget; Best Buy; J. Blanchard; Boeing; BRT; Burlington Northern; Callaway; CIGNA; CNH Global; Comcast; Con Edison; Darden Restaurants; Dewey; J. Dillon; DTE Energy; DuPont; Eaton; Edison Electric Institute; Eli Lilly; Emerson Electric; ExxonMobil; FedEx; FMC Corp.; FPL Group; General Mills; Home Depot; Intel; JPMorgan Chase; E.J. Kullman; McDonald’s; N. Lautenbach; PepsiCo; Praxair; Protective (recommending this threshold if its proposed 35% withhold vote triggering event is not included; if included, it recommended a 3% threshold); Sara Lee; Seven Law Firms; Sherwin-Williams; Society of Corporate Secretaries; Textron; Tompkins; G. Tooker; Weyerhaeuser; Xerox. Non-accelerated filers (approximate percentages) Large accelerated filers (approximate percentages) Companies with at least one 1% shareholder ............................................................................................ 37 37 Companies with at least one 3% shareholder ............................................................................................ 33 32 Companies with at least one 5% shareholder ............................................................................................ 22 16 Companies with at least two 1% shareholders ........................................................................................... 36 37 Companies with at least two 1.5% shareholders ........................................................................................ 33 33 Companies with at least two 2.5% shareholders ........................................................................................ 27 25 Our further review of relevant data has persuaded us that applying different ownership thresholds to
large accelerated filers and non-accelerated filers is not justified.222 As noted above, we have decided to adopt a uniform ownership threshold for all categories of public companies. We determined that a 3% ownership threshold is an appropriate standard for all such companies—not just accelerated filers. We believe that the 3% threshold, while higher for many companies and lower for others than the thresholds advanced in the Proposal, properly balances our belief that Rule 14a–11 should facilitate shareholders’ traditional State law rights to nominate and elect directors with the potential costs and impact of the amendments on companies. The ownership threshold we are establishing should not expose issuers to excessively frequent and costly election contests conducted through use of Rule 14a–11, but it is also not so high as to make use of the rule unduly inaccessible as a practical matter. We selected the uniform 3% threshold based upon comments received, our analysis of the data available to us, and the fact that the rule allows for shareholders to form groups to aggregate their holdings to meet the threshold. We also considered that our amendments to Rule 14a–8 remove barriers to the ability of shareholders to have proposals included in company proxy materials to establish a procedure under a company’s governing documents for the inclusion of one or more nominees in the company’s proxy materials. Because of these amendments, shareholders who believe the 3% threshold is too high can take steps to seek to establish a lower ownership threshold.223 We note that we considered a lower threshold, such as 1%, and a higher threshold, such as 5%, both of which were thresholds in the proposed tiers. Quite a few commenters, including a number who generally supported the adoption of Rule 14a–11, advocated for an ownership threshold higher than the 1% level we proposed for large accelerated filers.224 One large institutional investor, for example, ‘‘strongly urg[ed] the adoption of proposed Rule 14a–11’’ and argued that ‘‘existing reforms are incomplete as long as boards retain the exclusive control of the proxy card and sole discretion over the mechanisms that govern their own elections,’’ but also stated the belief that ‘‘in order to use company resources to nominate a director, a significant amount of capital must be represented and 5% is an acceptable threshold.’’ 225 Similarly, the manager of a large family of investment companies stated its ‘‘support [for] the Commission’s intent to facilitate shareholders’ rights to participate in the governance process,’’ yet commented that ‘‘a 1% threshold is too low, in our opinion, to maintain the critical balance between serving the interests of eligible nominating shareholders and serving the interests of a company’s shareholder base at large.’’ 226 That commenter recommended a ‘‘flat 5% threshold for all companies’’ because it ‘‘represents significant economic stake.’’ Other commenters recommended a uniform
3% ownership threshold in the interest of avoiding ‘‘frivolous or vexatious nominations,’’ 227 or because it ‘‘is not so small that it would allow a board nomination for only a de minimis investment in [a non-accelerated filer],’’ but ‘‘would not be so large as to prevent all but the largest institutional shareowners to submit nominees for [large accelerated filers].’’ 228 In light of such comments we have determined not to adopt the 1% threshold we had proposed with respect to large accelerated filers. We also have determined not to adopt, as the uniform standard, the 5% threshold we had proposed for non-accelerated filers. Several commenters from the investor community explicitly opposed a 5% uniform threshold, maintaining that it would as a practical matter exclude all but the largest institutional investors.229 On the other hand, although some companies supported a uniform 5% threshold,230 most other companies urged the adoption of a substantially higher threshold, either for individual shareholders or for shareholder groups, or both. For example, companies and their counsel generally believed a higher threshold should apply to group nominations and overwhelmingly recommended a 10% minimum ownership requirement for nominations by shareholder groups.231 We note, however, that at a 10% threshold for groups, the likelihood of forming a group sufficient to meet the minimum ownership requirement would likely be significantly reduced compared to a 3% threshold. Given a three-year holding period, the data in the November 2009 Memorandum identify combinations

232The data in the November 2009 Memorandum suggest that just 4% of companies would have at least one shareholder with 10%. 233See, e.g., letters from CSX; ITT; Shearman & Sterling; Tesoro; T. Rowe Price; tw telecom. 234See, e.g., Release No. 34–26598, Reporting of Beneficial Ownership in Publicly-Held Companies (March 6, 1989) (‘‘The beneficial ownership reporting requirements embodied in Sections 13(d) and 13(g) of the [Exchange Act] and the regulations adopted thereunder are intended to provide to investors and to the subject issuer information about accumulations of securities that may have the ability to change or influence control of the issuer.’’). See also Release No. 34–50699 (proposing to require disclosure of persons holding 5% of an ownership interest in a securities exchange because the principles underlying such disclosure were similar to those underlying other filing requirements: ‘‘The 5% reporting threshold and the information proposed to be required to be disclosed about such ownership is modeled on the beneficial ownership reporting requirements of the Williams Act, embodied in Sections 13(d) and 13(g) of the Exchange Act and the rules and regulations thereunder. These Exchange Act provisions are intended to provide information to the issuer and the marketplace about accumulations of securities that may have the potential to change or influence control of an issuer.’’ (footnotes omitted)). 235Some commenters suggested that the data on share ownership dispersion referred to in the Proposing Release were insufficient because we did not focus on the possibility that shareholders could form groups to satisfy the minimum ownership requirement. See letters from American Bar Association (January 19, 2010) (‘‘ABA III’’); BRT II. 236See letters from AFL–CIO (‘‘[I]t will be necessary to permit aggregation of holdings to prevent the Proposed Access Rule from being usable only by hedge funds.’’); Florida Board of Administration (‘‘Public funds would need to form a nominating group in order to meet the hurdle in nearly all cases.’’). 237See letter from BRT II. 238See, e.g., Rule 14a–2(b)(7). 239We note that it is unlikely that the ownership test used in calculating the data tracks the definition that we are adopting for Rule 14a–11. As a result, the percentages in the data may be over￾or under-inclusive. 240At the 10% threshold for groups urged by many commenters, for example, the likelihood of forming a group sufficient to meet the minimum ownership requirement would be more sharply constrained: the data in the November 2009 Memorandum identify combinations totaling 10% or more but involving five or fewer shareholders as theoretically achievable in as little as 7% of public companies. 241On the other hand, the data in the November 2009 Memorandum may understate the number of large shareholdings, because the data may exclude smaller holdings in multiple institutions that are subject to common voting control, and in any event, do not include
holdings of less than 1% at all, even though such holdings could contribute to the formation of a group eligible to use Rule 14a–11. Likewise, those data do not include securities held by institutions holding less than $100 million in securities because Exchange Act Section 13(f) does not require such institutions to report their holdings. See letters from ABA III; BRT II. totaling 10% or more but involving five or fewer shareholders as achievable in as little as 7% of public companies, compared to at least 21% of public companies at a 5% threshold and at least 31% of public companies at a 3% threshold. In addition, the data suggest that it would be even more unlikely that a company would have an individual shareholder that would meet a 10% ownership threshold.232 While some commenters suggested a 5% threshold was appropriate because that amount is consistent with other filing requirements such as Schedule 13D and 13G,233 we ultimately were not persuaded because the underlying principles of such filing requirements 234 are quite different from those underlying the ownership condition to Rule 14a–11. After considering the comments and available data, we have decided that a 3% ownership threshold—including where shareholders form groups to satisfy the threshold—is an appropriate and workable approach for the rule. In adopting a uniform 3% threshold for all companies, as opposed to a lower ownership threshold for all companies, we are mindful that the rule will allow shareholders to form a group by aggregating their holdings to meet the ownership threshold.235 Indeed, as we assumed in the Proposing Release and as some commenters told us, in many cases shareholders will need to form groups to meet the ownership threshold for the purpose of submitting director nominations pursuant to Rule 14a–
11.236 Commenters also pointed to
instances of coordinated shareholder activity in recent ‘‘vote no’’ campaigns as support for the ability of shareholders to form groups.237 We have adopted a number of amendments to our rules that will facilitate the formation of groups for this purpose.238 We understand the result of our ownership threshold determination may be that shareholders will need to convince other shareholders to support their attempt to use Rule 14a–11. We believe this outcome reduces the potential for excessive costs to be incurred by companies and their shareholders. The data available to us also suggest that reaching the 3% ownership threshold we are adopting is possible for a significant number of shareholders either individually or by a number of shareholders aggregating their holdings in order to satisfy the ownership requirement. In particular, the data presented in the November 2009 Memorandum indicate that a sizeable percentage (33%) of public companies have at least one institutional investor owning at least 3% of their securities for at least three years, and thus potentially qualified to meet the Rule 14a–11 ownership threshold individually. As noted, however, the data are based on Form 13F filings, which include holders that are custodians and may not be likely users of the rule. The data in the November 2009 Memorandum also suggest that forming nominating shareholder groups with holdings aggregating 3% is achievable at many companies by a relatively small number of shareholders. Even factoring in the requirement of continuous ownership for three years, 31% of public companies have three or more holders with at least 1% share ownership each; and 29% have two or more holders with at least 2% share ownership each.239 Moreover, neither of these categories includes companies with one holder of 2% and another holder of at least 1%, and none of these percentages includes companies having a relatively small number (e.g. four to ten) of holders whose aggregate holdings exceed 3% but whose individual holdings do not bring the company within any of the categories identified in the data. We are concerned, however, that use of Rule 14a–ndash;11 may not be consistently and realistically viable, even by shareholder groups, if the uniform ownership threshold were set at 5% or higher. At the 5% minimum ownership requirement for individuals as advocated by many of those same commenters, only 20% of public companies had even one shareholder satisfying that requirement. Finally, even applying a 5% threshold for shareholder groups, the data identify combinations involving five or fewer shareholders that add up to 5% or more as theoretically achievable in as few as 21% of public companies—at least 25% fewer than with a 3% threshold.240 All of these data thus suggest that a uniform 5% ownership requirement would be substantially more difficult to satisfy than the 3% requirement we are adopting. Moreover, our resulting concern about the viability of a 5% ownership threshold is
exacerbated by several limitations on the data reported in the November 2009 Memorandum. While those data do account for the application of a three-year holding period requirement, they may overstate in several ways the potential to meet the ownership threshold. First, they may include controlling shareholders that may be unlikely to rely on Rule 14a–11. Second, the data are based on filings on Form 13F, in which ownership is defined differently than under Rule 14a–11, and thus may yield a higher number of larger shareholdings. Finally, the data include large shareholdings by institutions which report aggregated holdings of securities held for multiple beneficial owners.241 Nevertheless, and principally because they give effect to holding period requirements, we considered the data in

242See ‘‘Report on Effects of Proposed SEC Rule 14a–11 on Efficiency, Competitiveness and Capital Formation, in Support of Comments by Business Roundtable’’ by NERA Economic Consulting (‘‘NERA Report’’), Appendix Table 1, submitted with the letter from BRT. 243 Id. at 13–14, Figure 2. 244See letter from JPMorgan Chase. 245See letters from AT&T (eight shareholders owning 1% or more, although holding periods not identified); AGL Resources (same); CIGNA (20 1%+ shareholders, although holding periods not identified); Cummins (36 1+% shareholders, although holding periods not identified); General Mills (one 5%+ shareholder holding for at least 6 years, over 12 1%+ shareholders, and over 25 0.5%+ shareholders, although holding periods not identified); ITT (14 1%+ shareholders, although holding periods not identified); McDonald’s (10 holders owning 1% or more, one shareholder owning 5%, although holding periods not identified); UnitedHealth (four 3%+ shareholders, six 2%+ shareholders, nine 1%+ shareholders, 20 0.5%+ shareholders, 32 0.25% shareholders, applying a 2-year holding period); Weyerhaeuser (three 5%+ shareholders, 20 1%+ shareholders, although holding periods not identified). 246See letter from Council of Institutional Investors (January 14, 2010) (‘‘CII II’’). This comment refers to research indicating that in a small sample of accelerated and non-accelerated filers, the holdings of the ten largest public pension funds, if aggregated, would not exceed 5% and would also be unlikely to meet a 3% threshold, while a 1% threshold could be met. Apart from the sample size, however, this research itself appears limited in that it apparently does not include other types of shareholders and is not adjusted for any holding period. 247See footnote 223 above. 248See, e.g., letters from ICI; S&C; T. Rowe Price. 249One joint comment letter provided data regarding the net assets of investment companies and the dollar value of the shares that would be necessary to meet the proposed 1%, 3%, or 5% thresholds. See letter from ICI/IDC. The data provided by the commenters suggest that there are a limited number of small investment companies with net assets ranging from $50,000 to $351,000, where the 3% threshold could be met by an investment ranging from $1,500 to $10,530. However, the data also indicate that the vast majority of funds are significantly larger, and would therefore require a significantly larger investment to meet the 3% threshold (e.g., 90% of long-term mutual funds, money market funds, and closed-end funds have total net assets greater than $19 million, $100 million, and $57 million, respectively; the median long-term mutual fund, money market fund, and closed-end fund have total net assets of $216 million, $844 million, and $216 million, respectively). 250See letters from S&C (recommending ‘‘with respect to the ownership thresholds applicable to shareholders of [registered investment companies], a minimum percentage of no less than the 5%
threshold recommended in the Seven Law Firm Letter’’ (to which Sullivan & Cromwell was a party and which recommended that ownership thresholds of non-investment companies be adjusted upwards to 5% for individual shareholders and higher for groups of shareholders)); TIAA– CREF (recommending ‘‘that the Commission adopt a 5% ownership requirement across the board regardless of the company’s size’’ and ‘‘[w]ith respect to investment companies, * * * that the 5% requirement be applied at the fund complex level rather than at the individual fund level’’). 251See letters from Barclays; T. Rowe Price; TIAA–CREF. the November 2009 Memorandum to be the most pertinent to our selection of a uniform minimum ownership percentage. We received additional data relating to large companies, however, that offer some additional indication about the number of shareholders potentially available to form a group to meet the 3% ownership threshold. One study indicated that in the top 50 companies by market capitalization as of March 31, 2009, the five largest institutional investors held from 9.1% to 33.5% of the shares, and an average of 18.4% of the shares.242 That same study found that among a sample of 50 large accelerated filers, the median number of shareholders holding at least 1% of the shares for at least one year was 10.5, with 45 of the 50 companies in the sample having at least seven such shareholders.243 Another study that was reported to us 244 similarly suggests relatively high concentration of share ownership. According to that analysis of S&P 500 companies, 14 institutional investors could satisfy a 1% threshold at more than 100 companies, eight could meet that threshold at over 200 companies, five could meet it at over 300 companies, and three could meet it at 499 of the 500. Information from specific large issuers likewise suggests the achievability of shareholder groups aggregating 3%.245 We realize these data likely overstate the number of eligible shareholders or shareholders whose holdings could be grouped to meet the ownership threshold, as these data generally do not appear to reflect any continuous holding requirement. In any event, our assessment of the percentage of companies with various share ownership concentrations cannot be taken as an assurance that shareholder nominating groups will or will not be formed at any particular combination of percentage ownership and holding period requirements or of the likelihood that persons with large securities holdings would be inclined or disinclined to use Rule 14a–11.246 Taking all of this information into account, overall we believe that our selection of a 3% ownership threshold strikes an appropriate balance between the benefits of facilitating shareholder participation in the process of electing directors of public companies and the costs and disruption associated with contested elections of directors conducted pursuant to new Rule 14a–
11. We also believe, and as noted, many
commenters supported, that a threshold tied to a significant commitment to the company is an important feature of our amendments. Of course, to the extent that shareholders believe the 3% threshold is too high our amendments to Rule 14a–8 will facilitate their ability to adopt a lower ownership percentage.247 We proposed to apply the same thresholds for registered investment companies and business development companies as for non-investment companies, except that the applicability of the particular thresholds for registered investment companies would have depended on the net assets of the company, rather than the company’s accelerated filer status. No commenters recommended a higher threshold for investment companies than for non￾investment companies. While some commenters noted the absence of data specifically relating to the impact of various ownership thresholds on investment companies,248 no commenter supplied any data suggesting the need for an ownership threshold for investment companies different from that applicable to non￾investment companies.249 Although two commenters suggested a 5% ownership threshold for investment companies, both of these commenters also suggested a 5% threshold for non-investment companies.250 We believe that it is appropriate to apply to registered investment companies and business development companies the same 3% ownership threshold that we are applying to other companies. We also believe that, similar to non-investment companies, our selection of a 3% ownership threshold strikes an appropriate balance between the benefits of facilitating shareholder participation in the process of electing directors of investment companies and the costs and disruption associated with contested elections of directors conducted pursuant to Rule 14a–11. We are not adopting the suggestion of commenters that the eligibility thresholds for investment companies be based on the holdings for the fund complex in the case of unitary boards or the cluster in the case of cluster boards.251 We believe that eligibility should be based on holdings for the investment company, not the entire fund complex or cluster, because under State law, shareholder voting is determined based on the holdings in the investment company. Fund complexes have flexibility to organize their funds into one or more investment companies. Thereafter, State law governs which shareholders vote as a group for directors. Because Rule 14a–11 is intended to facilitate the exercise of traditional State law rights to nominate and elect directors, we believe that the rule should follow State law.

252See letters from ABA; Duane Morris; Media General; P. Neuhauser; New York Times. These letters illustrated a scenario where one publicly￾issued class of stock is entitled to one vote per share, while the privately-held controlling class of stock is entitled to 10 votes per share and both classes vote together on the election of directors. 253See letters from ABA; P. Neuhauser; Duane Morris; Media General. 254See, e.g., discussion in footnote 252 of common ten-to-one voting provisions of a structure with Class A and Class B securities. 255See letter from ABA. 256See letter from Duane Morris. 257See Rule 14a–11(b)(1) and Instruction 3 and the discussion below. 258See Instruction 3 to Rule 14a–11(b)(1). 259See letters from 26 Corporate Secretaries; Advance Auto Parts; Aetna; Alaska Air; Alcoa; Alston & Bird; American Express; BorgWarner; BRT; Burlington Northern; CSX; L. Dallas; Dewey; DuPont; FPL Group; Florida State Board of Administration; GE; Honeywell; ICI; JPMorgan Chase; Kirkland & Ellis LLP (‘‘Kirkland & Ellis’’); Leggett; P. Neuhauser; PepsiCo; Protective; Seven Law Firms; SIFMA: Society of Corporate Secretaries; T. Rowe Price; tw telecom; UnitedHealth; ValueAct Capital; Xerox. 260See letters from BRT; Devon; IBM; P. Neuhauser; Society of Corporate Secretaries. 261See letter from ABA. 262See letters from 26 Corporate Secretaries; ABA; Advance Auto Parts; Alaska Air; Allstate; Applied Materials; Association of Corporate Counsel; AT&T; J. Blanchard; Biogen; BRT; CIEBA; Cleary; Devon; Dewey; Headwaters; IBM; JPMorgan Chase; PepsiCo; Sara Lee; Seven Law Firms; Shearman & Sterling; Sidley Austin; Society of Corporate Secretaries; Verizon. 263See letters from AFL–CIO; CalPERS; CII; COPERA; IAM, LIUNA; Marco Consulting; P. Neuhauser; D. Nappier; Sheet Metal Workers National Pension Fund (‘‘Sheet Metal Workers’’); SWIB. 264See letters from AFL–CIO; Marco Consulting; Sheet Metal Workers; SWIB. 265See letters from CalPERS; CII; COPERA; IAM; LIUNA; D. Nappier. 266See letters from AFL–CIO; CalPERS; CII; IAM; D. Nappier. 267See letters from CalPERS; CII; IAM; D. Nappier. 268See letters from COPERA. 269This would include securities registered pursuant to Section 12 of the Exchange Act or subject to Investment Company Act Rule 20a–1.
ii. Voting Power
We proposed that the ownership threshold be determined as a percentage of the securities entitled to be voted on the election of directors. Some commenters sought clarification of how the ownership threshold would be calculated where companies have multiple classes of stock with varying voting rights.252 These commenters observed that the proposed rule did not adequately address voting regimes where the voting rights have been separated from the economic rights of ownership.253 One commenter explained that in situations where ownership of securities does not correlate with voting power,254 shares will have voting rights disproportionate to the number of shares held, and that creates a disparity between the two classes in terms of the economic value of a single vote.255 One commenter advised that further clarification was needed for companies with two or more outstanding classes of voting securities with disparate voting rights, including those companies with classes of voting securities and non-voting securities, so that those companies would be treated in a manner consistent with companies that have one class of voting securities.256 In proposing that the ownership threshold be determined as a percentage of securities entitled to be voted on the election of directors, our goal was to have the requirement tie to the percentage of votes that could be cast for the director nominees. In response to these commenters, we have revised the rule text to clarify that the ownership threshold will be determined as a percentage of voting power of the securities entitled to be voted on the election of directors at the meeting, rather than as a percentage of securities entitled to be voted on the election of directors, as was proposed. Accordingly, where a company has multiple classes of stock with unequal voting rights and the classes vote together on the election of directors, then voting power would be calculated based on the collective voting power.257 If a company has multiple classes of stock that do not vote together in the election of all directors (where, for example, each class elects a subset of directors), then voting power would be determined only on the basis of the voting power of the class or classes of stock that would be voting together on the election of the person or persons sought to be nominated by the nominating shareholder or group, rather than the voting power of all classes of stock.258 We believe this approach properly bases the availability of Rule 14a–11 on the right to vote for the nominees that may be included in the company’s proxy materials, which is both consistent with the intent of the provisions of a company’s governing documents and in accord with the principle that class directors are elected by the votes of the holders of the class.
iii. Ownership Position
In the Proposing Release, we solicited comment about whether beneficial ownership is the appropriate standard of ownership to use for purposes of the minimum ownership threshold in the rule or whether another standard would be more appropriate. In this regard, we requested comment about whether a net long requirement should be used and, if so, what other modifications would be required. We received a number of comments addressing the appropriate standard of ownership and supporting the inclusion of a net long requirement.259 Commenters suggested that we adopt an ‘‘ultimate’’ beneficial owner definition that included, among other things, a requirement that the nominating shareholder or group hold the entire bundle of voting and economic rights to any securities used to determine eligibility under the rule.260 At least one of these commenters thought the ownership definition should be adopted this way in order to remove the possibility that multiple parties may count the same securities toward their individual securities ownership totals.261 Moreover, many commenters were concerned that without requiring net long ownership, shareholders could engage in hedging strategies to obtain the requisite amount of ownership while eliminating or reducing their economic exposure.262 Some commenters expressed the view that shares loaned to a third party should be taken into account when determining whether the nominating shareholder or group satisfies the relevant ownership threshold.263 Commenters explained that institutional investors who hold shares for the long-term may lend their shares to others periodically while retaining the right to recall those shares to cast votes.264 Commenters suggested several conditions for counting these shares: the shareholder has a legal right to recall the shares and cast votes; 265 the shareholder discloses in the
Schedule 14N an intention to vote the
shares; 266 the shareholder holds the shares through the date of the meeting; 267 and the shares are held past the date of the election.268 After considering the comments, we have modified in several respects the ownership requirement of Rule 14a–11 so that it is consistent with our intent to limit use of Rule 14a–11 to long-term shareholders with significant ownership interests. First, in order to satisfy the ownership requirement, the nominating shareholder or member of the nominating shareholder group must hold a class of securities subject to the proxy solicitation rules.269 Limiting Rule 14a–11 nominations to holders of securities that are subject to the proxy rules appropriately excludes from the calculation private classes of voting securities held by persons that would have no expectation that our proxy rules would be available to facilitate their State law nomination rights. Further, if we included securities not covered by

270 17 CFR § 240.13d–3. Like the approach under Rule 13d–3, we are including and excluding certain securities from the determination of who has voting power for policy reasons. Those inclusions and exceptions and the policy reasons underlying them are discussed throughout this section. 271See Instruction 3.c. to Rule 14a–11(b)(1). 272The rule also clarifies that financial intermediaries, such as banks or brokers, that may hold securities on behalf of their clients could not use the provisions of Rule 14a–11. See Instruction 3.c. to Rule 14a–11(b)(1). 273See letters from AFL–CIO; CalPERS; CII; COPERA; IAM; LIUNA; Marco Consulting; P. Neuhauser; D. Nappier; Sheet Metal Workers; SWIB. 274See letter from P. Neuhauser. 275See Instruction 3.b.3 to Rule 14a–11(b)(1). We note that in a typical short sale the person selling the securities short would not have the power to vote the securities subject to the short sale. Nevertheless, the provisions of Rule 14a–11 require that the voting power of the securities subject to the short sale be deducted from the voting power held directly or on behalf of the nominating shareholder or member of the nominating shareholder group to address our concerns about limiting the application of Rule 14a–11 to shareholders that retain significant ownership interests in a company. Likewise, a person whose ownership of shares arises solely from borrowing them for purposes of short sale would be deemed to have no share ownership for purposes of the ownership requirement of Rule 14a–11(b)(1). 276The ownership provisions related to short sales do not apply to securities that have been sold in a short sale where the nominating shareholder or member of the nominating shareholder group had no control over such transactions. See Instruction 3.b.3. to Rule 14a–11(b)(1) (covering short sales by ‘‘the nominating shareholder or any member of the nominating shareholder group, as the case may be, or any person acting on their behalf * * *’’). For example, a nominating shareholder would not be required to exclude securities that have been sold short by a pooled investment vehicle in which the nominating shareholder or member of a nominating shareholder group has invested as long as the shareholder does not have the ability to direct the investments held in the pooled investment vehicle. Similarly, securities held by the pooled investment vehicle with respect to which the shareholder does not have the ability to direct the investments held in the pooled investment vehicle would not be Continued the proxy rules in the calculation, those securities could dilute the relative holdings of shareholders holding securities that our rules are designed to protect. Second, the nominating shareholder or member of the nominating shareholder group must hold both investment and voting power, either directly or through any person acting on their behalf, of the securities. By requiring that a nominating shareholder or member of a nominating shareholder group
hold investment and voting power of the securities that are used for purposes of determining whether the ownership requirement has been met, we are addressing the concerns raised by certain commenters that the provisions of Rule 14a–11 should only be available to shareholders that possess ultimate ownership rights over the shares. Similar to the provisions in Exchange Act Rule 13d–3,270 the definition of voting power for purposes of Rule 14a– 11 includes the power to vote, or to direct the voting of, such securities and investment power for purposes of Rule 14a–11 includes the power to dispose, or to direct the disposition of, such securities.271 Unlike the provisions in Rule 13d–3, however, the ownership requirement of Rule 14a–11 includes both voting and investment power—as opposed to just one or the other—and voting and investment power for purposes of Rule 14a–11 does not exist over securities that a nominating shareholder or member of a nominating shareholder group merely has the right to acquire. For example, a nominating shareholder or member of a nominating shareholder group will not be able to count securities that could be acquired, such as securities underlying options that are currently exercisable but have not yet been exercised. For purposes of meeting the ownership threshold in Rule 14a–11, a nominating shareholder or group will include investment and voting power of the company’s securities that is held ‘‘either directly or through any person acting on their behalf.’’ We are adopting the ownership provisions with this language to account for the common situation when financial intermediaries, such as banks or brokers, hold securities on behalf of their clients.272 This additional language also covers relationships, such as parent and subsidiary, when for organizational or tax reasons, among others, investment and voting power is held by an entity that is controlled by another entity. This provision, however, would not include securities that are held in a pooled investment vehicle in which the nominating shareholder or member of a nominating shareholder group does not have voting and investment power over the securities held in the pooled investment vehicle. Third, we have adopted a provision in the ownership requirement in Rule 14a– 11 that, subject to specific conditions, allows for securities that have been loaned to a third party by or on behalf of the nominating shareholder or member of a nominating shareholder group to be considered in the calculation. We recognize that share lending is a common practice, and we believe that loaning securities to a third party is not inconsistent with a long￾term investment in a company.273 To capture only securities where voting power can ultimately be exercised by the nominating shareholder or member of a nominating shareholder group in the election of directors, however, securities that have been loaned by or on behalf of the nominating shareholder or any member of the nominating
shareholder group to another person may be counted toward the ownership requirement only if the nominating shareholder or member of the nominating shareholder group:

• Has the right to recall the loaned
  securities; and
• will recall the loaned securities
  upon being notified that any of the nominees will be included in the company’s proxy materials. Absent satisfaction of these conditions—in addition to holding the requisite investment power over the loaned securities—we believe it is appropriate to exclude securities that have been loaned to another person from the calculation of voting power because, generally, the person to whom the securities have been loaned has the ability to vote those securities.274 If the rule were to allow loaned securities that either will not or cannot be recalled to be included for purposes of the ownership calculation, then the voting power of a nominating shareholder or member of a nominating shareholder group may potentially be inflated because the calculation could include votes that the nominating shareholder or member of a nominating shareholder group cannot actually cast. In determining the total voting power of the company’s securities held by or on behalf of the nominating shareholder or any member of the nominating shareholder group, the voting power would be reduced by the voting power of any of the company’s securities that the nominating shareholder or any member of a nominating shareholder group has sold in a short sale during the relevant periods.275 In addition, the rule text explicitly excludes borrowed shares because the rule is intended to be used by holders with a significant long-term commitment to the company, and including shares that are merely borrowed is inconsistent with that purpose. The instruction makes clear that to the extent borrowed securities are not already excluded through the subtraction of securities sold short, borrowed securities would be subtracted in computing the relevant amount. We recognize that by requiring the voting power of securities sold short or borrowed for purposes other than a short sale to be subtracted from the ownership calculation, we are potentially reducing the eligibility of certain shareholders to rely on Rule 14a–11.276 Nevertheless, as noted above,

included in the amount of holdings of the shareholder. 277We recognize that selling a company’s securities short is only one of a number of ways that a shareholder can hedge the economic risk of its investment. Indeed, a number of commenters suggested that we adopt a beneficial ownership definition for purposes of Rule 14a–11 that netted all hedging arrangements (derivatives, swaps, etc.). We believe, however, that it is appropriate at this time to adopt the ownership threshold for Rule 14a–11 with the provision only relating to short sales as it contributes significantly towards the goal of excluding votes from the ownership calculation securities where the voting and economic interests are separated and does not unduly complicate the rule. Further, by excluding securities that the holder merely has the right to acquire (such as securities underlying options) and securities that have been loaned and cannot be recalled, we have further narrowed the application of the rule to address concerns about separating economic interest and voting power. 278See letters from 26 Corporate Secretaries; ABA; Advance Auto Parts; Alaska Air; Allstate; Applied Materials; Association of Corporate Counsel; AT&T; J. Blanchard; Biogen; BRT; CIEBA; Cleary; Devon; Dewey; Headwaters; IBM; JPMorgan Chase; PepsiCo; Sara Lee; Seven Law Firms; Shearman & Sterling; Sidley Austin; Society of Corporate Secretaries; Verizon. 279 17 CFR 242.200(a). We note that certain of the provisions in Exchange Act Rule 200, including when a ‘‘person shall be deemed to own a security’’ as defined in Rule 200(b), differ from the provisions we have adopted for purposes of Rule 14a–11. For instance, Rule 200(b) extends ownership of a security to options that have been exercised. As noted above, however, we have not extended ownership for purposes of Rule 14a–11 to options. We believe that these different, but not conflicting, approaches are appropriate and reflect the policy objectives for adopting each rule. 280See Instruction 1 to Rule 14a–11(b)(1). In the case of a registered investment company, in determining the total voting power of the securities that are entitled to be voted on the election of directors for purposes of establishing whether the 3% voting power threshold has been met, the nominating shareholder or group may rely on information set forth in the following documents, unless the nominating shareholder or group knows or has reason to know that the information contained therein is inaccurate: (1) In the case of a series company, a Form 8–K that will be required to be filed in connection with the meeting where directors are to be elected; or (2) in the case of other registered investment companies, the company’s most recent annual or semi-annual report filed with the Commission on Form N–CSR. See Instruction 2 to Rule 14a–11(b)(1). 281See Item 5 of proposed Schedule 14N. 282See the discussion below regarding the holding period we are adopting. 283See letters from BorgWarner;
Society of Corporate Secretaries. 284See letter from CII. 285See letter from P. Neuhauser. we believe that eligibility for Rule 14a– 11 should be limited to those shareholders that have a significant interest in the company.277 We agree with commenters who suggested that selling a company’s securities short may divest that shareholder of the economic risks of ownership.278 For purposes of determining whether the nominating shareholder or any member of a nominating shareholder group has sold a company’s securities short, the term ‘‘short sale’’ will have the meaning provided in Exchange Act Rule 200(a).279 Under that rule, a short sale is ‘‘any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller.’’ In calculating the voting power required to satisfy the 3% voting power eligibility requirement described above, nominating shareholders or members of a nominating shareholder group must first determine the total number of votes that can be derived from their holdings of securities that are subject to the proxy rules. This determination is made as of the date the Schedule 14N is filed. The total number of votes can be increased by the number of votes attributable to securities which have been loaned (subject to the conditions previously noted) and must be reduced by the number of votes attributable to any securities that have been sold in a short sale that is not closed out as of that date or borrowed for purposes other than a short sale. This adjusted number of votes is the qualifying number of votes eligible to be used as the numerator in calculating the percentage held of the company’s total voting power. The number of securities to which these qualifying votes are attributable is the amount of securities that must be used for evaluating compliance with the continuous holding period requirements specified in Rule 14a–11(b)(2), and discussed below. In determining the total voting power of the company’s securities, nominating shareholders and members of a nominating shareholder group will be entitled to rely on the most recent quarterly, annual or current report filed by the company unless the nominating shareholder or member of a nominating shareholder group knows or has reason to know that the information in the reports is inaccurate.280 We believe that a nominating shareholder or member of a nominating shareholder group should be able to rely on the filings made by the company in making the calculation of voting power for purposes of Rule 14a– 11 even if the number of securities outstanding has changed since the last report so that a nominating shareholder or member of a nominating shareholder group can easily make a determination about the percentage of voting power that they hold.
iv. Demonstrating Ownership
Under the Proposal, a nominating shareholder or member of a nominating shareholder group would be able to demonstrate ownership in several ways.281 If the nominating shareholder or member of the nominating shareholder group is the registered holder of the shares, he or she could state as much. In this instance, the company would have the ability to independently verify the shareholder’s ownership. Where the nominating shareholder or member of the nominating shareholder group is not the registered holder of the securities, the nominating shareholder or member of the nominating shareholder group would be required to demonstrate ownership by attaching to the Schedule 14N a written statement from the ‘‘record’’ holder of the nominating shareholder’s shares (usually a broker or bank) verifying that, at the time of submitting the shareholder notice to the company on Schedule 14N, the nominating shareholder or member of the nominating shareholder group continuously held the securities being used to satisfy the applicable ownership threshold for a period of at least one year.282 In the alternative, if the nominating shareholder or member of the nominating shareholder group has filed a Schedule 13D, Schedule 13G, Form 3, Form 4, and/or Form 5, or amendments to those documents, the shareholder or group member may so state and attach a copy or incorporate that filing or amendment by reference. Commenters generally did not object to the proposed methods of demonstrating ownership; however, they did suggest some revisions to the rule. Two commenters believed that the nominating shareholder or group, if requested by the company, should be required to provide evidence from its broker-dealer or custodian certifying that its ownership position meets the requisite threshold through a date that is within five days of the shareholders’ meeting.283 Another commenter recommended a revision to the proposed rule to allow the written statement to be dated no more than seven days prior to the date of submission of the nomination to the company.284 The commenter explained that it may be difficult for a group of nominating shareholders to obtain letters from the ‘‘record’’ holders on the exact same date they submit the nomination to the company and file a
Schedule 14N and cited similar
problems in the context of the Rule 14a– 8 process as an example. Another commenter recommended more generally that the written statement be dated a short period before the filing of the Schedule 14N.285 Other commenters submitted various suggestions as to who

286See letters from ABA; CII; ICI; P. Neuhauser; Schulte Roth & Zabel; Seven Law Firms; S&C. Litigation subsequent to the Proposal has underscored the utility of clarifying the source of verification of ownership by shareholders who are not themselves registered owners of the shares. See Apache Corp. v. Chevedden, 696 F.Supp.2d 723 (S.D.Tex. Mar. 10, 2010) (interpreting the proof of ownership requirement in Rule 14a–8(b)(2)). 287We note that a nominating shareholder may have changed brokers or banks during the time period in which it has held the shares it is using to meet the ownership threshold. In such cases, the nominating shareholder would need to obtain a written statement from each broker or bank with respect to the shares held and specify the time period in which the shares were held. 288This form of written statement from a bank or broker is a modification to the Proposal, and is provided as a non-exclusive example of an acceptable method of satisfying the requirement in Rule 14a–11(b)(3). See Instruction to Item 4 of new
Schedule 14N. We note that the written statements
would not reflect all aspects of the ownership requirement, such as the percentage of voting power held, and thus, would not be dispositive with regard to whether the nominating shareholder or group satisfied the ownership threshold. For purposes of complying with Rule 14a–11(b)(3), loaned securities may be included in the amount of securities set forth in the written statements. Consistent with the Proposal, a nominating shareholder or group proving ownership by using a previously filed Schedule 13D or 13G or Form 3, 4, or 5 could attach a copy of the filing to the
Schedule 14N or incorporate it by reference into the
Schedule. We note that the calculation of voting
power of a company’s securities for purposes of Rule 14a–11 differs from the determination of beneficial ownership for purposes of those schedules and forms. In addition, as adopted, we are clarifying that the schedules or forms used to provide proof of ownership must reflect ownership of the securities as of or before the date on which the three-year eligibility period begins. 289See the Instruction to Item 4 of new Schedule 14N. 290See letters from ADP; AFSCME; Callaway; CalPERS; CalSTRS; Calvert; CFA Institute; J. Chico; CII; Corporate Library; Dominican Sisters of Hope (‘‘Dominican Sisters of Hope’’); GovernanceMetrics International (‘‘GovernanceMetrics’’); ICGN; Lorsch et al.; LUCRF; Mercy Investment Program (‘‘Mercy Investment Program’’); Motorola; D. Nappier; Nathan Cummings Foundation; P. Neuhauser; Norges Bank; Pax World; RiskMetrics; Shamrock; Shearman & Sterling; Sisters of Mercy Regional Community of Detroit Charitable Trust (‘‘Sisters of Mercy’’); Social Investment Forum; Sodali; Tri-State Coalition for Responsible Investment (‘‘Tri-State Coalition’’); Trillium; T. Rowe Price; Ursuline Sisters of Tildonk (‘‘Ursuline Sisters of Tildonk’’); USPE; ValueAct Capital; Walden Asset Management (‘‘Walden’’). 291See letters from 26 Corporate Secretaries; ABA; Advance Auto Parts; Aetna; AFL–CIO; Alaska Air; Alcoa; Allstate; Alston & Bird; Amalgamated Bank; American Express; Anadarko; Applied Materials; Association of Corporate Counsel; AT&T; Avis Budget; Biogen; J. Blanchard; Boeing; BorgWarner; BRT; Burlington Northern; Caterpillar; Chevron; CIEBA; CIGNA; CNH Global; P. Clapman; Comcast; Con Edison; CSX; CtW Investment Group; Cummins; L. Dallas; Darden Restaurants; E. Davis; Deere; Devon; Dewey; DTE Energy; DuPont; Eaton; Eli Lilly; ExxonMobil; FedEx; Fenwick; FMC Corp.; FPL Group; General Mills; Headwaters; Home Depot; Honeywell; IAM; IBM; ICI; Intel; ITT; JPMorgan Chase; Lionbridge Technologies; LIUNA; Marco Consulting; McDonald’s; M. Metz; J. Miller; NACD; D. Nappier (expressing a willingness to accept a two-year holding period instead of the proposed one-year holding period); Northrop; Office Depot; OPERS; Pfizer; P&G; Praxair; Protective; RiskMetrics (accepting a two-year holding period as alternative to the proposed one￾year holding period); Sara Lee; S&C; Sheet Metal Workers; Sidley Austin; SIFMA; Society of Corporate Secretaries; Southern Company; Teamsters; Tesoro; Textron; Theragenics; TI; TIAA– CREF; Tidewater; Time Warner Cable Inc. (‘‘Time Warner Cable’’); tw telecom; L. Tyson; UnitedHealth; U.S. Bancorp; Wells Fargo; Weyerhaeuser; Xerox; Vanguard; Verizon; B. Villiarmois. 292See letters from BRT; CIEBA; IBM; McDonald’s; Society of Corporate Secretaries. 293See letters from 13D Monitor; ACSI; British Insurers; Ironfire Capital LLC (‘‘Ironfire’’); LUCRF. 294See letter from British Insurers. 295See letter from 13D Monitor. 296One commenter pointed to the Aspen Principles, available at http://
www.aspeninstitute.org/sites/default/files/content/ docs/pubs/Aspen_Principles_with_signers_ April_09.pdf, suggesting that companies that are often forced to react to short-term investors are constrained from creating valuable goods and services, investing in innovations, and creating jobs. See also letter from AFL–CIO. should provide the required written statement.286 While we are adopting the requirements to demonstrate ownership as proposed, we agree with the commenters that additional clarity is needed with regard to how far in advance of the notice date the statement of the broker or bank may be dated, as well as what type of bank or broker may provide the written statement on behalf of the shareholder. We believe the date should be as close as practicable to the notice date, and believe that seven calendar days should provide a workable time frame that is still close in time to the notice date. Accordingly, we have revised the rule to clarify that the statement from the registered holder, broker, or bank may be dated within seven calendar days prior to the date the nominating shareholder or group submits the notice on Schedule 14N.287 Also, to provide additional clarity about these requirements, the final rule includes an example of a form of written statement verifying share ownership that may be used if the nominating shareholder or any member of the nominating shareholder group (i) is not the registered holder of the shares, (ii) is not proving ownership by providing previously filed Schedules 13D or 13G or Forms 3, 4, or 5, and (iii) holds the shares in an account with a broker or bank that is a participant in the Depository Trust Company (‘‘DTC’’) or a similar clearing agency acting as a securities depository.288 An instruction to Schedule 14N describes more fully what information should be provided if a nominating shareholder or any member of the nominating shareholder group holds the securities through a broker or bank (e.g., in an omnibus account) that is not a participant in DTC or a similar clearing agency.289 We note that satisfying the requirement in Rule 14a–11(b)(3) to demonstrate ownership is different from satisfying the requirement in Rules 14a– 11(b)(1) and 14a–11(b)(2) that a shareholder or shareholder group hold the requisite amount of the company’s securities that are entitled to be voted on the election of directors for three years, as calculated pursuant to the Instruction to paragraph (b)(2). It is possible for a shareholder to be able to demonstrate ownership pursuant to Rule 14a–11(b)(3), and yet not satisfy the total voting power and holding period requirements in Rules 14a– 11(b)(1) and (b)(2).
c. Holding Period
With respect to duration of ownership, we proposed a one-year holding requirement for each nominating shareholder or member of a nominating shareholder group. Although many commenters supported the proposed one-year holding period,290 the majority of commenters suggested a holding period longer than the proposed one-year period, with many recommending alternative holding periods ranging from 18 months to four years.291 Some commenters, for example, expressed a belief that increasing the duration of the minimum holding period would ensure that use of Rule 14a–11 is limited to holders of a significant, long-term interest and would dissuade shareholders from using the rule to nominate and elect directors to make short-term gains at the expense of long-term shareholders.292 A small number of commenters believed that Rule 14a–11 should not include a holding period requirement.293 One commenter believed that all holders of the same securities should have the same rights under Rule 14a–11 regardless of how long the securities have been held.294 Another commenter stated that a short-term shareholder has the same risk as long-term shareholders; thus their rights under Rule 14a–11 should be equal.295 After considering the comments, we have decided to adopt a three-year holding requirement, rather than the proposed one-year requirement. This decision is based on our belief that holding securities for at least a three￾year period better demonstrates a shareholder’s long-term commitment and interest in the company.296 We also based our decision to have a holding period longer than one year on the strong support of a variety of commenters. For instance, we received

297Letter from Teamsters.
298Letter from BRT.
299Letter from Tesoro.
300See letters from E. Davis; Fenwick. 301As proposed, a nominating shareholder or group would have been required to hold ‘‘the securities that are used for purposes of determining the applicable ownership threshold’’ and intend to continue to hold ‘‘those securities’’ through the date of the meeting. See proposed Rule 14a–11(b)(2). The Proposal also would have required the nominating shareholder or group to provide a statement that the nominating shareholder or group intends to continue to own the ‘‘requisite shares’’ through the date of the meeting. See proposed Rule 14a–18(f). As adopted, we are modifying Rule 14a–11 to require the nominating shareholder or each member of the nominating shareholder group to have held the ‘‘amount of securities’’ that are used for satisfying the ownership requirement and to continue to hold that amount of securities through the date of the meeting, rather than referring to the ‘‘requisite securities.’’ In addition, even though the ownership requirement is based on the percentage of voting power held, the requirement refers to ‘‘amount’’ rather than ‘‘percentage’’ so that satisfaction of the ownership requirement can be accurately determined. We believe it would be unduly burdensome to require that a nominating shareholder or group determine whether its holdings exceeded 3% of the company’s voting power continuously for a three-year period prior to the filing of the Schedule 14N. 302See the Instruction to Rule 14a–11(b)(2). For purposes of this calculation, the amount of the short position or borrowed securities at any point in time during the three year holding period would be deducted from the amount of securities otherwise held at that point in time. 303 Id. 304 Id. The recall provisions are discussed in
Section II.B.4.b.iii. above. We note that at the time
the nominating shareholder or group calculates its ownership and submits a nominee or nominees, it may not be certain that its nominee or nominees will be included in the company’s proxy materials. We do not believe it is necessary to require a nominating shareholder or group to recall loaned shares that it has the right to recall and vote prior to the time that the nominating shareholder or group is notified that its nominee or nominees will be included in the company’s proxy materials. 305See the Instruction to Rule 14a–11(b)(2). 306See letter from AFSCME. comments that advised that we should ‘‘adopt a more reasonable holding period of at least two years,’’ 297 and ‘‘a minimum holding period of at least two years is appropriate’’ because a ‘‘shorter holding period would allow shareholders with a short-term focus to nominate directors who, if elected, would be responsible for dealing with a company’s long-term issues.’’ 298 Another commenter stated that ‘‘three years would be a more reasonable test with respect to longevity of stock ownership.’’ 299 Although two commenters suggested even longer holding periods,300 we believe that a three year holding period reflects our goal of limiting use of the rule to significant, long-term holders and appropriately responds to commenters’ suggestions regarding the length of the holding period. In this regard, as noted previously, some commenters suggested a two year holding period, but others stated it should be ‘‘at least’’ two years. Given the support expressed for a significant holding period, we believe a three year holding period, rather than one or two years, strikes the appropriate balance in providing shareholders with a significant, long-term interest with the ability to have their nominees included in a company’s proxy materials while limiting the possibility of shareholders attempting to use Rule 14a–11 inappropriately, as discussed further below. We also factored our desire to limit the use of Rule 14a–11 to shareholders who do not possess a change in control intent with regard to the company into our decision to extend the holding period. Although we have, as noted below, adopted specific requirements in Rule 14a–11 to address the control issue, we believe that a longer holding period is another safeguard against shareholders that may attempt to inappropriately use Rule 14a–11 as a means to quickly gain control of a company. Finally, we note that if shareholders believe that the three-year period should be shorter, the amendment that we decided to adopt to Rule 14a–8 will remove barriers to proposals that seek to establish a different procedure with a lesser (or no) holding period condition. The requirement we are adopting is that shareholders seeking to use Rule 14a–11 to have a nominee or nominees included in a company’s proxy materials must have held the minimum amount of securities used to satisfy the 3% ownership threshold continuously for at least three years.301 Similar to the
calculation of voting power discussed above, in order to satisfy the three-year holding requirement, the nominating shareholder or member of the nominating shareholder group must have investment and voting power over the amount of securities, and the amount of securities held during the period will have to be reduced by the amount of securities of the same class that are the subject of short positions or are borrowed for purposes other than a short sale during the period.302 The rule also allows securities loaned to a third party to be considered held during the period, provided that the nominating shareholder or group has the right to recall the loaned securities during the period.303 As discussed above, we do not believe that the common practice of lending securities is inconsistent with a long-term investment. While we believe it is important to include both of the recall provisions for purposes of allowing loaned securities to be used in the 3% ownership threshold calculation in Rule 14a–11(b)(1), we believe it is only necessary for the nominating shareholder or member of a nominating shareholder group to have the right to recall the loaned securities to satisfy the three-year holding period requirement.304 Finally, the rule requires the amount of securities to be adjusted for stock splits, reclassifications or other similar adjustments made by the company during the period.305 A commenter suggested that we clarify that a nominating shareholder or each member of the group must have continuously held only the minimum number of shares used to satisfy the ownership requirement.306 We agree that a nominating shareholder or member of a nominating shareholder group is not required to have continuously held shares in excess of the amount used to attain eligibility for purposes of Rule 14a–11. For example, under Rule 14a–11(b)(2), which requires continuous holding of ‘‘the amount of securities that are used for purposes of satisfying the minimum ownership required of paragraph (b)(1) * * *, ’’ if a nominating shareholder owns 400,000 shares and those shares comprise 4% of the issuer’s voting power as of the date of filing of the Schedule 14N, that shareholder is not required to have held 400,000 shares continuously during the preceding three years and through the date of election of directors. Rather, the nominating shareholder would be required to continuously hold the minimum amount of shares required to satisfy the 3% ownership threshold in paragraph (b)(1), assuming no adjustments (in this example, at least 300,000 shares). We also believe that it is important that any shareholder or member of a nominating shareholder group that intends to submit a nominee to a company for inclusion in the company’s proxy materials continue to maintain the qualified minimum amount of securities in the company needed to satisfy the ownership provisions in the rule through the date of the meeting at which the shareholder’s or group’s nominee is presented to a vote
of shareholders. To meet the eligibility criteria in proposed Rule 14a–11(b)(2), a nominating shareholder or member of a nominating shareholder group would have been required to ‘‘intend to continue to hold’’ the securities used to meet the ownership threshold through the date of the meeting. Commenters on the Proposing Release generally supported a holding requirement

307See letters from ABA; Advance Auto Parts; Alston & Bird; American Express; Association of Corporate Counsel; J. Blanchard; BorgWarner; CalPERS; CII; Cleary; Comcast; CSX; Dewey; W. B. Dickerson; Florida State Board of Administration; General Mills; Headwaters; JPMorgan Chase; Nathan Cummings Foundation; Protective; Schulte Roth & Zabel; Seven Law Firms; Shearman & Sterling; Society of Corporate Secretaries; tw telecom; ValueAct Capital. 308See letter from ABA. 309For purposes of determining whether the requirement to hold the specified amount of securities from the date of the filing of the Schedule 14N through the date of the election of directors is satisfied, a nominating shareholder or group must hold (as determined pursuant to the instruction to the rule) the qualifying minimum amount of securities, which can include securities that are loaned to a third party if the nominating shareholder or group has the right to recall the securities, and will recall them upon being notified that any of the nominees will be included in the company’s proxy materials. Of course, between the date of the filing of the Schedule 14N and the date of the election of directors previously loaned securities may be returned. Likewise, the amount of securities held during the period from the filing of the Schedule 14N through the date of the election of directors must be reduced by the amount of securities of the same class that are sold in a short sale. 310See new Rule 14a–11(b)(2) and Rule 14a– 11(g). The company would be required to provide notice to the staff in accordance with Rule 14a– 11(g) and could seek a no-action letter from the staff with regard to the determination to exclude the nominee at that time if the company so wished. In the event that the nominating shareholder’s or group’s failure to continue to hold the securities comes to light after the company has printed its proxy materials, the company would be permitted to exclude the nominee or nominees and send a revised proxy card to its shareholders. For additional information about a company’s obligations in the event a nominee withdraws or is disqualified, see Section II.B.7.b. below. 311See new Rule 14a–11(b)(4) and proposed Rule 14a–18(f). 312See letters from Alston & Bird; Amalgamated Bank; Calvert; CII; Florida State Board of Administration; P. Neuhauser; Norges Bank; Schulte Roth & Zabel; TIAA–CREF; USPE; ValueAct Capital. 313See letter from CII. 314See letter from Cleary. 315See letters from 26 Corporate Secretaries; ABA; Aetna; AGL; Alaska Air; Alcoa; Anadarko; Applied Materials; Association of Corporate Counsel; Avis Budget; BRT; Burlington Northern; Callaway; Caterpillar; Comcast; L. Dallas; Darden Restaurants; Devon; W. B. Dickerson; Dupont; Eli Lilly; FPL Group; General Mills; Home Depot; Honeywell; Intel; Lionbridge Technologies; Lorsch et al.; Keating Muething; Office Depot; PepsiCo; Pfizer; Protective; Sara Lee; SIFMA; Tesoro; Textron; TI; UnitedHealth; U.S. Bancorp; Verizon; Xerox.
316See new Rule 14a–11(b)(5) and new Item 4(b) of Schedule 14N. 317See Item 8 of proposed Schedule 14N. 318See letters from ABA; Advance Auto Parts; American Bankers Association; American Express; Americans for Financial Reform (‘‘Americans for Financial Reform’’); BRT; CalSTRS; CII; Cleary; COPERA; Corporate Library; Dewey; Dominican Sisters of Hope; Eli Lilly; Emerson Electric; Florida State Board of Administration; A. Goolsby; GovernanceMetrics; ICI; JPMorgan Chase; Sen. Carl Levin (‘‘C. Levin’’); Mercy Investment Program; Metlife; Nathan Cummings Foundation; P. Neuhauser; Protective; RiskMetrics; Seven Law Firms; SIFMA; Sisters of Mercy; Social Investment Forum; Society of Corporate Secretaries; Sodali; SWIB; TIAA–CREF; Trillium; Tri-State Coalition; T. Rowe Price; tw telecom; Ursuline Sisters of Tildonk; Wachtell; Walden; B. Villiarmois. through the date of the meeting,307 and one commenter suggested that we clarify that shareholders would be required to hold the securities used for determining ownership through the election of directors.308 We agree with the suggestion and are modifying the language in Rule 14a–11(b)(2) to clarify that a nominating shareholder or member of a nominating shareholder group ‘‘must continue to hold’’ the requisite amount of securities through the date of the meeting.309 If a nominating shareholder or member of a nominating shareholder group fails to continue to hold the requisite amount of securities as required by the rule, a company could exclude the nominee or nominees submitted by the nominating shareholder or group.310 We also are adopting, as proposed, the requirement that a nominating shareholder or member of a nominating shareholder group provide a statement as to the nominating shareholder’s or group member’s intent to continue to hold the qualifying minimum amount of securities through the date of the meeting.311 In addition, we proposed that nominating shareholders or members of a nominating shareholder group disclose their intent with regard to continued ownership of their shares after the election (which may be contingent on the election’s outcome). As noted above, commenters generally supported the requirement for the nominating shareholder or group to hold the requisite amount of securities through the date of the meeting, although some commenters expressed opposition to the proposed disclosure requirement or any requirement for the nominating shareholder or group to disclose their intent to hold the company’s shares after the date of the election.312 One commenter explained that the nominating shareholder or group may not know its intent at the time the Schedule 14N is filed and, depending on the outcome of the director election, the nominating shareholder or group may, in fact, purchase more stock or sell some stock.313 Another commenter observed that it is impractical for shareholders to represent that they would hold their position beyond the election and instead favored disclosure in an
amended Schedule 14N of any change in the ownership of more than 1% of the voting shares or net economic position during a period after the election (e.g., 60 days).314 Other commenters supported the proposed disclosure requirement regarding the nominating shareholder’s or group’s intent to hold shares after the meeting, or recommended that the Commission require instead that the nominating shareholder or group hold the requisite amount of shares for a specific period after the date of the meeting.315 We believe that a requirement to hold the securities through the date of the election of directors is appropriate to demonstrate the nominating shareholder’s or group member’s commitment to the director nominee and the election process. In addition, we are adopting the disclosure requirement, as proposed, concerning the nominating shareholder’s or group member’s intent with respect to continued ownership of their shares after the election.316 We are not, however, adopting a requirement for a nominating shareholder or member of a nominating shareholder group to continue to hold their shares for a certain period of time after the date of the election. We believe that disclosure of a nominating shareholder’s or group member’s intent with respect to continued ownership in a Schedule 14N or amended Schedule 14N will provide investors with the information they need for this purpose. d. No Change in Control Intent Under the Proposal, to rely on Rule 14a–11, a nominating shareholder or member of a nominating shareholder group would have been required to provide a certification in the filed
Schedule 14N that it did not hold the
securities with the purpose, or with the effect, of changing the control of the company or gaining more than a limited number of seats on the board.317 We noted that this certification, along with the other required disclosures, would assist shareholders in making an informed decision with regard to any nominee or nominees put forth by the nominating shareholder or group, in that the information would enable shareholders to gauge the nominating shareholder’s or group’s interest in the company, longevity of ownership, and intent with regard to continued ownership in the company. Most commenters on this aspect of the Proposal agreed generally that Rule 14a– 11 should not be available to shareholders seeking to effect a change in control of a company (or to obtain more than a specified number of board seats) and supported a certification requirement regarding the lack of change in control intent.318 Some

319See letters from American Bankers Association; Dewey; Emerson Electric; A. Goolsby; Metlife; Protective; Seven Law Firms; SIFMA. 320See letter from Seven Law Firms. 321See letter from Protective. 322See letter from P. Neuhauser. 323Although Rule 14a–11 does not contain a requirement that the shareholder nominee or nominees do not have an intent to change the control of the company, a nominating shareholder’s or group’s ability to meet the requirement and certify that it does not have such an intent will be impacted by the intentions and actions of its nominee or nominees. For example, a nominating shareholder would not be able to certify that it does not hold the company’s securities for the purpose, or with the effect, of changing the control of the company if its nominee is engaged in its own proxy contest or tender offer while the Rule 14a–11 nomination is pending. 324See certifications in Item 8 of new Schedule 14N. 325See Rule 14a–11(b)(6). 326A change in control includes, but is not limited to, an extraordinary corporate action, such as a merger or tender offer. 327See new Instruction to Rule 14a–11(b). 328See Section II.B.9.b. below for further discussion of determinations to exclude a nominee or nominees. 329See Sections II.B.8. and II.B.9. for an explanation of the disclosure requirements applicable to a nomination made pursuant to Rule 14a–11 and the process for excluding a nominee. 330 In this regard, we also proposed to require a nominating shareholder or group to represent that no relationships or agreements between the nominee and the company and its management exist. This aspect of the rule is discussed in Section II.B.5.c. below. commenters, however, expressed concern about the lack of a remedy when a certification regarding control intent proves to be false or when a nominating shareholder or group changes its intent.319 Suggested remedies included excluding the nominee of any nominating shareholder or group that changes intent and barring the nominating shareholder or group from using the rule for the following two annual meetings,320 requiring disclosure of a change of intent and resignation of the Rule 14a–11 director,321 and imposing liability under Rule 14a–9.322 We are adopting this requirement with some modifications from the Proposal. To rely on Rule 14a–11, the nominating shareholder (or where there is a nominating shareholder group, any member of the nominating shareholder group) must not be holding any of the company’s securities with the purpose, or with the effect, of changing control of the company 323 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 and must provide a certification to this effect in its filed Schedule 14N.324 The final requirement differs from the Proposal in three respects. First, in addition to requiring the certification to address the absence of change in control intent or
intent to gain more than the maximum number of seats provided under the rule, we also have added this condition as an explicit requirement to the rule.325 We believe that this more directly achieves our intent—that the rule not be used by shareholders that have an intent to change the control of the company or gain more than the maximum number of seats specified in the rule. Second, we have clarified the language of the requirements so that it provides that the rule is available only if the nominating shareholder or group members do not have an intent to change control of the company 326 or gain more seats on the board than the maximum provided for under Rule 14a–
11. We slightly revised the language of
the requirement to clarify our intended meaning. The Proposal used the language ‘‘gain more than a limited number of seats on the board,’’ which was intended to refer to the limitations within the rule on the maximum number of nominees required to be included in the company’s proxy materials. The final rule states this more explicitly. Finally, we have added an instruction to clarify that in order to rely on Rule 14a–11 to include a nominee or nominees in a company’s proxy materials, a nominating shareholder or a member of a nominating shareholder group may not be a member of any other group with persons engaged in solicitations or other nominating activities in connection with the subject election of directors; may not separately conduct 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; and may not act as a participant in another person’s solicitation in connection with the subject election of directors.327 We understand that companies have concerns that shareholders using Rule 14a–11 may inaccurately assert that they do not have a change in control intent, and that this can be a difficult factual issue. If a company determines that it can exclude a nominee based on this eligibility condition, it will be required to notify the nominating shareholder, members of the nominating shareholder group, or, where applicable, the nominating shareholder group’s authorized representative, of a deficiency in its notice on Schedule 14N and provide the nominating shareholder or group the opportunity to respond. The company also would be required to submit a notice to the Commission stating its intent to exclude a nominee from its proxy materials (which would be required to include a description of the company’s basis for exclusion) and, if it wished to, it could seek the staff’s informal view with regard to its determination to exclude the nominee (commonly referred to as a ‘‘no-action’’ request).328 In addition, a nominating shareholder and each member of a nominating shareholder group will have liability under Rule 14a–9 for a materially false or misleading certification in the Schedule 14N. Questions concerning the nomination also may be resolved by the parties outside the staff process provided in Rule 14a–11(g), including through private litigation where necessary, similar to the way they resolve issues arising in traditional proxy contests.329 Finally, we note that the Commission also could take enforcement action with respect to companies that inappropriately exclude nominees under Rule 14a–11 or shareholders that provide false certifications in their
Schedule 14N. We believe these
measures should provide sufficient means to address situations in which a nominating shareholder or member of a nominating shareholder group provides a false certification regarding change in control intent. e. Agreements With the Company In the Proposing Release, we noted that a shareholder nomination process that includes limits on the number of nominees that a company is required to include in its proxy materials presents the potential risk of nominating shareholders or groups acting merely as a surrogate for the company or its management in order to block usage of the rule by another nominating shareholder or group. We proposed to address this concern by providing that a nominating shareholder or group using Rule 14a–11 would be required to represent that no agreement between the nominating shareholder or group and the company and its management exists.330 To avoid any uncertainty about the breadth of this requirement, the Proposal included an instruction noting that prohibited agreements would not include unsuccessful negotiations with the company to have the nominee included in the company’s proxy materials as a management nominee, or negotiations that are limited to whether the company is required to include the shareholder

331See letters from ADP; BRT; Calvert; CFA Institute; CII; Seven Law Firms; TIAA–CREF; USPE. 332See letter from CII. 333See letter from USPE. 334See letters from BRT; Seven Law Firms; Society of Corporate Secretaries. 335See letters from ABA; Steve Quinlivan (‘‘S. Quinlivan’’); Verizon. 336See letter from S. Quinlivan. 337We note that a nominating shareholder or members of a nominating shareholder group will be required to provide a certification in the Schedule 14N that the requirements of Rule 14a–11 are satisfied, which will include the ‘‘no agreements’’ requirement. A nominating shareholder or member of a nominating shareholder group will be liable, pursuant to Rule 14a–9(c), for a false or misleading certification provided in Schedule 14N. 338See Rule 14a–11(b)(7). See also Rule 14a– 11(d)(7) which clarifies that if a nominee, nominating shareholder or any member of a nominating group has an agreement with the company or an affiliate of the company regarding the nomination of a candidate for election, other than as specified in Rule 14a–11(d)(5) or (6), any nominee or nominees from such shareholder or group shall not be counted in calculating the number of shareholder nominees for purposes of Rule 14a–11(d). 339See letters from ABA; BRT. 340See letter from ABA. 341See letter from BRT. nominee in the company’s proxy materials under Rule 14a–11. Commenters generally supported the proposed requirement, including the clarifying instruction regarding certain negotiations with the company.331 One commenter specifically supported the portion of the proposed rule providing that unsuccessful negotiations or negotiations that were limited to whether the company is required to include a shareholder nominee under Rule 14a–11 would not be deemed to be a direct or indirect agreement.332 One commenter was concerned about possible manipulation by companies and supported a prohibition on agreements.333 According to that commenter, negotiations that resulted in a nomination being included in the proxy statement should be treated as a company nominee and not a shareholder nominee under Rule 14a–11. Some commenters encouraged us to allow negotiations that resulted in inclusion of shareholder nominees as management nominees and cautioned that the proposal could discourage constructive dialogue between companies and shareholders.334 Three commenters opposed limits on some or all relationships between the company and the nominating shareholder, group, or shareholder nominee.335 These commenters believed that the Commission should not prohibit agreements between a company and a nominating shareholder or group. They warned that restricting the ability of companies to reach agreements with a nominating shareholder or group would limit the dialogue between companies and investors. One commenter suggested that proposed Rule 14a–18(d) be revised to permit a company to agree not to contest the eligibility of a shareholder nominee.336 The commenter also suggested that if
a company settled a threatened election contest by placing a shareholder nominee on the board, additional shareholder nominees should not be permitted for a specified period of time. After careful review of the comments, we continue to believe that it is appropriate to provide that a nominating shareholder or group will not be eligible to have a nominee or nominees included in a company’s proxy materials under Rule 14a–11 if the nominating shareholder, group, or any member of the nominating shareholder group, has any agreement with the company with respect to the nomination. We have revised the rule to make it clearer that this is an eligibility condition by listing it as a condition in the rule, rather than only a representation required in Schedule 14N.337 We have incorporated, as proposed, the instruction with respect to unsuccessful negotiations (i.e. negotiations that do not result in an agreement) regarding whether a company is required to include a nominee in order to make clear that those negotiations would not be disqualifying. As described above, a nominating shareholder or group will not be eligible to use Rule 14a–11 if there is an agreement with the company regarding the nomination of the nominee.338 When a nominating shareholder or group files its Schedule 14N, this requirement will apply, and the certification required by Schedule 14N will have the effect of confirming that there are no agreements. We believe this is an important safeguard to prevent actions that could undermine the purpose of the rule. If, after the
Schedule 14N is filed, a nominating
shareholder or group reached an agreement with the company for the nominee to be included in the company’s proxy materials as a management nominee, the nominating shareholder or group would no longer be proceeding under Rule 14a–11. Consequently, there is no need to revise the ‘‘no agreements’’ requirement in Rule 14a–11 to address that fact pattern. Although we are adopting the ‘‘no agreements’’ requirement largely as proposed, we are persuaded by commenters that we should revise our final rules so that they do not unnecessarily discourage constructive dialogue between shareholders and companies. However, we believe this concern is more appropriately addressed in the method of calculation of the maximum number of permissible nominees, and the question of whether that number should include management nominees that were originally put forward as shareholder nominees under Rule 14a–11. Our revisions to that provision are discussed in Section II.B.6. below. f. No Requirement To Attend the Annual or Special Meeting Under Rule 14a–11 as proposed, a nominating shareholder or group would have no obligation to attend the annual or special meeting at which its nominee or nominees is being presented to shareholders for a vote. We received comment on the Proposal, however, suggesting that we require a nominating shareholder or group, or a qualified representative of the nominating shareholder or group, to attend the company’s shareholder meeting and nominate its director candidate(s) in person.339 One commenter explained that this requirement would be consistent with State law requirements for nominations and many companies’ advance notice bylaws.340 Another commenter suggested that, as required under Rule 14a–8(h)(3) for shareholder proposals, if the nominating shareholder or group (or its qualified representative) fails, without good cause, to appear and nominate the candidate, the company should be permitted to exclude from its proxy materials for the following two years all nominees submitted by that nominating shareholder or members of the nominating group.341 We have decided not to include a requirement that the nominating shareholder or qualified representative appear at the meeting and present the nominee because we believe that shareholders will have sufficient incentive to take steps to assure that their nominees are voted on at the meeting, whether through attending the meeting or sending a qualified representative, or through other arrangements with the company, and we do not want to add unnecessary complexities and burdens to the rule. We note that State law will control what happens if a candidate is not nominated at the meeting because the person supporting the candidate does not

342While state statutes are largely silent on the subject of presentation of nominations, motions or other business at meetings of shareholders, the chairman of the meeting typically has broad discretionary authority over its conduct (see, e.g., Model Business Corporation Act § 7.08(b)). As we understand, it is prevailing practice for the chairman to invite nominations of directors from the meeting floor. See David A. Drexler, et al., Delaware Corporation Law and Practice, ¶ 24.05[3] (2009 supp.); Carroll R. Wetzel, Conduct of a Stockholders’ Meeting, 22 Bus. Law. 303, 313–314 (1967); American Bar Association Corporate Laws Committee and Corporate Governance Committee, Business Law Section, Handbook for the Conduct of Shareholders’ Meetings (2d ed. 2010) at 151. 343See letters from 26 Corporate Secretaries; ABA; ADP; Advance Auto Parts; Aetna; Alcoa; AllianceBernstein; Anadarko; Applied Materials; Avis Budget; Boeing; BorgWarner; BRT; Burlington Northern; Caterpillar; Chevron; CIGNA; Cleary; Comcast; CSX; Darden Restaurants; Deere; Dewey; DTE Energy; Dupont; Eaton; FedEx; Florida State Board of Administration; FMC Corp.; FPL Group; General Mills; Headwaters; Intel; ITT; JPMorgan Chase; Kirkland & Ellis; E.J. Kullman; Leggett; P. Neuhauser; Northrop; PepsiCo; Pfizer; Protective; RiskMetrics; Sara Lee; Seven Law Firms; SIFMA; Society of Corporate Secretaries; Southern Company; T. Rowe Price; tw telecom; U.S. Bancorp; Wells Fargo; Weyerhaeuser; Whirlpool; Xerox. 344See discussion in Section II.B.5.e. below with regard to resubmission of unsuccessful shareholder nominees. 345See letter from Society of Corporate Secretaries. 346See letters from CII; Norges Bank; Solutions; USPE; Walden. 347See letter from CII. 348 In the Proposing Release, we described an exception from the provision if the violation could be cured. We inadvertently did not include language for this provision in the proposed regulatory text. 349See letters from 26 Corporate Secretaries; American Bankers Association; Association of Corporate Counsel; BRT; Dewey; Emerson Electric; Financial Services Roundtable; GE; Intel; JPMorgan Chase; O’Melveny & Myers; Protective; Sidley Austin; Tenet; Xerox. 350See letters from American Bankers Association; BRT; Emerson Electric; GE; O’Melveny & Myers; Sidley Austin; Tenet. 351See letter from American Bankers Association. 352See letter from CII. 353See letter from USPE. 354We note that this condition would not disqualify a nominee unless the violation could not be cured during the time period in which a nominating shareholder or group has to respond to a company’s notice of deficiency. 355We are not aware of other exchange requirements related to director qualifications, but attend the meeting or make other arrangements.342 g. No Limit on Resubmission Under the Proposal, a nominating shareholder’s or group’s ability to use Rule 14a–11 would not be impacted by prior unsuccessful use of the rule. In response to our request for comment, a number of
commenters supported a provision that would render a nominating shareholder or group ineligible to use Rule 14a–11 for a period of time (e.g., one, two, or three years) if the nominating shareholder or group presented a nominee who failed to receive significant shareholder support in a previous election (e.g., 10%, 15%, 25%, or 30%).343 One commenter indicated that this resubmission threshold would have a dual purpose: (i) when the nominee failed to garner significant support from shareholders, it would be inappropriate to require the company to expend resources repeatedly to include the unsuccessful nominee; 344 and (ii) other shareholders would have an opportunity to submit their own nominations.345 On the other hand, some commenters opposed a provision that would render a nominating shareholder or group ineligible to use Rule 14a–11 for a period of time if the nominating shareholder or group presented a nominee who failed to receive a specified percentage of shareholder votes at a previous election.346 One commenter pointed out that management nominees are not subject to similar limits.347 After consideration of the comments we do not believe it is necessary or appropriate to include a limitation on use of Rule 14a–11 by nominating shareholders or groups that have previously used the rule. We continue to believe that such a limitation would not facilitate shareholders’ traditional State law rights and would add unnecessary complexity to the rule’s operation.
5. Nominee Eligibility Under Exchange
Act Rule 14a–11 a. Consistent With Applicable Law and Regulation Under the Proposal, a company would have been able to exclude a nominee where the nominee’s candidacy or, if elected, board membership would violate controlling State law, Federal law, or rules of a national securities exchange or national securities association (other than rules of a national securities exchange or national securities association that set forth requirements regarding the independence of directors, which the rule addresses separately) and such violation could not be cured.348 Commenters generally supported this requirement.349 These commenters suggested that the rule require the nominating shareholder or group to provide any information necessary to ensure compliance with these laws or regulations. Some of these commenters noted that there are various Federal and State laws that govern or affect the ability of a person to serve as a director, such as the Federal Power Act and related FERC regulations, Federal maritime laws and regulations, Department of Defense security clearance requirements, Department of State export licensing requirements, bank holding company laws, FCC licensing requirements, state gaming licensing requirements, Federal Reserve regulations, FDIC regulations, U.S. government procurement regulations,
Section 8 of the Clayton Act, Section 1
of the Sherman Act, and Section 5 of the Federal Trade Commission Act.350 One commenter, for example, explained that banking laws and regulations impose their own eligibility standards for directors.351 One commenter stated more generally that it does not oppose the proposed requirement that a company would not have to include a shareholder nominee in its proxy materials if the nominee’s candidacy or election would violate Federal law or State law and such violation could not be cured.352 It noted, however, that ‘‘there is not a lot of law’’ that disqualifies a person from serving as a director and described concerns about State law barriers as a ‘‘red herring.’’ On the other hand, one commenter stated that a company should not be allowed to exclude a shareholder nominee from its proxy materials because the election of the nominee would result in the violation of State law or Federal law.353 The commenter explained that allowing such exclusion ‘‘would make it prohibitively expensive for most shareowners to submit nominations under the proposed rule. It would lead to many shareowner nominees being disqualified based on technicalities or invented legal theories.’’ After considering the comments, we continue to believe that Rule 14a–11 should address Federal law, State law, and applicable exchange requirements (other than the requirements related to objective independence standards, which are addressed separately under the rule). Requiring compliance with basic legal requirements regarding nominees should encourage nominating shareholders to bring forward candidates that may be more likely to be able to be elected and serve as directors, and should reduce disruption and expense for companies of opposing a candidate who could not serve on the board if elected because their service would violate law.354 Thus, under Rule 14a–11, a nominee will not be eligible to be included in a company’s proxy materials if the nominee’s candidacy, or if elected, board membership will violate Federal law, State law, or applicable exchange requirements, if any,355 other than those related to

should an exchange adopt new requirements, this provision would apply. 356As discussed in Section II.B.9.b., a company that intends to exclude a shareholder nominee or nominees will be required to notify the nominating shareholder or group of the basis on which the company plans to exclude the nominee or nominees and the nominating shareholder or group will have 14 calendar days to cure the deficiency (where curable). 357Pursuant to proposed Rule 14a–18(c), a nominating shareholder or group would include a representation in its notice to the company that the nominee satisfies the existing independence or ‘‘interested person’’ standards. 358See proposed Rule 14a–18(c) and the Instruction to paragraph (c). For example, the NYSE listing standards include both subjective and objective components in defining an ‘‘independent director.’’ As an example of a subjective determination, Section 303A.02(a) of the NYSE Listed Company Manual provides that no director will qualify as ‘‘independent’’ unless the board of directors ‘‘affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).’’ On the other hand, Section 303A.02(b) provides that a director is not independent if he or she has any of several specified relationships with the company that can be determined by a ‘‘bright-line’’ objective test. For example, a director is not independent if ‘‘the director has received, or has an immediate family member who has received, during any twelve￾month period within the last three years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).’’ Similar to the NYSE rules, the NASDAQ Listing Rules require a company’s board to make an affirmative determination that individuals serving as independent directors do not have a relationship with the company that would impair their independence. The NASDAQ rules include certain objective criteria, similar to those provided in NYSE Section 303A.02(b), for making such a determination. See NASDAQ Rule 5605(a)(2) and IM–5605. 359See letters from ABA; ACSI; Advance Auto Parts; Aetna; Alaska Air; Alcoa; Anadarko; Avis Budget; Biogen; The Board Institute (‘‘Board Institute’’); BorgWarner; BRT; Burlington Northern; Callaway; CalSTRS; Caterpillar; CIGNA; Cleary; Comcast; Con Edison; CII; COPERA; CSX; Cummins; Darden Restaurants; Deere; Dewey; DTE Energy; Eaton; Edison Electric Institute; Einstein Noah Restaurant Group, Inc. (‘‘Einstein Noah’’); Emerson Electric; ExxonMobil; FedEx; FMC Corp.; FPL Group; General Mills; A. Goolsby; Headwaters; Home Depot; Honeywell; Horizon Lines, Inc. (‘‘Horizon’’); C. Horner; IBM; Intel; JPMorgan Chase; Keating Muething; E.J. Kullman; LUCRF;
McDonald’s; Merchants Terminal; Metlife; P. Neuhauser; Norfolk Southern; Northrop; Office Depot; O’Melveny & Myers; P&G; PepsiCo; Pfizer; Protective; S&C; Seven Law Firms; Sidley Austin; SIFMA; Society of Corporate Secretaries; Southern Company; Tenet; Tesoro; Theragenics; TI; TIAA– CREF; Tompkins; tw telecom; UnitedHealth; U.S. Bancorp; ValueAct Capital; Verizon; Wells Fargo; Weyerhaeuser. 360See letters from ACSI; CalSTRS; CII; COPERA; LUCRF; P. Neuhauser; TIAA–CREF; ValueAct Capital. 361See letter from CII. 362See letters from ABA II; ICI. 363See letter from ICI. One commenter stated that the application of the ‘‘interested person’’ standard of Section 2(a)(19) is unnecessary. See letter from Norges Bank. 364See letters from ABA; Advance Auto Parts; Aetna; Alaska Air; Alcoa; Anadarko; Avis Budget; Biogen; Board Institute; BorgWarner; BRT; Burlington Northern; Callaway; Caterpillar; CIGNA; Cleary; Comcast; Con Edison; CSX; Cummins; Darden Restaurants; Deere; Dewey; DTE Energy; Eaton; Edison Electric Institute; Einstein Noah; Emerson Electric; ExxonMobil; FedEx; FMC Corp.; FPL Group; General Mills; A. Goolsby; Headwaters; Home Depot; Honeywell; Horizon; C. Horner; IBM; Intel; JPMorgan Chase; Keating Muething; E.J. Kullman; McDonald’s; Merchants Terminal; Metlife; Norfolk Southern; Northrop; Office Depot; O’Melveny & Myers; P&G; PepsiCo; Pfizer; Protective; S&C; Seven Law Firms; Sidley Austin; SIFMA; Society of Corporate Secretaries; Southern Company; Tenet; Tesoro; Theragenics; TI; Tompkins; tw telecom; UnitedHealth; U.S. Bancorp; Verizon; Wells Fargo; Weyerhaeuser. 365See letters from Board Institute; BRT; Con Edison; C. Horner; TI; Verizon. independence standards, and such violation could not be cured during the time period provided in the rule.356 b. Independence Requirements and Other Director Qualifications Under the Proposal, the nominating shareholder or each member of the nominating shareholder group would have been required to provide a representation that the shareholder nominee meets the objective criteria for ‘‘independence’’ of the national securities exchange or national securities association rules applicable to the company, if any, or, in the case of a registrant that is an investment company, a representation that the nominee is not an ‘‘interested person’’ of the registrant, as defined in Section 2(a)(19) of the Investment Company Act.357 For registrants other than investment companies, the representation would not have been required in instances where a company is not subject to the requirements of a national securities exchange or a national securities association. We also noted that exchange rules regarding director independence generally include some standards that depend on an objective determination of facts and other standards that depend on subjective determinations.358 Under our Proposal, the representation would not cover subjective determinations. Also, the representation would not cover additional independence or
director qualification requirements imposed by a board on its independent members, although we requested comment on whether it should. Commenters generally supported the requirement regarding the objective independence standards.359 Institutional and other investors agreed that nominating shareholders should not be required to represent that nominees satisfy the subjective independence standards of the relevant exchange or national securities association, and also agreed that they should not be subject to any director independence or qualification standards set by the board or the nominating committee.360 One of these commenters expressed agreement with the Proposal that where a company is not subject to the independence standards of an exchange or national securities association, the nominating shareholder or group should not be required to provide disclosure concerning whether nominees would be independent.361 To the extent that a company has independence standards that are more stringent than those of an exchange, then the commenter would not oppose the application of those standards to the shareholder nominee as long as the standards are objective. Two commenters expressed the view that the
Section 2(a)(19) test is more appropriate
for investment company directors than the independence standard applied to non-investment company directors,362 with one noting that the Section 2(a)(19) test is tailored to the types of conflicts of interest faced by investment company directors and that the Section 2(a)(19) provision is critical given that investment companies must have a specified percentage of independent directors to be able to comply with certain statutory and regulatory requirements.363 A significant number of commenters from the corporate community stated generally that shareholder nominees should satisfy not just the objective director independence standards of the relevant exchange or national securities associations, but all of the company’s director qualifications and independence standards (including, if applicable, more stringent objective independence standards imposed by the board, subjective director independence standards, director qualification standards, board service guidelines, and code of conduct in the company’s governance principles and committee charters) applicable to all directors and director nominees.364 Many commenters warned that exempting shareholder nominees from a company’s director independence and qualification standards could cause the company to be exposed to legal issues, lower the quality and diversity of the board, and create difficulties in recruiting qualified directors.365 Other commenters also believed that exempting shareholder nominees from the subjective director independence standards of the relevant exchange or national securities association would put companies at risk of noncompliance with the exchange’s

366See letters from Metlife; O’Melveny & Myers; Seven Law Firms; Wells Fargo. 367See Rule 14a–11(b)(9). 368See Item 5(f) of new Schedule 14N. 369See new instruction to paragraph (b)(9) in Rule 14a–11. 370The rule addresses only the requirements under Rule 14a–11 to be included in a company’s proxy materials—it would not preclude a nominee from ultimately being subject to the subjective determination test of independence for board committee positions. A company could include disclosure in its proxy materials advising shareholders that the shareholder nominee for director would not meet the company’s subjective criteria, as appropriate. If a shareholder nominee is elected and the board determines that the nominee is not independent, the board member presumably would be included in the group of non-independent directors for purposes of applicable listing standards. 371 If a shareholder nominee did not meet the independence requirements of a listed market, that listed market may provide for a cure period during which time the company may resolve this deficiency. See, e.g., NASDAQ Rule 5810(c)(3)(E) (‘‘If a Company fails to meet the majority board independence requirement in Rule 5605(b)(1) due to one vacancy, or because one director ceases to be independent for reasons beyond his/her reasonable control, the Listing Qualifications Department will promptly notify the Company and inform it has until the earlier of its next annual shareholders meeting or one year from the event that caused the deficiency to cure the deficiency.’’). 372See letter from ICI. 373See new Rule 14a–11(b)(9). 374See, e.g., Triplex Shoe Co. v. Rice & Hutchins, Inc., 152 A. 342, 375 (Del. 1930). See also 1–13 David A. Drexler et al., Delaware Corporation Law and Practice § 13.01 n. 42 (citing Triplex for the proposition that ‘‘a bylaw requiring a director to be a stockholder required a director to own stock prior to entering into the office of director, not prior to election’’). 375See letters from 26 Corporate Secretaries; Advance Auto Parts; Alaska Air; Anadarko; Aetna; American Express; Association of Corporate Counsel; BorgWarner; BRT; Callaway; Caterpillar; Dewey; DTE Energy; Dupont; Emerson Electric; eWareness; ExxonMobil; Financial Services Roundtable; IBM; ICI; McDonald’s; O’Melveny & or association’s rules regarding independent directors, burden the remaining independent directors with additional duties by forcing them to serve on more board committees, make it more difficult for companies to recruit the independent directors needed for the board committees, and force companies to increase the size of the board and conduct additional searches for directors qualifying as independent.366 After carefully considering the comments, we are adopting the requirement largely as proposed. We believe that the Rule 14a–11 process should be limited to nominations of board candidates who meet any objective independence standards of the relevant securities exchange. While we understand
the concerns expressed by many commenters from the corporate community, particularly with respect to the risk of noncompliance with listing standards, we continue to believe that the rule should not extend to subjective independence standards. We note that Rule 14a–11 only addresses when a company must include a nominee in its proxy materials—it does not preclude a nominee from ultimately being subject to any subjective determination of independence for board committee positions. We believe the concerns regarding independent directors being forced to take on additional duties, companies needing to increase the size of the board or conducting additional searches for independent directors are best addressed through disclosure. A company could include disclosure in its proxy materials advising shareholders that the shareholder nominee would not meet the company’s subjective criteria, as appropriate. This would provide shareholders with the opportunity to make an informed choice with regard to the candidates for director. We believe that it is in both the company’s and shareholders’ interest for the company to continue to meet any applicable listing standards, and requiring that Rule 14a–11 nominees meet the objective independence standards will further that interest. It also should help reduce disruption and expense for companies opposing a candidate it believes would cause it to violate applicable listing standards. To clarify that this is an affirmative requirement for Rule 14a–11 nominees, we have revised the rule to include this provision as an eligibility requirement rather than a representation.367 A nominating shareholder or group also will be required to provide a statement in Schedule 14N that the nominee or nominees meets the objective independence standards of the applicable exchange rules.368 For this purpose, the nominee would be required to meet the definition of ‘‘independent’’ that is applicable to directors of the company generally and not any particular definition of independence applicable to members of the audit committee of the company’s board of directors.369 To the extent a rule imposes a standard regarding independence that requires a subjective determination by the board or a group or committee of the board (for example, requiring that the board of directors or any group or committee of the board of directors make a determination that the nominee has no material relationship with the listed company), this element of an independence standard would not have to be satisfied.370 Where a company (other than an investment company) is not subject to the standards of a national securities exchange or national securities association, the requirement would not apply. While we acknowledge commenters’ concerns about nominees not being subject to subjective independence requirements, we believe that including such requirements would create undue uncertainty for shareholders seeking to nominate directors and make it difficult to evaluate
the board’s conclusion regarding independence. In addition, if a board believes a nominee would not be considered independent under its subjective independence evaluation, it could describe its reasons for that view in its proxy statement. In this regard, we note that in a traditional proxy contest an insurgent’s nominee or nominees do not have to comply with any requirements, including the independence requirements applicable to the company.371 We also agree with the commenter who noted that the ‘‘interested person’’ test under Section 2(a)(19) is tailored to the types of conflicts of interest faced by investment company directors and that the Section 2(a)(19) provision is critical given that investment companies must have a specified percentage of independent directors to be able to comply with certain statutory and regulatory requirements.372 Accordingly, under the final rule, a company will be required to include a shareholder nominee in its proxy materials if the shareholder nominee meets the objective criteria for ‘‘independence’’ of the national securities exchange or national securities association rules applicable to the company, if any, or, in the case of a company that is an investment company, the nominee is not an ‘‘interested person’’ of the registrant, as defined in Section 2(a)(19) of the Investment Company Act.373 As noted above, we did not propose to require a shareholder nominee submitted pursuant to Rule 14a–11 to be subject to the company’s director qualification standards. With regard to these standards, we believe that a nominee’s compliance with a company’s director qualifications is best addressed through disclosure. Under State law, shareholders generally are free to nominate and elect any person to the board of directors, regardless of whether the candidate satisfies a company’s qualification requirement at the time of nomination and election.374 Many commenters recommended a requirement that the shareholder nominee complete the company’s standard director questionnaire or otherwise provide information required of other nominees.375 While we do not

Myers; PepsiCo; Praxair; Seven Law Firms; Society of Corporate Secretaries; Theragenics; UnitedHealth; U.S. Bancorp; Xerox. 376See Item 5(e) of new Schedule 14N. 377See the discussion in Section II.B.4.e. above regarding relationships or agreements between the nominating shareholder or group and the company and its management. 378 In this regard, we also proposed to require a nominating shareholder or group to represent that no relationships or agreements between the nominee and the company and its management exist. This aspect of the rule is discussed in Section II.B.5.d. below. 379See instruction to proposed Rule 14a–18(d). 380See letters from ADP; BRT; Calvert; CFA Institute; CII; Seven Law Firms; TIAA–CREF; USPE. 381See Section II.B.4.e. above for a further discussion of the comments. 382The 2003 Proposal included such a requirement. For a discussion of this aspect of the 2003 Proposal and the comments received, see the Proposing Release. 383See letters from ABA; Advance Auto Parts; Aetna; Alaska Air; Association of Corporate Counsel; Avis Budget; Biogen; Boeing; BorgWarner; Brink’s; BRT; Callaway; Caterpillar; CIGNA; Comcast; Cummins; Darden Restaurants; Deere; Dewey; Dupont; Eaton; Eli Lilly; ExxonMobil; FedEx; Financial Services Roundtable; FMC Corp.; FPL Group; General Mills; Headwaters; Honeywell; JPMorgan Chase; E.J. Kullman; Leggett; Norfolk Southern; Office Depot; O’Melveny & Myers; Pax World; Protective; Sara Lee; Seven Law Firms; SIFMA; Society of Corporate Secretaries; Southern Company; Tenet; U.S. Bancorp; Vinson & Elkins LLP (‘‘Vinson & Elkins’’); Wells Fargo; Weyerhaeuser. 384See letters from ABA; Alaska Air; Eli Lilly; Leggett. 385See letters from Advance Auto Parts; Aetna; Association of Corporate Counsel; Avis Budget; Boeing; Brink’s; CIGNA; Cummins; Deere; Eaton; FedEx; FMC Corp.; FPL Group; General Mills; E.J. Kullman; Pax World; Protective; Sara Lee. 386See letters from Alaska Air; BorgWarner; Caterpillar; JPMorgan Chase; O’Melveny & Myers; Society of Corporate Secretaries. 387See letters from BRT; Intel. 388Letter from BRT. believe nominees submitted pursuant to Rule 14a–11 should be required to complete a company’s director questionnaire, we are persuaded that information should be provided regarding whether the nominee meets the company’s director qualifications, if any. Accordingly, although we have not revised the rule to allow exclusion of nominees who do not meet any director qualification requirements, we have adopted a requirement that a nominating shareholder or group disclose under Item 5 of Schedule 14N whether, to the best of their knowledge, the nominating shareholder’s or group’s nominee meets the company’s director qualifications, if any, as set forth in the company’s governing documents.376 The company also may choose to provide disclosure in its proxy statement about whether it believes a nominee satisfies the company’s director qualifications, as is currently done in a traditional proxy contest. Where a
company’s governing documents establish certain qualifications for director nominees that, consistent with State law, would preclude the company from seating a director who does not meet these qualifications, we believe this would be important disclosure for shareholders.
c. Agreements With the Company
As discussed above with regard to the eligibility requirements for a nominating shareholder or group, we recognize that certain limitations of the rule create the potential risk of nominating shareholders or groups acting merely as a surrogate for the company or its management in order to block usage of the rule by another nominating shareholder or group.377 Under the Proposal as it relates to nominee eligibility, a nominating shareholder or group would have been required to represent that no agreements between the nominee and the company and its management exist regarding the nomination of the nominee.378 The Proposal included an instruction clarifying that negotiations between a nominating shareholder or group, nominee, and nominating committee or board of a company to have the nominee included in the company’s proxy materials, where the negotiations were unsuccessful or were limited to whether the company was required to include the nominee in accordance with Rule 14a–11, would not represent a direct or indirect agreement with the company.379 Commenters generally supported this proposed requirement.380 Most of the comments addressed negotiations or agreements between the nominating shareholder or group and the company rather than the relationship or agreements between a nominee and the company.381 Consistent with our approach to agreements with nominating shareholders, we are adopting the requirement that there not be any agreements between the nominee and the company and its management regarding the nomination of the nominee largely as proposed. In this regard, we believe it would undermine the purpose of the rule to allow nominees under Rule 14a–11 to have such agreements with the company because of the potential risk of a nominating shareholder or group acting merely as a surrogate for a company. In order to clarify that this is an affirmative requirement of Rule 14a–11, we have revised the rule to make clear that this is an eligibility condition by listing it as a condition in the rule, rather than only in a representation required in Schedule 14N. d. Relationship Between the Nominating Shareholder or Group and the Nominee We did not propose a requirement that the nominee must be independent or unaffiliated with the nominating shareholder or group, but we requested comment on whether we should include such a requirement.382 A large number of commenters supported generally an independence requirement that would limit some or all relationships between the nominating shareholder or group and its nominee.383 Commenters explained that an independence requirement would reduce the risk that a successful shareholder nominee would represent only the nominating shareholder or group, avoid potential disruptions and divisiveness from having ‘‘special interest’’ directors, ameliorate the issue of preserving confidentiality within the boardroom and avoiding misuse of material non￾public information, and lessen the likelihood that Rule 14a–11 would be
used for change in control attempts.384 With regard to the degree of independence needed and types of relationships that should be prohibited, numerous commenters recommended a prohibition on any affiliation between the nominating shareholder or group and the shareholder nominee.385 Some commenters recommended that Rule 14a–11 prohibit a shareholder nominee from being (1) a nominating shareholder, (2) a member of the immediate family of any nominating shareholder, or (3) a partner, officer, director or employee of a nominating shareholder or any of its affiliates.386 They noted that a similar limitation was included in the 2003 Proposal. Two commenters recommended that the Commission impose the same restrictions and disclosure requirements that were included in the 2003 Proposal.387 One commenter noted the Commission’s assertion in the Proposing Release that ‘‘such limitations may not be appropriate or necessary’’ because, if elected, a director would be subject to State law fiduciary duties owed to the company.388 The commenter, however, expressed skepticism that fiduciary obligations would adequately resolve the issue of ‘‘special interest’’ directors. One commenter would not require independence between the nominating shareholder or group and the nominee if the nominating shareholder or group could use Rule 14a–11 to nominate only one candidate; however, if the nominating shareholder or group is allowed to nominate more than one

389See letter from Seven Law Firms.
390 Id. The recommended disclosures included:
familial relationships with a nominating shareholder or group member; ownership interests (or other participation) in a nominating shareholder, group member, or affiliates; employment history with a nominating shareholder, group member, or affiliates; prior advisory, consulting or other compensatory relationships with a nominating shareholder, group member, or affiliates; and agreements with a nominating shareholder, group member, or affiliates (other than relating to the nomination). 391See letters from O’Melveny & Myers; SIFMA; UnitedHealth. See also letter from CII. 392Letter from IBM. 393See letters from Amalgamated Bank; CalSTRS; CFA Institute; CII; COPERA; Nathan Cummings Foundation; P. Neuhauser; Norges Bank; Pershing Square; Relational; RiskMetrics; Solutions by Design (‘‘Solutions’’); TIAA–CREF; USPE; B. Villiarmois. 394See letters from CFA Institute; CII; COPERA; P. Neuhauser; Pershing Square; Relational; USPE; B. Villiarmois. 395See letter from CII. 396See letter from Relational. 397See letters from CII; Nathan Cummings Foundation. 398See letter from TIAA–CREF. 399See E. Norman Veasey & Christine T. DiGuglielmo, How Many Masters Can a Director Serve? A Look at the Tensions Facing Constituency Directors, 63 Bus. Law. 761 (2008). 400See letters from 26 Corporate Secretaries; ABA; Aetna; Anadarko; BorgWarner; BRT; Burlington Northern; Caterpillar; Cummins; Dewey; Headwaters; JPMorgan Chase; Kirkland & Ellis; Leggett; P. Neuhauser; Northrop; PepsiCo; Pfizer; Protective; Sara Lee; SIFMA; Society of Corporate Secretaries; TIAA–CREF; T. Rowe Price; Xerox. 401Letter from Northrop. 402See letters from CII; Corporate Library; Dominican Sisters of Hope; First Affirmative Financial Network LLC (‘‘First Affirmative’’); Mercy Investment Program; Sisters of Mercy; Social Investment Forum; Tri-State Coalition; Trillium; Ursuline Sisters of Tildonk; USPE. 403Letter from CII. 404See proposed Rule 14a–11(d)(1). According to information from RiskMetrics, based on a sample of 1,431 public companies, in 2007, the median board size was 9, with boards ranging in size from 4 to 23 members. Approximately 40% of the boards in the sample had 8 or fewer directors, approximately 60% had between 9 and 19 directors, and less than 1% had 20 or more directors. candidate using Rule 14a–11, then the commenter believed independence between the nominating shareholder or group and the nominees is needed.389 The commenter asserted that a lack of an independence requirement between multiple nominees and the nominating shareholder could give rise to control issues because the nominees, if elected, could be beholden to a single nominating shareholder or group. In addition, the commenter claimed that a lack of independence could give rise to ‘‘single issue’’ or ‘‘special interest’’ directors, thereby causing balkanization of boards. According to this commenter, if independence is not required, then
Schedule 14N should require detailed
disclosure about the nature of relationships between the nominating shareholder or group and the nominees.390 A few commenters recommended requiring disclosure in the Schedule 14N of any direct or indirect relationships between the nominating shareholder or group and the nominee, including family or employment relationships, ownership interests, commercial relationships and any other arrangements or agreements.391 One commenter recommended that a nominating shareholder or group provide ‘‘[d]isclosure about any agreements or relationships with the Rule 14a–11 nominee other than those relating to the nomination of the nominee.’’ 392 Other commenters opposed generally any requirement that the nominating shareholder or group be independent from the shareholder nominee.393 Of these, some commenters recommended the Commission require full disclosure of any affiliations and business relationships instead of an outright prohibition.394 One commenter noted that no such restriction or prohibition applies to current director candidates, some of whom have various personal and professional links to the company and its executives.395 Another commenter noted that the NYSE recognized the issue of share ownership when crafting its director independence rules and determined that even significant share ownership should not be dispositive as to a determination of a director’s independence.396 Two commenters opposed a prohibition on any affiliation between the nominating shareholder and its nominee because they believed that fears regarding the election of ‘‘special interest’’ directors are unfounded or exaggerated, as any nominee would have to gain the support of a broad array of shareholders to be elected.397 One commenter asserted that existing fiduciary duties are an adequate safeguard against ‘‘special interest’’ directors.398 We continue to believe that such limitations are not appropriate or necessary. Rather, we believe that Rule 14a–11 should facilitate the exercise of shareholders’ traditional State law rights and afford a shareholder or group meeting the requirements of the rule the ability to propose a nominee for director that, in the nominating shareholder’s view, better represents the interests of shareholders than those put forward by the nominating committee or board. We note that once a nominee is elected to the board of directors, that director will be subject to State law fiduciary duties and owe the same duty to the corporation as any other director on the board.399 To the extent a company board is concerned that a director nominee will not represent the views of shareholders, the board could address those points in the company’s proxy materials opposing the candidate’s election. In addition, we believe the disclosure requirements about the relationships between a nominating shareholder or group and the nominee that we are adopting, combined with the fact that any nominee elected will be subject to fiduciary duties, should help address any
‘‘special interest’’ concerns. e. No Limit on Resubmission of Shareholder Director Nominees Under the Proposal, an individual would not be limited in their ability to stand as a nominee under the rule based on prior unsuccessful nominations under the rule. A number of commenters supported a provision under which a shareholder nominee who failed to receive a specified threshold (e.g., 10%, 15%, 25%, or 30%) of support at a previous election would be ineligible to be nominated again pursuant to Rule 14a–11 for a specified period (e.g., one, two, or three years).400 One commenter reasoned that ‘‘[t]his would allow more shareholders to participate in the process and would motivate them to propose high quality candidates.’’ 401 On the other hand, other commenters opposed a provision under which a shareholder nominee who failed to receive significant support at a previous election would be ineligible to be nominated again pursuant to Rule 14a–11 for a specified period.402 One commenter reasoned that ‘‘[s]imilar resubmission requirements aren’t applicable to management’s candidates, so they shouldn’t apply to candidates suggested by shareowners.’’ 403 We agree with those commenters who opposed a provision that would limit the ability of a shareholder nominee to be nominated based on the level of support received in a prior election. We do not believe that such a limitation would facilitate shareholders’ traditional State law rights and would add undue complexity to the rule’s operation.
6. Maximum Number of Shareholder
Nominees To Be Included in Company Proxy Materials a. General Under the Proposal, a company would be required to include no more than one shareholder nominee or the number of nominees that represents 25% of the company’s board of directors, whichever is greater.404 Where the term of a director that was nominated

405The final rule clarifies the second part of this requirement by specifying that a nominating shareholder or group may not be seeking 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. 406See, e.g., Exchange Act Rule 14a–12(c). 407 In this regard, we anticipate that shareholders seeking election of nominees included in the company’s proxy materials may need to engage in solicitation efforts for which they will incur expenses. 408See letters from CalPERS; CalSTRS; CFA Institute; ICGN; Nathan Cummings Foundation; P. Neuhauser; Norges Bank; Protective; RiskMetrics; TIAA–CREF; T. Rowe Price; WSIB. 409See letter from CalPERS. 410See letters from 13D Monitor; ABA; ACSI; Advance Auto Parts; Aetna; Alcoa; Allstate; American Express; Americans for Financial Reform; Association of Corporate Counsel; Avis Budget; Best Buy; J. Blanchard; Boeing; BorgWarner; BRT; Burlington Northern; R. Burt; Callaway; CalPERS; Caterpillar; CIGNA; CII; Cleary; CNH Global; Comcast; Concerned Shareholders; COPERA; Cummins; L. Dallas; Darden Restaurants; Deere; Dupont; Eaton; Eli Lilly; Dale C. Eshelman (‘‘D. Eshelman’’); ExxonMobil; FedEx; FMC Corp.; FPL Group; Frontier; GE; General Mills; Headwaters; C. Holliday; Honeywell; IBM; ICI; ITT; JPMorgan Chase; J. Kilts; E. J. Kullman; N. Lautenbach; Leggett; C. Levin; Lionbridge Technologies; LUCRF; McDonald’s; Motorola; Office Depot; O’Melveny & Myers; OPERS; P&G; Nathan Cummings Foundation; Northrop; Pax World; PepsiCo; Sara Lee; S&C; Schulte Roth & Zabel; Sherwin-Williams; Sidley Austin; SIFMA; Society of Corporate Secretaries; Solutions; SWIB; Teamsters; TI; G. Tooker; tw telecom; Universities Superannuation; U.S. Bancorp; Verizon; USPE; B. Villiarmois; Wachtell; Wells Fargo; Weyerhaeuser; WSIB. 411See letters from BRT (citing a July 2009 survey showing many companies would have to integrate multiple new directors); CII; Eaton; N. Lautenbach; McDonald’s; Sherwin-Williams; Sidley Austin; Society of Corporate Secretaries; G. Tooker; WSIB. 412See letters from CII; L. Dallas; C. Levin; Nathan Cummings Foundation; Universities Superannuation. 413See letters from Advance Auto Parts; Avis Budget; BRT; Caterpillar; CIGNA; CNH Global; Comcast; Cummins; Darden Restaurants; Deere; Eaton; Eli Lilly; FedEx; FMC Corp.; FPL Group; Frontier; General Mills; ICI; ITT; E. J. Kullman; N. Lautenbach; Leggett; McDonald’s; Office Depot; O’Melveny & Myers; PepsiCo; Sherwin-Williams; TI; G. Tooker; tw telecom; Verizon; Wachtell; Weyerhaeuser. 414See letters from ACSI; Americans for Financial Reform; CalPERS; CII (stating that while it supports the Commission’s proposed limit, shareholders should be allowed to nominate two candidates in all cases); COPERA; C. Levin; LUCRF; Nathan Cummings Foundation; SWIB; Teamsters. 415See, e.g., Aetna; Association of Corporate Counsel; Barclays; J. Blanchard; BorgWarner; Dewey; ExxonMobil; Headwaters;
Honeywell; Lionbridge Technologies; Northrop; Sidley Austin; Society of Corporate Secretaries; U.S. Bancorp. 416See new Rule 14a–11(d)(1). pursuant to Rule 14a–11 continues past the meeting date, that director would continue to count for purposes of the 25% maximum. As noted in the Proposing Release, we do not intend for Rule 14a–11 to be available for any shareholder or group that is seeking to change the control of the company or to gain more than a limited number of seats on the board.405 The existing procedures regarding contested elections of directors are intended to continue to fulfill that purpose.406 We also noted that by allowing shareholder nominees to be included in a company’s proxy materials, part of the cost of the solicitation is essentially shifted from the individual shareholder or group to the company and thus, all of the shareholders.407 We do not believe that we should require that an election contest conducted by a shareholder 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 be funded out of corporate assets. Some commenters supported generally the proposed limit on the number of shareholder nominees.408 While agreeing that the Commission’s proposed limit on the number of shareholder nominees is needed to ensure a more measured approach towards inclusion of shareholder nominees in company proxy materials, one commenter supported the general principle that shareholders should be entitled to nominate as many directors as necessary to focus the board’s attention on optimizing company performance, profitability and sustainable returns.409 On the other hand, many commenters disagreed with the proposed limit or recommended different limits.410 Some commenters expressed a general concern that the proposed limit would affect a significant portion of the board, disrupt the board, facilitate a change in control of the company, and possibly require companies to integrate numerous new directors into their boards each year.411 Other commenters wanted more shareholder nominees to be allowed because they feared that a single shareholder-nominated director would be ineffective due to the lack of a second for motions at board meetings, hostile board members, possible exclusion from key committees, and being effectively cut out of key discussions.412 Commenters’ suggestions as to the appropriate limitation on the number of shareholder nominees ranged from a limit of one shareholder nominee, regardless of the size of the board,413 to at least two nominees, but less than a majority of the board.414 Other commenters recommended various limits ranging from 10% to 15% of the board.415 We carefully considered commenters’ concerns regarding the limitation on the number of Rule 14a–11 nominees; however, we are adopting the limitation largely as proposed. We believe the rule we are adopting strikes
the appropriate balance in allowing shareholders to more effectively exercise their rights to nominate and elect directors, but does not provide nominating shareholders or groups using the rule with the ability to change control of the company. The limitation on the number of Rule 14a– 11 nominees that a company is required to include should also limit costs and disruption as compared to a rule without such a limit. We also believe that a lower threshold, such as 10% or 15%, may result in only one shareholder-nominated director at many companies. In addition, we note that our rule only addresses the inclusion of nominees in the company’s proxy materials. After reviewing all of the disclosures provided by the company and the nominating shareholder or group, shareholders will be able to make an informed decision as to whether to vote for and elect a shareholder nominee. We believe that the modifications we are making to the rule, as described below, help to alleviate concerns that the election of shareholder nominees would unduly disrupt the board. As to concerns about the possibility that a single shareholder￾nominated director would be ineffective due to actions of other members of the board, the rule is not intended to address the interactions of board members after the election of directors. In this respect, we note that any shareholder-nominated directors and board-nominated directors would be subject to fiduciary duties under State law. As adopted, Rule 14a–11(d) will not require a company to include more than one shareholder nominee or the number of nominees that represents 25% of the company’s board of directors, whichever is greater.416 Consistent with the Proposal, where a company has a director (or directors) currently serving on its board of directors who was elected as a shareholder nominee pursuant to Rule 14a–11, and the term of that director extends past the date of the meeting of shareholders for which the company is soliciting proxies for the election of directors, the company will not be required to include in its proxy materials more shareholder nominees than could result in the total number of directors serving on the board that were elected as shareholder nominees being greater than one shareholder nominee or 25% of the company’s board of

417See new Rule 14a–11(d)(2). This requirement is adopted as it was proposed in Rule 14a–11(d)(2). Depending on board size, 25% of the board may not result in a whole number. In those instances, the maximum number of shareholder nominees for director that a registrant will be required to include in its proxy materials will be the closest whole number below 25%. See the Instruction to paragraph (d)(1). 418See letter from ABA. 419See Rule 14a–11(d)(2). 420Comments on the 2003 Proposal provided a range of views regarding the appropriate number of shareholder nominees. Commenters that supported the use of a percentage, or combination of a set number and a percentage, to determine the number of shareholder nominees suggested percentages ranging from 20% to 35%. See Comment File No. S7–19–03, available at http://www.sec.gov/rules/ proposed/s71903.shtml. 421See letters from CII; L. Dallas; C. Levin; Nathan Cummins Foundation; Universities Superannuation. 422See letters from BRT (citing a July 2009 survey showing many companies would have to integrate multiple new directors); CII; Eaton; N. Lautenbach; McDonald’s; Sherwin-Williams; Sidley Austin; Society of Corporate Secretaries; G. Tooker; WSIB. 423See letters from ABA; Duane Morris; Media General; New York Times. 424See letters from Media General; New York Times. 425See letter from Sidley Austin. 426See letter from BRT. 427See letter from Media General. 428See letters from CII; P. Neuhauser. 429 Id. 430See letter from P. Neuhauser. 431See letters from Seven Law Firms; Sidley Austin; ValueAct Capital. directors, whichever is greater.417 We believe this limitation is appropriate to reduce the possibility of a nominating shareholder or group using Rule 14a–11 as a means to gain a number of seats on the board of directors that exceeds the maximum number of nominees that the company could be required to include under Rule 14a–11 or to effect a change in control of the company by repeatedly nominating additional candidates for director. One commenter requested that we explain how Rule 14a–11 would apply to different board structures, and in particular, classified boards.418 In the case of a staggered board, the rule provides that the 25% limit will be calculated based on the total number of board seats,419 not the lesser number that are being voted on because it is the size of the full board, not the number up for election, that would be relevant for considering the effect on control. We note that in the 2003 Proposal, the Commission proposed to require companies to include a set number of nominees, rather than a percentage of the board.420 We believe that using a percentage in the rule will promote ease of use and alleviate any concerns that a company may increase its board size in an effort to reduce the effect of a shareholder nominee elected to the board. We understand the concerns addressed by some commenters that this limitation could result in shareholder￾nominated directors being less influential,421
as well as the concerns of other commenters that the possibility of 25% of the board changing through the Rule 14a–11 process could present significant changes to the board.422 For the reasons discussed above, we believe the limitation as adopted strikes an appropriate balance and is an appropriate safeguard to assure that the Rule 14a–11 process is not used as a means to effect a change in control. Though we are adopting this requirement largely as proposed, we have added certain clarifications, which are described below, to address situations at companies where shareholders are able to elect only a subset of the board, revised the standard for determining which nominating shareholder or group will have their nominee or nominees included in the company’s proxy materials where there is more than one eligible nominating shareholder or group, and made other modifications designed to facilitate negotiations between companies and nominating shareholders. b. Different Voting Rights With Regard to Election of Directors Several commenters responded to the Commission’s request for comment about how to calculate the maximum number of candidates a nominating shareholder or group could nominate under Rule 14a–11 when certain directors are not elected by all shareholders. Some commenters noted that controlled companies are commonly structured with dual classes of stock which allow shareholders of the non-controlling class of stock to elect a set number of directors that is less than the full board.423 In the context of a company where shareholders are only entitled to elect a subset of the total number of directors, the rule as proposed potentially would have allowed shareholders to nominate more candidates than may be elected by the nominating shareholders. Two commenters argued that Rule 14a–11 should be modified so that the maximum number of shareholder nominees is based on the number of directors that may be elected by the class of securities held by the shareholders making the nomination, as opposed to the number of total directors.424 Another commenter urged us to revise Rule 14a–11 so that it would be limited to a percentage of the number of directors that are elected by the public shareholders (rather than a percentage of all directors) and would not apply to directors that are elected by shareholders of a class of stock having a right to nominate and elect a specified number or percentage of directors, or preferred shareholders having such right as a result of the company’s failure to pay dividends.425 Another commenter argued that, as proposed, Rule 14a–11 would not allow companies with multiple classes of voting shares the ability to make choices about how to best implement access to the company’s proxy to fit their capital structure.426 One commenter suggested that Rule 14a–11 address how it would apply to companies with multiple classes of stock to prevent shareholders from using the rule to change control of the class of directors those
shareholders have the right to elect.427 Other commenters, by contrast, believed that the maximum number of nominees that companies should be required to include should be based on the total number of director seats, regardless of whether a class of shares only gets to elect a subset of the board.428 We also sought comment on how to calculate the maximum number of nominees where the company is contractually obligated to permit a certain shareholder or group to elect a set number of directors to the board. Commenters’ views differed on how to calculate the maximum number of nominees a shareholder or shareholder group may nominate in that case. Some commenters believed that the maximum number of nominees should be based on the total board size, regardless of whether a company has granted rights to nominate.429 One such commenter noted that if Rule 14a–11 contained an exception for board seats subject to contractual rights, companies would have an incentive to enter into contractual agreements in order to evade its application.430 Other commenters, however, asserted that the maximum number of nominees that shareholders should be permitted to nominate under Rule 14a–11 should be limited to 25% of the ‘‘free’’ seats on the board—that is, only those board seats that are not subject to a contractual nomination right that existed as of the date of the submission and filing of a Schedule 14N.431 These commenters suggested taking board seats subject to contractual nomination rights ‘‘off the table’’ and basing the 25% calculation on the number of nominees that the nominating committee is free to name. One such commenter remarked that unless board seats subject to contractual nomination rights are excluded,

432See letter from Seven Law Firms.
433See Section II.B.4.b. above.
434See new Rule 14a–11(d)(3).
435See new Rule 14a–11(d)(3).
436See letters from BRT; Seven Law Firms; Society of Corporate Secretaries. 437See new Rule 14a–11(d)(4). In this regard, we note that we would view such an agreement as a termination of a Rule 14a–11 nomination. Thus, the nominating shareholder or group would be required to file an amendment to Schedule 14N to disclose the termination of the nomination as a result of the agreement with the company regarding the inclusion of the nominee or nominees. See Item 7 of Schedule 14N and Rule 14n–2. 438See letter from Florida State Board of Administration. 439See letters from ABA; Aetna; American Express; BorgWarner; BRT; Chevron; Cleary; Davis Polk; DTE Energy; Dupont; Edison Electric Institute; Eli Lilly; ExxonMobil; FPL Group; Home Depot; ICI; JPMorgan Chase; Metlife; P. Neuhauser; Pfizer; Protective; RiskMetrics; S&C; Seven Law Firms; Sidley Austin; SIFMA; Society of Corporate Secretaries; Verizon; Vinson & Elkins; Wells Fargo. 440See letters from P. Neuhauser; RiskMetrics. 441See letters from ABA; BRT; Seven Law Firms. 442See letters from Davis Polk; Society of Corporate Secretaries. companies may be limited in their ability to offer contractual nominating rights to shareholders without running a heightened risk of change of control, which could result in increased costs of capital and a decrease in the number of strategic alternatives.432 We believe that the maximum number of candidates a shareholder can nominate using Rule 14a–11 at companies with multiple classes of stock should be based on the total board size, as is the case at other companies. Thus, we are adopting this requirement as proposed. We believe the changes we are adopting with regard to calculating ownership and voting power, as discussed above, should address concerns about the possibility that the rule could be used to change control of the company or to affect the rights of shareholders as established by a particular company’s capital structure.433 Where shareholders have the right to elect a subset of the full board, however, we believe it is appropriate to provide that the maximum number of nominees a company may be required to include under Rule 14a–11 may not exceed the number of director seats the class of shares held by the nominating shareholder is entitled to elect.434 We believe the right to nominate is an integral part of the right to elect, therefore we are linking the ability under Rule 14a–11 for a shareholder to nominate directors to instances in which the shareholder can elect directors. Limiting the number of nominations to the number of director seats the class of shares held by the nominating shareholder is entitled to elect presumably would allow to be fully expressed the views of the shareholder about who should sit in the director seats in respect of which the shareholder has nomination rights. The shareholder nomination provisions in Rule 14a–11 are available only for holders of classes of securities that are subject to the Exchange Act proxy rules, provided
that a company is otherwise subject to the rule. If a company subject to Rule 14a–11 has multiple classes of eligible securities, however, the maximum number of candidates a shareholder can nominate will be determined based on the number of director seats the class of shares held by the nominating shareholder is entitled to elect.435
c. Inclusion of Shareholder Nominees in
Company Proxy Materials as Company Nominees As discussed in Section II.B.4.e. above, commenters expressed concern that the rule, as proposed, might discourage constructive dialogue between shareholders and companies.436 These commenters noted that companies would be discouraged from discussing potential board candidates with shareholders planning to use Rule 14a–11 and including them as management nominees because such nominees would not reduce the maximum number of shareholder nominees that the company would be required to include under Rule 14a–11. Subject to certain safeguards, we believe our rule should not discourage dialogue between nominating shareholders and companies and agree that the rule, as proposed, could have the effect of discouraging constructive dialogue if shareholder nominees nominated by a company as a result of that dialogue do not count toward the maximum number of shareholder nominees a company is required to include in its proxy materials. Consequently, under our final rule, where a company negotiates with the nominating shareholder or group that has filed a Schedule 14N before beginning any discussion with the company about the nomination and that otherwise would be eligible to have its nominees included in the company’s proxy materials, and the company agrees to include the nominating shareholder’s or group’s nominees on the company’s proxy card as company nominees, those nominees will count toward the 25% maximum set forth in the rule.437 As noted, this would only apply where the nominating shareholder or group has filed its notice on Schedule 14N before beginning discussions with the company. Although this limitation may reduce somewhat the utility of this provision, we believe limiting the treatment to situations in which the nominating shareholder or group has filed a
Schedule 14N will reduce the
possibility that this exception is used by a company to avoid having to include shareholder director nominees submitted by shareholders or groups of shareholders that are not affiliated with or not working on behalf of the company. In the Proposing Release, we requested comment as to whether it would be appropriate for the rule to take into account incumbent directors who were nominated pursuant to Rule 14a– 11 for purposes of determining the maximum number of shareholder nominees, or whether there should be a different means to account for such incumbent directors. One commenter argued that incumbent Rule 14a–11 directors should not count towards the 25% limit.438 It reasoned that, once elected, the Rule 14a–11 director represents all shareholders and that future use of Rule 14a–11 by other shareholders should not be restricted. A number of commenters stated that incumbent Rule 14a–11 directors should count towards the maximum number of shareholder nominees allowed under the rule,439 with some suggesting that this should be the case in limited circumstances, such as when a Rule 14a–11 director is re￾nominated by the board or as long as the director continues on the board.440 Commenters expressed concerns that the method of calculating the maximum number of directors subject to Rule 14a– 11 nominations—which as proposed would not include directors previously elected following a Rule 14a–11 nomination unless they are nominated again by a shareholder using Rule 14a– 11—would not encourage boards to integrate these directors.441 Some commenters asserted that failing to count such a director toward the 25% limit would cause boards to be disinclined to include these directors as company nominees in future elections.442 They viewed this as counterproductive to efficient board integration and functioning. While we appreciate commenters’ views, we are not persuaded that it is appropriate to provide an exception to the general method of calculating the maximum number of Rule 14a–11 nominees in the case of a shareholder￾nominated incumbent director that is re￾nominated by the company. As noted

443See letters from 13D Monitor; 26 Corporate Secretaries; ABA; ACSI; Advance Auto Parts; Aetna; AFL–CIO; AFSCME; Allstate; Alston & Bird; Amalgamated Bank; American Bankers Association; Anadarko; Applied Materials; Avis Budget; Blue Collar Investment Advisors (‘‘BCIA’’); Best Buy; Boeing; BorgWarner; Brink’s; BRT; Burlington Northern; CalPERS; CalSTRS; Caterpillar; CFA Institute; Chevron; CIGNA; CII; Cleary; Con Edison; COPERA; Corporate Library; CSX; Cummins; Darden Restaurants; Deere; Devon; Dewey; T. DiNapoli; Dominican Sisters of Hope; DuPont; Eaton; Emerson Electric; ExxonMobil; FedEx; Financial Services Roundtable; First Affirmative; Florida State Board of Administration; FMC Corp.; FPL Group; Frontier; General Mills; A. Goolsby; Honeywell; IAM; IBM; ICI; Intel; JPMorgan Chase; Kirkland & Ellis; C. Levin; Leggett; LIUNA; LUCRF; Marco Consulting; J. McCoy; McDonald’s; Joel M. McTague (‘‘J. McTague’’); MeadWestvaco; Mercy Investment Program; Metlife; Motorola; D. Nappier; Nathan Cummings Foundation; P. Neuhauser; Norfolk Southern; Norges Bank; Office Depot; OPERS; PACCAR Inc. (‘‘PACCAR’’); Pershing Square; PepsiCo; Pfizer; S. Quinlivan; RacetotheBottom; RiskMetrics; Ryder; Sara Lee; Social Investment Forum; Seven Law Firms; Shearman & Sterling; Sheet Metal Workers; Sidley Austin; SIFMA; Sisters of Mercy; Society of Corporate Secretaries; Sodali; Southern Company; SWIB; Teamsters; Tenet; TI; TIAA–CREF; Tri-State Coalition; Trillium; T. Rowe Price; Textron; tw telecom; Universities Superannuation; Ursuline Sisters of Tildonk; U.S. Bancorp; USPE; ValueAct Capital; Verizon; Wachtell; Walden; Wells Fargo; Weyerhaeuser; Whirlpool; WSIB; Xerox. 444See letters from ABA; BRT; Con Edison; First Affirmative; C. Levin; Verizon. 445Letter from ABA. 446See letter from BRT. 447See letter from Con Edison. 448See letters from IBM; S. Quinlivan; USPE; Verizon; Xerox. 449See letters from IBM; Verizon. 450See letter from USPE. 451See letters from 13D Monitor; 26 Corporate Secretaries; ABA (recommending this approach as one of several recommendations); ACSI; Advance Auto Parts; Aetna; AFL–CIO; AFSCME; Allstate; Amalgamated Bank; Anadarko; Applied Materials; Avis Budget; BCIA; Best Buy; Boeing; BorgWarner; Burlington Northern; CalPERS; CalSTRS; Caterpillar; CFA Institute; Chevron; CIGNA (recommending this approach as an alternative to another recommendation that the shareholder that held the shares the longest be given priority); CII; Cleary; Con Edison; COPERA; Corporate Library; Cummins; Darden Restaurants; Deere; Devon; Dominican Sisters of Hope; DuPont; Eaton; Emerson Electric; ExxonMobil; FedEx; Financial Services Roundtable; First Affirmative; Florida State Board of Administration (supporting this approach as an alternative to the first-in approach); FMC Corp.; Frontier; A. Goolsby; IAM; ICI; JPMorgan Chase; Kirkland & Ellis; C. Levin; Leggett; LIUNA; LUCRF; Marco Consulting; J. McCoy; McDonald’s; J. McTague; Mercy Investment Program; Metlife; D. Nappier;
Nathan Cummings Foundation; P. Neuhauser; Norfolk Southern; Office Depot; PACCAR; Pershing Square; PepsiCo; Pfizer; RiskMetrics; Ryder; Sara Lee; Shamrock; Social Investment Forum; Sodali; Seven Law Firms; Shearman & Sterling; Sheet Metal Workers; Sidley Austin; SIFMA; Sisters of Mercy; Society of Corporate Secretaries; Southern Company; SWIB; Teamsters; Tenet; TI; TIAA–CREF; Tri-State Coalition; Trillium; T. Rowe Price; Textron; tw telecom; Universities Superannuation; Ursuline Sisters of Tildonk; U.S. Bancorp; Verizon; Wachtell; Walden; Wells Fargo; Whirlpool; WSIB. 452Letter from CII. 453See letters from CII; Society of Corporate Secretaries. previously, by adopting Rule 14a–11 we are seeking to facilitate shareholders’ ability under State law to nominate and elect directors, not necessarily to enhance shareholder representation on the board. We do not believe that a Commission rule is needed to facilitate the working relationship between the shareholder-nominated director and the company-nominated directors, or to provide an incentive for the board to integrate the shareholder-nominated director into its activities. To the extent that a shareholder nominee is elected to the board, the company-nominated directors and the shareholder￾nominated director will have a fiduciary duty to act in the best interests of the company and its shareholders.
7. Priority of Nominations Received by
a Company a. Priority When Multiple Shareholders Submit Nominees Proposed Rule 14a–11(d)(3) addressed situations where more than one shareholder or group would be eligible to have its nominees included in the company’s form of proxy and disclosed in its proxy statement pursuant to the proposed rule. In those situations, the company would have been required to include in its proxy materials the nominee or nominees of the first nominating shareholder or group from which it receives timely notice of intent to nominate a director pursuant to the rule, up to and including the total number of shareholder nominees required to be included by the company. We proposed this standard because we believed that there would be a benefit to enabling companies to begin preparing their proxy materials and coordinating with the nominating shareholder or group immediately upon receiving an eligible nomination rather than requiring companies to wait to see whether another nomination from a larger nominating shareholder or group was submitted before the notice deadline. Commenters were almost uniformly opposed to the proposed ‘‘first-in’’ standard. A large number of commenters expressed general opposition to the proposed first-in approach, with many presenting their own recommendations.443 Commenters expressed concern that the first-in approach would rush shareholders to submit nominations.444 One commenter worried that even if the Commission included a window period for submission of shareholder nominees in the final rule, the first-in approach would encourage a race to file, discourage constructive dialogue between shareholders and management, and encourage a ‘‘gamesmanship’’ attitude among possible nominating shareholders or groups.445 Another commenter argued that the first-in approach would undercut the Commission’s stated objectives in proposing Rule 14a–11.446 One commenter worried that the ‘‘first in’’ approach would favor large shareholders, who have greater resources to prepare their submission materials, over small shareholders who must aggregate to reach the ownership threshold and need to pool resources to prepare their submission materials.447 Some commenters expressed general concern about how companies should handle multiple nominations received on the same date.448 Two commenters worried that it would be difficult for companies to determine which nomination was received first because nominations could be submitted by various methods (e.g., fax transmission, mail, hand delivery) or arrive on the same date.449 Another commenter feared that a company that receives several nominations on the same date could choose the nomination submitted by shareholders friendly to management.450 Many commenters that opposed the first-in approach suggested alternatives. Of these, the majority preferred to give priority to the largest shareholder or group that submits a nomination.451 Noting that the 2003 Proposal included this standard and that it received the most
support, one commenter argued that what matters most is not who is the fastest to nominate but which shareholder or group has the ‘‘greatest stake in the director election and, ultimately, the long-term performance of the company’’ (with the added benefits of avoiding ‘‘gamesmanship’’ and ‘‘administrative challenges’’).452 Further, commenters believed that an approach based on the largest holdings would provide sufficient certainty because the number of shares of the largest shareholder or group could be determined from the Schedule 14N filing.453 Commenters presented a wide range of views or recommendations for determining priority. Some commenters suggested that when the largest shareholder or group nominates fewer than the maximum number of nominees allowed under Rule 14a–11, then the second largest shareholder or group should have the right to have its nominees included (up to the maximum

454See letters from Amalgamated Bank; CII; COPERA; P. Neuhauser; Protective; T. Rowe Price. 455See letters from Amalgamated Bank; CFA Institute; CII; COPERA; P. Neuhauser; Protective; T. Rowe Price. 456See letters from Allstate; Boeing; Pfizer. 457See letters from Honeywell; Sara Lee. 458See letter from ABA. 459See letter from Kirkland & Ellis. 460See letter from Seven Law Firms. 461See letters from BRT; CIGNA (recommending this approach as an alternative to its recommendation that the largest shareholder be given priority); Cummins; Darden Restaurants; FPL Group; General Mills; IBM (recommending this approach as an alternative to its recommendation that the largest shareholder be given priority); Motorola; TIAA–CREF; Xerox. 462See letters from L. Dallas; T. DiNapoli; Nathan Cummings Foundation; OPERS; Southern Company. 463See letters from Alston & Bird; CSX; Textron. 464See letters from Calvert; Florida State Board of Administration; Hermes Equity Ownership Services Ltd. (‘‘Hermes’’); Protective. 465Letter from Calvert. 466See letter from Hermes. 467See letter from Florida State Board of Administration. 468See Rule 14a–11(e). Rule 14a–11(e)(4) prescribes a limited variation on this principle where the company has more than one class of voting shares subject to the proxy rules and eligible nominating shareholders or shareholder groups from more than one of those classes submit nominations that exceed the 25% maximum. In this circumstance, priority of nominations will be determined by reference to the relative voting power of the classes in question. number allowable), and so on.454 Commenters also suggested that a nominating shareholder or group be required to ‘‘rank’’ their nominees in the order of preference to facilitate any necessary ‘‘cutbacks.’’ 455 A few commenters stated that in the case of competing nominations submitted by shareholders with equally￾sized holdings, the shareholder that held the shares for the longest period of time should be allowed to include its nominees.456 Two commenters recommended that when determining the order of priority, an individual shareholder should have priority over a nominating group.457 One commenter recommended that nominees be ordered in accordance with the largest qualifying shareholdings, but subject to the qualification that the Commission impose a cap on either the permitted number of members in a nominating group or on the aggregate holdings of a nominating group and limit each nominating shareholder or group to only one Rule 14a–11 nomination at an annual meeting.458 If shareholders are not limited to one nomination, then companies should be allowed to order the nominees based on the largest holdings. Alternatively, the commenter recommended awarding Rule 14a–11 nomination slots first to the nominating shareholder or group with the largest holdings, next to the nominating shareholder or group with the longest holding period, then to the next largest holder, and so on. One commenter stated that
priority should be given to the largest nominating shareholder or group based on the number of voting securities over which such shareholder or group has voting control (as opposed to beneficial ownership).459 Another commenter stated that in the case of nominating groups, the determination of the largest holder should be based on the largest shareholder within the nominating group.460 Other commenters recommended that the shareholder or group holding a company’s shares for the longest period be permitted to submit nominees under Rule 14a–11.461 These commenters argued that this approach would be more consistent with the Commission’s stated goal of making Rule 14a–11 available to shareholders with a long￾term interest. Some commenters preferred to give priority based on a combination of factors, such as length of ownership and size of ownership stake.462 Several commenters preferred to let companies (e.g., the nominating committee) choose either the shareholder nominees or the method for deciding which shareholder nominees are included in the proxy materials when there are multiple nominations.463 Under this approach, companies would disclose the method in the previous year’s proxy statement or in a Form 8–K. A small number of commenters supported the proposed first-in approach.464 While understanding the concern about ‘‘a rush to the courthouse,’’ one commenter indicated that this concern may not necessarily be justified because the ‘‘ ‘first’ proponent may have sufficiently prepared beforehand for the nomination process.’’ 465 Further, the commenter believed that ‘‘[a]llowing the largest shareholder group to essentially trump the first smaller, but no less committed or relevant, shareholder submission is not good governance.’’ Another commenter believed that the first-in approach would best give effect to the proposed rule.466 If the standard was based on the amount of securities held instead, the commenter would be concerned that long-term owners of companies with index-tracking portfolios might be frozen out of the process. One commenter believed the first-in approach would provide certainty, but companies should be required to set the dates in calendar form and announce the dates in Form 8– K filings at least 30 days prior to the date of effectiveness.467 After considering the comments, we have revised the manner in which the rule addresses multiple qualifying nominations. Rather than a first-in standard, as was proposed, a company will be required to include in its proxy materials the nominee or nominees of the nominating shareholder or group with the highest qualifying voting power percentage.468 In this regard, in light of the comments received, we are concerned that a first-in standard would result in shareholders rushing to submit nominations, discourage constructive dialogue between shareholders and management, and encourage gamesmanship among possible nominating shareholders or groups. When there are multiple qualifying nominations,
giving priority to the shareholder or group with the highest voting power percentage is consistent with our overall approach to facilitate director nominations by shareholders with significant commitments to companies. Finally, we seek to avoid the confusion that could result if multiple nominating shareholders or groups submitted their notices on the same day. We believe that the standard we are adopting, under which the nominating shareholder or group with the highest qualifying voting power percentage will have its nominees included in the company’s proxy materials, up to the maximum of 25% of the board, addresses these concerns. We are persuaded that this standard is more consistent with the other limitations of Rule 14a–11 that seek to balance facilitating shareholder rights to nominate directors with practical considerations. As adopted, Rule 14a–11 addresses situations where more than one shareholder or group would be eligible to have its nominees included on the company’s proxy card and disclosed in its proxy statement pursuant to the rule. Given that we are adopting a highest qualifying voting power percentage standard rather than a first-in standard, the company will determine which shareholders’ nominees it must include in its proxy statement and on its proxy card by considering which eligible nominating shareholder or group has the highest qualifying voting power percentage, as opposed to which eligible nominating shareholder or group submitted a timely notice first. A company will be required to include in its proxy statement and on its proxy card the nominee or nominees of the nominating shareholder or group with

469See new Rule 14a–11(e) and proposed Rule 14a–11(d)(3). 470See Instruction 2 to new Rule 14a–11(e). 471See letter from Best Buy. 472See letter from ABA. 473See letters from CFA Institute; Verizon. 474See letter from CII. 475See Instruction 2 to Rule 14a–11(g) and proposed Rule 14a–11(f)(6). 476 In this regard, we note that if a member of a nominating shareholder group withdraws, the nominating shareholder group and its nominee or nominees would continue to be eligible so long as the group continues to meet the requirements of the rule. If the withdrawal of a member of the nominating shareholder group would result in the group failing to meet the ownership threshold, a company would no longer be required to include any nominees submitted by the nominating shareholder group. As another example, if after a nominating shareholder or group submits one nominee for inclusion in a company’s proxy materials and the nominee subsequently withdraws or is disqualified, a company will not be required to include a substitute nominee from that nominating shareholder or group. 477See letters from BorgWarner; Society of Corporate Secretaries. 478See letters from 26 Corporate Secretaries; ABA; Allstate; American Express; BorgWarner; DTE Energy; Dupont; FPL Group; Honeywell; IBM; Pfizer; RiskMetrics; Seven Law Firms; Society of Corporate Secretaries; Xerox. 479See letters from AFL–CIO; P. Neuhauser; USPE. 480See letter from P. Neuhauser. 481See letter from Universities Superannuation. 482See letter from CFA Institute. 483 If one member of a group becomes ineligible to use the rule but the group continues to qualify to use the rule without that member, the group would remain eligible overall. the highest qualifying voting power percentage in the company’s securities as of the date of filing the Schedule 14N, up to and including the total number of shareholder nominees required to be included by the company.469 Where the nominating shareholder or group with highest qualifying voting power percentage that is otherwise eligible to use the rule and that filed a timely notice does not nominate the maximum number of directors allowed under the rule, the nominee or nominees of the nominating shareholder or group with the next highest qualifying voting power percentage that is otherwise eligible to use the rule and that filed a timely notice of intent to nominate a director pursuant to the rule would be included in the company’s proxy materials, up to and including the total number of shareholder nominees required to be included by the company. This process would continue until the company included the maximum number of nominees it is required to include in its proxy statement and on its proxy card or the company exhausts the list of eligible nominees. If the number of eligible nominees exceeds the maximum number required under Rule 14a–11 and the shareholder or group with the next highest qualifying voting power percentage submitted more nominees than there are remaining
available director slots, the nominating shareholder would have the option to specify which of its nominees are to be included in the company’s proxy materials.470 b. Priority When a Nominating Shareholder or Group or a Nominee Withdraws or Is Disqualified Under the Proposal, we did not address what would be expected of a company if a nominating shareholder or group or nominee withdraws or is disqualified after the company has provided notice to the nominating shareholder or group of its intent to include the nominee in the company’s proxy materials. One commenter asked for guidance on how to handle such situations.471 Another commenter stated that it opposed allowing a nominating shareholder group to change its composition to correct an identified deficiency, such as a failure of the group to meet the requisite ownership threshold.472 Two commenters believed that if any member of a nominating shareholder group becomes ineligible due to a failure to own the requisite number of shares, then the entire group and its nominee also should be ineligible to use Rule 14a–11.473 On the other hand, one commenter recommended that a nominating shareholder group should be allowed to change its composition to correct an identified deficiency, such as the failure of the group to meet the requisite threshold.474 The commenter also addressed a situation in which a nominating shareholder group qualifies to use Rule 14a–11, provides the necessary notice, submits its nominees, but then becomes disqualified before the meeting at which its nominees would have been put to a shareholder vote. The commenter stated that while it ‘‘generally believe[s] that the nominating shareowner should have a short window within which to add a shareowner who would meet all eligibility requirements, a lapse that cannot be cured in that fashion should be remedied by going to the ‘second’ candidate(s).’’ Consistent with the Proposal, under our final rules, neither the composition of the nominating shareholder group nor the shareholder nominee may be changed as a means to correct a deficiency identified in the company’s notice to the nominating shareholder or nominating shareholder group—those matters must remain as they were described in the notice to the company.475 We believe that to allow otherwise could serve to undermine the purpose of the notice deadline provided for in the rule. Thus, a nominating shareholder or group should be sure that it and its nominees meet the requirements of the rule—including the ownership and holding period requirements—before it files its
Schedule 14N, as a nominating
shareholder or group will not be permitted to add or substitute another shareholder or nominee in order to satisfy the requirements.476 In the Proposing Release, we solicited comment on how we should address situations where a nomination is submitted and the nominating shareholder subsequently becomes ineligible under the rule. We also sought comment as to the circumstances under which a second shareholder or group should be able to have its nominees included in a company’s proxy materials. Some commenters stated that if a nominating shareholder or group does not remain eligible, the company should be allowed to withdraw the nominating shareholder’s or group’s candidate from its proxy materials.477 Some commenters believed that a company should not be required to include a substitute shareholder nominee if the original shareholder nominee is excluded by a company after receiving a no-action letter from the Commission staff regarding the nomination, is withdrawn by the nominating shareholder or group, or otherwise becomes ineligible.478 These commenters generally argued that a company would not have enough time to seek the exclusion of such a substitute nominee. Still other commenters argued that a nominating shareholder or group should be allowed to submit a new nominee if its original nominee is determined to be ineligible,479 especially if the company sought and obtained a no-action letter from the staff concerning the company’s determination to exclude the nominee.480 One commenter worried that a prohibition on substitute shareholder nominees would encourage an unduly adversarial approach by both sides.481 Another commenter recommended that if the first nominating shareholder or group becomes ineligible, then the nominating shareholder or group with the second￾largest holdings should be allowed to submit their own nominees.482 Our final rule provides that if a nominating shareholder or group withdraws or is disqualified (e.g., because the nominating shareholder or a member of the group 483 failed to

484See new Rule 14a–11(e)(2).
485See new Rule 14a–11(e)(3).
486We note that pursuant to Exchange Act Rule 14a–4(c)(5) a completed proxy card containing a disqualified or withdrawn nominee or nominees could, under certain circumstances, confer discretionary authority to vote on the election of a substitute director or directors. 487See proposed Rule 14a–11(c), Rule 14a–18 and Rule 14n–1. 488See proposed Instruction 2 to Rule 14a–11(a) and proposed Rule 14a–18. 489See proposed Rule 14a–18(a). Proposed Rule 14a–11 also included this provision as a direct requirement. Thus, a company would not be required to include a shareholder nominee in its proxy materials if the nominee’s candidacy or, if elected, board membership would violate controlling State law, Federal law, or rules of a national securities exchange or national securities association (other than rules of a national securities exchange or national securities association that set forth requirements regarding the independence of directors). 490See proposed Rule 14a–18(b) (which referred to the requirements in proposed Rule 14a–11(b)). 491See proposed Rule 14a–18(c). 492See proposed Rule 14a–18(d). continue to hold the qualifying amount of securities) after the company provides notice to the nominating shareholder or group of the company’s intent to include the nominee or nominees in its proxy materials, the company will be required to include in its proxy statement and form of proxy the nominee or nominees of the nominating shareholder or group with the next highest voting power percentage that is otherwise eligible to use the rule and that filed a timely notice in accordance with the rule, if any.484 This process would continue until the company included the maximum number of nominees it is required to include in its proxy materials or the company exhausts the list of eligible nominees. If a nominee withdraws or is disqualified after the company provides notice to the nominating shareholder or group of the company’s intent to include the nominee in its proxy materials, the company will be required to include in its proxy materials any other eligible nominee submitted by that nominating shareholder or group.485 If that nominating shareholder or group did not include any other nominees in its notice filed on Schedule 14N, then the company will be required to include the nominee or nominees of the nominating shareholder or group with the next highest voting power percentage that is otherwise eligible to use the rule and that filed a timely notice in accordance with the rule, if any, until the maximum number of nominees is included in the company’s proxy materials or the list of eligible nominees is exhausted. We believe that these requirements are appropriate in order to give effect to the intent of our rule—to facilitate shareholders’ ability to nominate and elect directors. If the nominating shareholder or group with the highest voting power percentage used all available Rule 14a–11 nominations in a company’s proxy materials and the nominating
shareholder or group with the second highest voting power percentage had its nominees excluded even after one or more nominees from the nominating shareholder or group with the highest voting power percentage withdrew or was disqualified, we believe the purpose of our rule would be undermined. However, in order to address practical considerations, Rule 14a–11(e)(2) provides that once a company has commenced printing its proxy materials it will not be required to include a substitute nominee or nominees. We believe that at that point in the process it would be too difficult and costly for a company to change course to include a new nominee or nominees. If a nominating shareholder or group or nominee withdraws or is disqualified after the company has commenced printing its proxy materials, the company may determine whether it wishes to print (and furnish) additional materials and a proxy card, delete the disqualified or withdrawn nominee, or instead provide disclosure through additional soliciting materials informing shareholders about the change.486
8. Notice on Schedule 14N
a. Proposed Notice Requirements As proposed, in order to submit a nominee for inclusion in the company’s proxy statement and form of proxy, Rule 14a–11 would require that the nominating shareholder or group provide a notice on Schedule 14N to the company of its intent to require that the company include that shareholder’s or group’s nominee or nominees in the company’s proxy materials.487 The shareholder notice on Schedule 14N also would be required to be filed with the Commission on the date it is first sent to the company. We proposed to require the notice to be provided to the company and filed with the Commission by the date specified in the company’s advance notice bylaw 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. If the company did not hold an annual meeting during the prior year, or if the date of the meeting changes by more than 30 calendar days from the prior year, the nominating shareholder must provide notice a reasonable time before the company mails its proxy materials. The company would be required to disclose the date by which the shareholder must submit the required notice in a Form 8–K filed pursuant to proposed Item 5.07 within four business days after the company determines the anticipated meeting date.488 As proposed, the notice on Schedule 14N would include disclosures relating to the nominating shareholder’s or group’s interest in the company, length of ownership, and eligibility to use Rule 14a–11. The notice on Schedule 14N also would include disclosure required by proposed Rule 14a–18 about the nominating shareholder or group and the nominee for director, as well as disclosure regarding the nature and extent of relationships between the nominating shareholder or group and nominee or nominees and the company. The disclosure provided by the nominating shareholder or group would be similar to the disclosure currently required in a contested election and would be included by the company in its proxy materials. In addition, as proposed, the notice on Schedule 14N also would include the following representations by the nominating shareholder or group:

• The nominee’s candidacy or, if
  elected, board membership, would not violate controlling State or Federal law, or rules of a national securities exchange or national securities association other than rules relating to director independence; 489
• The nominating shareholder or
  group satisfies the eligibility conditions in Rule 14a–11; 490
• In the case of a company other than
  an investment company, the nominee meets the objective criteria for ‘‘independence’’ of the national securities exchange or national securities association rules applicable to the company, if any, or, in the case of a company that is an investment company, the nominee is not an ‘‘interested person’’ of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940; 491 and
• Neither the nominee nor the
  nominating shareholder (or any member of a nominating shareholder group) has an agreement with the company regarding the nomination of the nominee.492 Proposed Item 8 of Schedule 14N would have required a certification from the nominating shareholder or each member of the nominating shareholder

493See letters from ABA; Alston & Bird; Americans for Financial Reform; CalSTRS; CFA Institute; CII; Corporate Library; Dominican Sisters of Hope; Florida State Board of Administration; GovernanceMetrics; ICI; Mercy Investment Program; Protective; RiskMetrics; Sisters of Mercy; Tri-State Coalition; Ursuline Sisters of Tildonk; USPE; Walden. 494See letters from CII; USPE. 495See letters from ABA; Alaska Air; Robert A. Bassett (‘‘R. Bassett’’); BorgWarner; Eli Lilly; NACD; O’Melveny & Myers; Pfizer; Society of Corporate Secretaries; UnitedHealth. 496See letters from ABA; Chevron; Sidley Austin; SIFMA. 497See letter from Cleary. 498See letter from ABA. 499 Id. 500See letter from IBM. 501See letter from CII. 502See letter from ABA. 503See letter from USPE. 504The disclosure requirements proposed in Rule 14a–18(e)–(l) are now contained in new Item 4(b) and new Item 5 of Schedule 14N. 505See Item 3 of new Schedule 14N. 506See Item 4(a) of new Schedule 14N. A nominating shareholder would not be required to provide this statement if the nominating shareholder is the registered holder of the shares or is attaching or incorporating by reference a previously filed Schedule 13D, Schedule 13G, Form 3, Form 4, and/or Form 5, or amendments to those documents to prove ownership. 507See Item 4(b) of new Schedule 14N. These requirements were proposed in Rule 14a–18(f) and Item 5(b) of Schedule 14N. 508See Item 5(a) of new Schedule 14N and proposed Rule 14a–18(e). 509See Item 5(b) of new Schedule 14N and proposed Rule 14a–18(g). group that the securities used for purposes of meeting the ownership threshold in Rule 14a–11 are not held for the purpose, or with the effect, of changing control of the company or to gain more than a limited number of seats on the board. b. Comments on the Proposed Notice Requirements Commenters generally supported the proposed content requirements of
Schedule 14N on the general principle
that the Commission should impose disclosure requirements on nominating shareholders and their nominees.493 Two of these commenters also stated that additional disclosures or representations are not needed.494 In addition, some commenters recommended that all nominees be subject to any new disclosure rules adopted by the Commission as part of its proxy disclosure and solicitation enhancements rulemaking.495 Four commenters asked that companies be allowed to require additional disclosure from a nominating shareholder or group through, for example, the advance notice bylaws, as long as such requirements are consistent with State law.496 One commenter argued that the nominating shareholder, group, or nominee should provide any disclosure required under a company’s governing documents as long as such disclosure is required of all nominees.497 One commenter asked that all content requirements be set forth in Schedule 14N itself, as it found the structure of the Schedule and the references to disclosure requirements to be unnecessarily complicated.498 The commenter recommended that we include a requirement that the nominating shareholder or group disclose information about the nature and extent of the relationships between the nominating shareholder, group and the nominee and the company or its affiliates.499 Another commenter recommended the rules include a representation that the nominee is not controlled by the nominating shareholder or group.500 We also sought comment on the proposed representations to be provided by the nominating shareholder or group in Schedule 14N. One commenter stated that the proposed representations are appropriate and no additional representations are needed.501 This commenter opposed a requirement for a shareholder nominee to make any representation either in addition to, or instead of, those made by the nominating shareholder or group. One commenter stated simply that none of the proposed representations in
Schedule 14N should be eliminated.502
It also observed generally that the shareholder nominee should be required to make the representations (e.g., regarding independence) because he or she would know the facts relating to the representations and therefore should accept responsibility. One commenter opposed the requirement for a representation that a shareholder nomination (or election of the shareholder nominee) would not violate State law, Federal law, or listing standards.503 The commenter also believed it would be inappropriate to require a representation that the nomination complies with any independence requirement under Federal law, State law, or listing standards.
c. Adopted Notice Requirements
We are adopting the notice requirements substantially as proposed, with differences noted below. In addition, we agree that the rules as proposed could be streamlined to reduce complexity. As adopted,
Schedule 14N will contain the
disclosure items that were included in the Schedule as proposed, as well as the disclosures proposed in Rule 14a–11, Rule 14a–18 and Rule 14a–19. We believe that the disclosure requirements we are adopting will provide transparency and facilitate shareholders’ ability to make an informed voting decision on a shareholder director nominee or nominees without being unnecessarily burdensome on nominating shareholders or groups.
i. Disclosure
Schedule 14N will require a
nominating shareholder or group to provide the following information about the nominating shareholder or group and the nominee: 504

• The name and address of the
  nominating shareholder or each member of the nominating shareholder group;
• Information regarding the amount
  and percentage of securities held and entitled to vote on the election of directors at the meeting and the voting power derived from securities that have been loaned or sold in a short sale that remains open, as specified in Instruction 3 to Rule 14a–11(b)(1); 505
• A written statement from the
  registered holder of the shares held by the nominating shareholder or each member of the nominating shareholder group, or the brokers or banks through which such shares are held, verifying that, within seven calendar days prior to submitting the notice on Schedule 14N to the company, the shareholder continuously held the qualifying amount of securities for at least three years; 506
• A written statement of the
  nominating shareholder’s or group’s intent to continue to hold the qualifying amount of securities through the shareholder meeting at which directors are elected. Additionally, the nominating shareholder or group would provide a written statement regarding the nominating shareholder’s or group’s intent with respect to continued ownership after the election; 507
• A statement that the nominee
  consents to be named in the company’s proxy statement and form of proxy and, if elected, to serve on the board of directors;508
• Disclosure about the nominee as
  would be provided in response to the disclosure requirements of Items 4(b), 5(b), 7(a), (b), and (c) and, for investment companies, Item 22(b) of
  Schedule 14A, as applicable; 509
• Disclosure about the nominating
  shareholder or each member of a nominating shareholder group as would be required in response to the disclosure

510See Item 5(c) of new Schedule 14N and proposed Rule 14a–18(h). If a nominating shareholder is organized in a form other than a corporation or partnership, comparable disclosure with respect to persons in similar capacities would be required. 511See Item 5(d) of new Schedule 14N and proposed Rule 14a–18(i). As proposed, the rule would have required disclosure regarding a nominating shareholder’s involvement in any legal proceedings during the past five years. Recently, the Commission amended Item 401(f) of Regulation S– K to require disclosure regarding involvement in legal proceedings for the prior ten years. See Proxy Disclosure Enhancements, Release No. 33–9089; 34–61175 (Dec. 16, 2009) [74 FR 68334] (‘‘Proxy Disclosure Enhancements Adopting Release’’). Accordingly, as adopted, Item 5(d) will require disclosure about a nominating shareholder’s involvement in legal proceedings during the past ten years. 512See Item 5(e) of new Schedule 14N. 513See Item 5(f) of new Schedule 14N. 514We note that this disclosure requirement would apply to relationships between the nominating shareholder or group and the nominee, as well as the relationships between the nominating shareholder or group or the nominee and the company or its affiliates. See Item 5(g) of new
Schedule 14N.
515See Item 5(g) of new Schedule 14N and proposed Rule 14a–18(j). 516See Item 5(h) of new Schedule 14N and proposed Rule 14a–18(k). 517See Item 5(i) of new Schedule 14N and proposed Rule 14a–18(l). This requirement is discussed in more detail in this section. If a nominating shareholder or group submits a statement in support that exceeds 500 words per nominee, a company will be required to include the nominee or nominees, provided that the eligibility requirements are met, but may exclude the statement in support from its proxy materials pursuant to Rule 14a–11(g). In this instance, the company would provide notice to the staff and could, if desired, seek a no-action letter from the staff. See new Rule 14a–11(c) and Rule 14a–11(g). The 500 words would be counted in the same manner as words are counted under Rule 14a–8. Any statements that are, in effect, arguments in support of the nomination would constitute part of the supporting statement. Accordingly, any ‘‘title’’ or ‘‘heading’’ that meets this test would be counted toward the 500-word limitation. Inclusion of a Web site address in the supporting statement would not violate the 500-word limitation; rather, the Web site address would be counted as one word for purposes of the 500-word limitation. 518See Item 7(e) of Schedule 14A. Similarly, if a company receives a nominee for inclusion in its proxy materials pursuant to a procedure set forth under applicable state or foreign law, or the company’s governing documents providing for the inclusion of shareholder director nominees in the company’s proxy materials, the disclosure provided by the nominating shareholder or group in response to Item 6 of Schedule 14N would be included in the company’s proxy materials. See Item 7(f) of
Schedule 14A.
519 Instruction 3 to Rule 14a–12(c) clarifies that though inclusion of a nominee pursuant to Rule 14a–11 or solicitations by a nominating shareholder or nominating shareholder group that are made in connection with that nomination would constitute solicitations in opposition subject to Rule 14a– 12(c), they would not be treated as such for purposes of Exchange Act Rule 14a–6(a). 520See letters from CII; IBM; O’Melveny & Myers; SIFMA; UnitedHealth. 521See Item 5(e) of new Schedule 14N. requirements of Items 4(b) and 5(b) of
Schedule 14A, as applicable; 510

• Disclosure about whether the
  nominating shareholder or any member of a nominating shareholder group has been involved in any legal proceeding during the past ten years, as specified in Item 401(f) of Regulation S–K;511
• Disclosure about whether, to the
  best of the nominating shareholder’s or group’s knowledge, the nominee meets the director qualifications set forth in the company’s governing documents, if any; 512
• A statement that, to the best of the
  nominating shareholder’s or group’s knowledge, in the case of a company other than an investment company, the nominee meets the objective criteria for ‘‘independence’’ of the national securities exchange or national securities association rules applicable to the company, if any, or, in the case of a company that is an investment company, the nominee is not an ‘‘interested person’’ of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940; 513
• Disclosure about the nature and
  extent of the relationships between the nominating shareholder or group, the nominee, and/or the company or any affiliate of the company,514 such as:
• Any direct or indirect material
  interest in any contract or agreement between the nominating shareholder or any member of the nominating shareholder group, the nominee, and/or 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 any member of the nominating shareholder group and/or the 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 any member of the nominating shareholder group, the nominee, and/or the company or any affiliate of the company not otherwise disclosed; 515
• Disclosure of any Web site address
  on which the nominating shareholder or group may publish soliciting materials; 516 and
• If desired to be included in the
  company’s proxy statement, a statement in support of the shareholder nominee or nominees, which may not exceed 500 words per nominee.517 The disclosure provided by the nominating shareholder or group in Item 5 of Schedule 14N would be included by the company in its proxy materials,518 along with the company’s disclosure in response to Items 4(b) and 5(b) of Schedule 14A.519 In a traditional proxy contest, shareholders receive the disclosure required by Items 4(b), 5(b), 7, and 22, as applicable, of Schedule 14A from both the company and the insurgent when the contest relates to an annual election of directors. The new Schedule 14N disclosure requirements are somewhat more expansive in that they also include the disclosures concerning ownership amount, length of ownership, intent to continue to hold the shares through the date of the meeting and with respect to continued ownership after the meeting, and 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. We 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 using Rule 14a–11, in that the disclosures will enable shareholders to gauge the nominating shareholder’s or group’s interest in the company, longevity of ownership, and intent with regard to continued ownership in the company. These disclosures also will be important to the company in determining whether the nominating shareholder or group is eligible to rely on Rule 14a–11 to require the company to include a nominee or nominees in the company’s proxy materials. In some cases, the requirements in new Schedule 14N are slightly different than we proposed. We have clarified that the nominating shareholder or group will be required to include disclosure in the Schedule 14N concerning specified relationships between the nominating shareholder or group and the nominee or nominees. As discussed in Section II.B.5.d. above, we received comment suggesting that, in the absence of a limitation on relationships between the nominating shareholder or group and their nominee or nominees, we should adopt a disclosure requirement concerning relationships between the parties.520 Similarly, and as discussed in Section II.B.5.b., we have added a requirement that a nominating shareholder or group disclose whether, to the best of their knowledge, the nominating shareholder’s or group’s nominee meets the company’s director qualifications, if any, as set forth in the company’s governing documents.521 We added this requirement because we believe that this information will be useful to shareholders in making a voting

522See the Instruction to Item 4 of new Schedule 14N. 523 In this regard, we note that providing proper proof of ownership has proved to be an area of confusion for some shareholder proponents using Rule 14a–8 who must obtain a written statement from the ‘‘record’’ holder of the proponent’s securities. Thus, we believe that providing a form of written statement that may be used to provide proof of ownership for purposes of Rule 14a– 11(b)(3) will alleviate any potential confusion that could arise in this context. 524See letters from CII; Florida State Board of Administration. 525See letters from ACSI; AFSCME; Hermes; Pax World; USPE. 526See letters from AFSCME; L. Dallas; P. Neuhauser; USPE. 527We are adopting this modification in Item 5(i) of Schedule 14N. 528See new Rule 14a–11(c) and Rule 14a–11(g). 529See also Section II.B.4. and Section II.B.5. above, regarding nominating shareholder and nominee eligibility. 530See new Rule 14a–11(b)(11) and Item 8(a) of new Schedule 14N. We note that in some cases, an authorized representative may file a Schedule 14N for each member of a nominating shareholder group and would provide the required disclosures and certifications. In such cases, each member of the nominating shareholder group represented by the authorized representative will be deemed to have provided the certifications. 531See proposed Rule 14a–11(a)(5). 532See Section II.B.9. below for a discussion of the requirements for a company receiving a nomination submitted pursuant to Rule 14a–11 and the process for seeking a staff no-action letter with respect to a company’s decision to exclude a nominee. As noted below, assertions that a certification or disclosure provided by a nominating shareholder or group is false or misleading will not be a basis for excluding a nominee or nominees. A company seeking a no-action letter from the staff with regard to a determination to exclude a nominee or nominees would need to assert that a requirement of the rule has not been met. decision by enabling them to consider whether shareholder nominees would meet a company’s director qualifications. Shareholders will provide this disclosure ‘‘to the best of their knowledge’’ to address the fact that the standards will be company standards and thus could be subject to interpretation. We also have added an instruction to Item 4 of Schedule 14N to provide a form of written statement that may be used for verifying the amount of securities held by the nominating shareholder, and that the qualifying amount of securities has been held continuously for at least three years.522 A statement will be required from a nominating shareholder that is not the registered holder of the securities and is not proving ownership by providing previously filed Schedules 13D or 13G, or Forms 3, 4, or 5. We believe that providing a form of written statement will make it easier for nominating shareholders and the persons through which they hold their securities to comply with the requirement
and reduce complexity for shareholders and companies in determining whether satisfactory proof of ownership has been provided.523 In addition, as noted above, Item 5(d) will require disclosure about each nominating shareholder’s involvement in legal proceedings during the past ten years rather than the past five years as proposed, consistent with the changes recently adopted by the Commission for board nominees in general. In connection with our revisions to the rule concerning calculation of ownership, we also have added new Items 3(c) and (d) to the Schedule 14N to require disclosure of the voting power attributable to securities that have been loaned or sold in a short sale that is not closed out, or that have been borrowed for purposes other than a short sale, as specified in Instruction 3 to Rule 14a– 11(b)(1). Finally, as proposed, a nominating shareholder or group could provide a statement in support of a shareholder nominee or nominees, which could not exceed 500 words if the nominating shareholder or group elects to have such a statement included in the company’s proxy materials. Two commenters stated that a limit of 500 words would be appropriate,524 five commenters recommended that a nominating shareholder or group be permitted to include a supporting statement of more than 500 words,525 and four commenters proposed a limit of either 750 or 1000 words.526 We believe it is appropriate to allow a nominating shareholder or group to provide a statement in support of the shareholder nominee or nominees which may not exceed 500 words for each nominee, rather than 500 words for all nominees in total,527 if the nominating shareholder or group elects to have such a statement included in the company’s proxy materials. We believe that a limitation of 500 words per nominee is sufficient for a nominating shareholder or group to express their support for a nominee. In this regard, we note that shareholders and companies are familiar with the 500 word limitation, as it is the limit on the number of words that may be used to support a shareholder proposal submitted under Rule 14a–8. While we believe it is appropriate to limit the length of the supporting statement that the company is required to include, we note that if a nominating shareholder or group wishes to provide additional information, it is free to do so in supplemental materials, provided it complies with the requirements of Rule 14a–2(b)(8). If a nominating shareholder or group submits a statement in support that exceeds 500 words per nominee, a company will be required to include the nominee or nominees, provided that the eligibility requirements are met, but the company may exclude the statement in support from its proxy materials provided it provides notice to the staff of its intent to do so.528 As noted above, we proposed to require certain representations to be provided in the Schedule 14N, either in the form of representations or as certifications. As adopted, we are including the
proposed representations and certifications as direct requirements in Rule 14a–11.529 Consequently, we have simplified the requirements so that under the final rules a nominating shareholder or group will be required to certify, in its notice on Schedule 14N filed with the Commission, that it does not have a change in control intent or an intent to gain more than the maximum number of board seats provided for under Rule 14a–11 and that the nominating shareholder and the nominee satisfies the applicable requirements of Rule 14a–11.530 We have retained the certification with regard to no change in control intent or intent to gain more than the maximum number of board seats provided for under Rule 14a–11, even though this is also a direct requirement in Rule 14a– 11 as adopted, because we believe it is important to highlight this requirement for nominating shareholders or groups signing the certification. As was proposed, the nominating shareholder or each member of the nominating shareholder group (or authorized representative) will be required to certify when signing the Schedule 14N that, ‘‘after reasonable inquiry and to the best of my knowledge and belief,’’ the information in the statement is ‘‘true, complete and correct.’’ Though all disclosure in the Schedule 14N would be covered by this representation, we have specifically included it in the certifications concerning compliance with the requirements of Rule 14a–11 as well. We have revised the rule to delete the provision that had the effect of allowing exclusion of a nominee if any required representation or certification was materially false or misleading.531 Rather than allowing companies to exclude Rule 14a–11 nominees on that basis, we believe companies should address any concerns regarding false or misleading disclosures through their own disclosures, as in traditional proxy contests. This change will limit the bases on which a company may exclude a nominee,532 but we emphasize that the nominating shareholder or group will

533See letters from 26 Corporate Secretaries; ABA; Alaska Air; American Express; Anadarko; Boeing; BorgWarner; BRT; Caterpillar; CIGNA; CII; Dewey; Florida State Board of Administration; FPL Group; Honeywell; JPMorgan Chase; Keating Muething; P. Neuhauser; PepsiCo; Pfizer; Praxair; Schulte Roth & Zabel; Seven Law Firms; Shearman & Sterling; Sidley Austin; Society of Corporate Securities; Thompson Hine LLP (‘‘Thompson Hine’’); TI; USPE; Wells Fargo; Xerox. 534See letters from ABA; Alaska Air; BRT; Caterpillar; CIGNA; Dewey; Honeywell; JPMorgan Chase; Keating Muething; PepsiCo; Sidley Austin; Society of Corporate Securities; Thompson Hine; TI; Wells Fargo. 535See letters from Alaska Air; Boeing; BorgWarner; CII; Dewey; JPMorgan Chase; P. Neuhauser; O’Melveny & Myers; PepsiCo; Praxair; Seven Law Firms; Shearman & Sterling; Society of Corporate Secretaries; Thompson Hine; USPE. 536See letters from 26 Corporate Secretaries; ABA; Alcoa; Allstate; American Express; Boeing; BRT; Con Edison; Davis Polk; FPL Group; JPMorgan Chase; McDonald’s; P. Neuhauser; Pfizer; Protective; RiskMetrics; Seven Law Firms; TI; Xerox. 537See letters from ABA; BRT; Con Edison; TI. 538See new Rule 14a–11(b)(10). The Schedule 14N would, of course, have to contain all required disclosure as of the date of filing. 539We note that as with Rule 14a–8, Rule 14a– 11 requires a company to provide notice to the Commission if it intends to exclude a nominee. Also as with Rule 14a–8, if a company determines that it may exclude a nominee, the rule does not require the company to seek a no-action letter from the staff with regard to the determination to exclude the nominee. In this regard, we note that the 120- day deadline in Rule 14a–8 appears to provide companies with sufficient time in which to consider complex matters. For example, companies routinely consider whether a proposal submitted pursuant to Rule 14a–8 would cause the company to violate Federal or State law and submit requests for no-action letters, along with detailed legal opinions, with respect to those proposals. We believe that a company will consider nominees submitted pursuant to Rule 14a–11 in a similar manner. Thus, we believe a deadline of 120 calendar days before the date that the company mailed its proxy materials the prior year is sufficient. 540See letters from 26 Corporate Secretaries; Aetna; Allstate; Boeing; BorgWarner; L. Dallas; DuPont; Florida State Board of Administration; FPL Group; Kirkland & Ellis; Leggett; P. Neuhauser; PepsiCo; Pfizer; S. Quinlivan; RiskMetrics; Schulte Roth & Zabel; Shearman & Sterling; SIFMA; Society of Corporate Secretaries; Southern Company; TI; USPE; Wells Fargo; Xerox. 541The commenters generally mentioned various 30-day ranges that we requested comment on (e.g., no earlier than 180 days and no later than 150 days before the date that the company mailed its proxy materials for the prior year’s annual meeting; no earlier than 150 calendar days and no later than 120 calendar days
before the date that the company mailed its proxy materials for the prior year’s annual meeting; no earlier than 120 calendar days and no later than 90 calendar days prior to the anniversary of the company’s last annual meeting). One commenter suggested that the Commission limit the nomination process to a 45-day window period commencing four months after the company’s annual shareholder meeting. See letter from Aetna. Another commenter suggested that nominations be submitted within a 30-day period commencing five months after the company’s annual meeting. See letter from SIFMA. We believe that starting the period for nominations earlier than 150 calendar days before the anniversary of the date the company mailed its proxy materials for the prior year’s annual meeting would not provide the current board with sufficient opportunity to perform its duties and demonstrate its performance, nor would it provide shareholders with enough time to evaluate the board’s performance, to make an informed decision with respect to a potential nomination. 542 In addition, if a company is holding a special meeting in lieu of an annual meeting, the nominating shareholder must provide notice a reasonable time before the company mails its proxy materials. have Rule 14a–9 liability for any statement included in the Schedule 14N 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 that omits to state any material fact necessary to make the statements therein not false or misleading. In addition, as discussed in Section II.E. below, we have provided in the final rules that the company is not responsible for the information provided by the nominating shareholder or group in its Schedule 14N and included by the company in its proxy materials.
ii. Schedule 14N Filing Requirements
We proposed to require the notice to be provided to the company and filed with the Commission by the date specified in the company’s advance notice bylaw 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. A significant number of commenters suggested using a uniform deadline for all companies, as is the case in Rule 14a–8.533 Many of these commenters believed that the proposed timing requirement would create difficulties for companies with advance notice bylaws providing a later deadline and, thus, would preclude those companies from engaging in the proposed staff process.534 Some commenters supported the proposed default 120 calendar day deadline,535 while others argued that the 120 calendar day deadline would provide too little time for companies.536 Some commenters worried that the proposed deadline would not give sufficient time for companies to resolve any eligibility issues presented by potential nominees, including resolution through the Rule 14a–11 no￾action process, Commission appeals, and litigation.537 We are adopting a uniform deadline of 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 for all companies subject to the rule.538 We believe that a uniform deadline will benefit shareholders by providing them with one standard to comply with at all companies and should address concerns of companies that an advance notice bylaw deadline would provide too little time. We also believe that a deadline of 120 calendar days will provide adequate time for companies to take the steps necessary to include or, where appropriate, to exclude a shareholder nominee for director that is submitted pursuant to Rule 14a–11.539 In the Proposing Release, we solicited comment as to whether a window period should be provided for the submission of the notice on Schedule 14N and the appropriate time period for the window. A number of commenters recommended a window period during which a nominating shareholder or group could submit its Rule 14a–11 nomination.540 These commenters believed that including such a requirement would prevent a race to file among shareholders that could discourage dialogue with the board and force the board to address nominations throughout the year.541 We agree and are adopting a window period for the submission of the notice to the company. Limiting the time period during which Rule 14a–11 nominations could be made should help reduce disruptions that might occur when a company receives shareholder nominations for director submitted pursuant to Rule 14a–11. In this regard, as noted above, commenters generally supported a 30-day window period. We believe that a window of 30 days is sufficient for the submission of the notice on Schedule 14N because it provides shareholders with an opportunity to submit a nomination, as
well as the opportunity to consider any nominations that have been submitted and whether the shareholder would like to submit a nomination, either individually or as a group. Therefore, we are adopting a requirement that the notice on Schedule 14N be transmitted to the company and filed with the Commission 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. As proposed, we are adopting a requirement that if the 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 must provide notice a reasonable time before the company mails its proxy materials.542 In that case,

543See new Rule 14a–11(b)(10). See also proposed Instruction 2 to Rule 14a–11(a) and Rule 14a–18. This would be similar to the requirement currently included in Rule 14a–5(f), which specifies that, where the date of the next annual meeting is advanced or delayed by more than 30 calendar days from the date of the annual meeting to which the proxy statement relates, the company must disclose the new meeting date in the company’s earliest possible quarterly report on Form 10–Q. Although registered investment companies generally are not required to file Form 8–K, we are requiring them to file a Form 8–K disclosing the date by which the shareholder notice must be provided if the 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. For a further discussion of the Form 8– K filing requirement for registered investment companies, see Section II.D.1. 544Rule 14n–3 specifies that the Schedule 14N must be transmitted to the company at its principal executive office. 545See new Rule 14n–1. In this regard, we are adopting an amendment to Rule 13(a)(4) of Regulation S–T, as proposed, to provide that a
Schedule 14N will be deemed to be filed on the
same business day if it is filed on or before 10 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect. This will allow nominating shareholders additional time to file the notice on Schedule 14N and transmit the notice to the company. 546To file the Schedule 14N on EDGAR, a nominating shareholder or group and any nominee that does not already have EDGAR filing codes, and to which the Commission has not previously assigned a user identification number, which we call a ‘‘Central Index Key (CIK)’’ code, will need to obtain the codes by filing electronically a Form ID (17 CFR 293.63; 249.446; and 274.402) at https:// www.filermanagement.edgarfiling.sec.gov. The applicant also will be required to submit a notarized authenticating document. If the authenticating document is prepared before the applicant makes the Form ID filing, the authenticating document may be uploaded as a Portable Document Format (PDF) attachment to the electronic filing. An applicant also may submit the authenticating document by faxing it to the Commission within two business days before or after electronically filing the Form ID. The authenticating document would need to be manually signed by the applicant over the applicant’s typed signature, include the information contained in the Form ID, and confirm the authenticity of the Form ID. If the authenticating document is filed after electronically filing the Form ID, it would need to include the accession number assigned to the electronically filed Form ID as a result of its filing. See 17 CFR 232.10(b)(2). 547The Schedule 14N also would be used for disclosure concerning the inclusion of shareholder nominees in company proxy materials when made pursuant to an applicable state or foreign law provision or a company’s governing documents. See new Rule 14a–18 and proposed Rule 14a–19, as discussed in Section II.C.5. below. 548See new Rule 14n–2(a). 549We note that if this occurs, the nominee would no longer be a Rule 14a–11 nominee. See Section II.B.6.c. for a discussion of how this would affect the calculation of the maximum number of Rule 14a–11 nominees. 550See new Rule 14n–2(b). 551See Item 4(b) of new Schedule 14N. 552While the proposed Schedule 14N included the instruction regarding the signing of the
Schedule by an authorized representative, we did
not discuss this aspect of the proposed rule text in the narrative portion of the release. 553For further discussion, see Section II.E. the company will be required to disclose the date by which the shareholder must submit the required notice in a Form 8–K filed pursuant to new Item 5.08 within four business days after the company determines the anticipated meeting date.543 As noted, the notice on Schedule 14N must be transmitted to the company 544 and filed with the Commission on the same day.545 Consistent with the Proposal, the Schedule 14N must be filed with the Commission on EDGAR. To file the Schedule 14N on EDGAR, a nominating shareholder or group and any nominee will need to have or obtain EDGAR filing codes and user identification numbers, which may be obtained by filing electronically a Form ID in advance of filing the Schedule 14N.546 We encourage nominating shareholders and groups to take the steps necessary to obtain an EDGAR filing code and CIK code well in advance of the deadline for filing a notice on Schedule 14N. The Schedule 14N will:

• Include a cover page in the form set
  forth in Schedule 14N with the appropriate box on the cover page marked to specify that the filing relates to a Rule 14a–11 nomination; 547
• Be made under the subject
  company’s Exchange Act file number (or in the case of a registered investment company, under the subject company’s Investment Company Act file number); and
• Be made on the date the notice is
  first transmitted to the company.
  We are adopting, as proposed, a requirement that the Schedule 14N be amended promptly for any material change to the disclosure and certifications provided in the originally￾filed Schedule 14N.548 In this regard, we would view withdrawal of a nominating shareholder or group (or any member of the group), or of a director nominee, and the reasons for any such withdrawal, as a material change. For example, such a withdrawal could be material because it may result in a group no longer meeting the required ownership threshold under Rule 14a–11. We also would view as material entering into an agreement between the company and the nominating shareholder or group for the company to include a nominee in the company’s proxy materials as a company nominee.549 The nominating shareholder or group also will be required, as proposed, to file a final amendment to the Schedule 14N disclosing within 10 days of the final results of the election being announced by the company the nominating shareholder’s or group’s intention with regard to continued ownership of its shares.550 As discussed above, the nominating shareholder or group would be required to disclose its intent with regard to continued ownership of the company’s securities in its original notice on Schedule 14N.551 Filing an amendment to the Schedule 14N within 10 days after the announcement of the final results of the election will provide shareholders with information as to whether the outcome of the election may have altered the intent of the nominating shareholder or group and what further plans the nominating shareholder or group may have with regard to the company. As was proposed,552 the Schedule 14N may be signed either by each person on whose behalf the statement is filed or his or her authorized representative. We assume that in many cases group members will choose to appoint an authorized representative from among the group. If the statement is signed on behalf of a person by his authorized representative other than an executive officer or general partner of the filing person, evidence of the representative’s authority to sign on behalf of such person must be filed with the statement, provided, however, that a power of attorney for this purpose which is already on file with the Commission may be incorporated by reference. The Schedule 14N, as filed with the Commission, as well as any amendments to the Schedule 14N, will be subject to the liability provisions of Exchange Act Rule 14a–9 pursuant to new paragraph (c) to the rule.553

9. Requirements for a Company That
   Receives a Notice From a Nominating Shareholder or Group a. Procedure if Company Plans To Include Rule 14a–11 Nominee In the Proposing Release, we proposed a process for a company to follow once it received a nomination submitted pursuant to Rule 14a–11. Upon receipt of a shareholder’s or group’s notice of its intent to require the company to include in its proxy materials a shareholder nominee or nominees pursuant to Rule 14a–11, the company would determine whether it would include the nominee or whether it believed it would be desirable to, and that the company had a basis upon which it could rely to, exclude a nominee. If a company determined it would include the nominee, the company would notify in writing the nominating shareholder or group no later than 30 calendar days before the

554See proposed Rule 14a–11(f)(2).
555See new Rule 14a–11(g)(1) and Instruction 1 to Rule 14a–11(g). 556This 30-day deadline for this notice should provide a nominating shareholder or group with sufficient time to engage in soliciting activities with respect to its nominee or nominees, if it has not done so already, or pursue any legal remedies that may be available if the company determines it will exclude the nominating shareholder’s or group’s nominee or nominees. 557The process was modeled after the staff no￾action process used in connection with shareholder proposals under Rule 14a–8. 558See proposed Rule 14a–11(a). More specifically, under the proposal a company would not be required to include a nominee where (1) applicable State law or the company’s governing documents prohibit the company’s shareholders from nominating a candidate for director; (2) the nominee’s candidacy, or if elected, board membership, would violate controlling State law, Federal law or rules of a national securities exchange or national securities association; (3) the nominating shareholder or group does not meet the rule’s eligibility requirements; (4) the nominating shareholder’s or group’s notice is deficient; (5) any representation in the nominating shareholder’s or group’s notice is false in any material respect; or (6) the nominee is not required to be included in the company’s proxy materials due to the proposed limitation on the number of nominees required to be included. 559See proposed Rule 14a–11(f). 560See proposed Rule 14a–11(f)(7)–(14). 561See proposed Rule 14a–11(f)(3)–(6). 562We considered the timing requirements and deadlines in Rule 14a–8 when crafting the proposed requirements and deadlines for Rule 14a–11; however, due to the potential complexity of the nomination process, we determined in the proposal that it would be appropriate to provide additional time for the process. 563See proposed Rule 14a–11(f)(3). 564See proposed Rule 14a–11(f)(4). 565See proposed Rule 14a–11(f)(5). company files its definitive proxy statement and form of proxy with the Commission that it will include the nominee or nominees.554 The company would be required to provide this notice in a manner that provides evidence of timely receipt by the nominating shareholder or group. We are adopting this requirement as proposed, with a clarification regarding the timing of the company’s transmission of the notice and receipt by the nominating shareholder or group.555 As adopted, if a company will include a shareholder nominee, a company will be required to notify the nominating shareholder or group (or their authorized representative). Rather than including the proposed requirement that the company must provide the notice in a manner that evidences timely receipt by the shareholder, we are adopting a requirement that the notification must be postmarked or transmitted electronically no later than 30 calendar days before it files its definitive proxy materials with the Commission.556 We believe this will provide for
ease of use and administration because it should be clear when the notice was transmitted. We also note that it is consistent with the transmission standard we are adopting for submitting a notice of intent with respect to a nomination pursuant to Rule 14a–11(b)(10). We note that while we are not adopting a requirement regarding the evidence of timely receipt by the nominating shareholder or group, we believe it is in a company’s interest to send the notice to the nominating shareholder or group in a manner that will allow the company to demonstrate that the nominating shareholder or group received the notice, as doing so may avoid potential disputes. b. Procedure if Company Plans To Exclude Rule 14a–11 Nominee The Proposal also included a process for a company to follow if it determined that it could exclude a nominee submitted pursuant to Rule 14a–11.557 As proposed, a company could determine that it is not required under Rule 14a–11 to include a nominee from a nominating shareholder or group in its proxy materials if:

• Proposed Rule 14a–11 is not
  applicable to the company;
• The nominating shareholder or
  group has not complied with the requirements of Rule 14a–11;
• The nominee does not meet the
  requirements of Rule 14a–11;
• Any representation required to be
  included in the notice to the company is false or misleading in any material respect; or
• The company has received more
  nominees than it is required to include by proposed Rule 14a–11 and the nominating shareholder or group is not entitled to have its nominee included under the criteria proposed in Rule 14a– 11(d)(3).558 Under the Proposal, the nominating shareholder or group would need to be notified of the company’s determination not to include the shareholder nominee in sufficient time to consider the validity of any determination to exclude the nominee and respond to such a notice.559 In this regard, we noted the time-sensitive nature of Rule 14a–11 and the interpretive issues that may arise in applying the new rule. After the company provided such a notice to a nominating shareholder or group and afforded the nominating shareholder or group the opportunity to respond, the company would be required to provide a notice to the Commission regarding its intent not to include a shareholder nominee in its proxy materials. The company could seek a no-action letter from the staff with respect to its decision to exclude the nominee.560 The proposed process would have afforded a nominating shareholder or group the opportunity to remedy certain eligibility or procedural deficiencies in a nomination.561 The various time deadlines set out in the proposed process were determined by considering the appropriate balance between companies’ needs in meeting printing and filing deadlines for their shareholder meetings with shareholders’ need for adequate time to satisfy the requirements of the rule.562 Specifically, as proposed, a company determining that the nominating shareholder or group or nominee or nominees has not satisfied the eligibility requirements could exclude the shareholder nominee or nominees, subject to the following requirements:
• The company would notify in
  writing the nominating shareholder or group of its determination. The notice would be required to be postmarked or transmitted electronically no later than 14 calendar days after the company receives the shareholder notice of intent to nominate. The company would have to provide the notice in a manner that provides evidence of receipt by the nominating shareholder or group; 563
• The company’s notice to the
  nominating shareholder or group that it determined that the company may exclude a shareholder nominee or nominees would be required to include an explanation of the company’s basis for determining that it may exclude the nominee or nominees; 564
• The nominating shareholder or
  group would have 14 calendar days after receipt of the written notice of deficiency to respond to the notice and correct any eligibility or procedural deficiencies identified in the notice. The nominating shareholder or group would have to provide the response in a manner that provides evidence of its receipt by the company; 565
• If, upon review of the nominating
  shareholder’s or group’s response, the company determines that the company still may exclude the shareholder nominee or nominees, after providing the requisite notice of and time for the nominating shareholder or group to remedy any eligibility or procedural deficiencies in the nomination, the company would be required to provide notice of the basis for its determination to the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The Commission staff could permit the company to make its submission later

566See proposed Rule 14a–11(f)(7).
567See proposed Rule 14a–11(f)(8).
568See proposed Rule 14a–11(f)(10).
569See proposed Rule 14a–11(f)(11).
570See proposed Rule 14a–11(f)(12).
571See proposed Rule 14a–11(f)(13).
572See letters from CFA Institute; CII; P. Neuhauser; Schulte Roth & Zabel; Universities Superannuation. 573See letters from ABA; Anadarko; BRT; Cleary; Davis Polk; Delaware Bar; ExxonMobil; E.J. Kullman; Protective; S. Quinlivan; Seven Law Firms; Weyerhaeuser. 574See letters from CFA Institute; CII. 575See letters from 26 Corporate Secretaries; Boeing; Con Edison; Honeywell; Kirkland & Ellis; Pfizer; Protective; UnitedHealth; USPE; Wells Fargo; Whirlpool. 576See letters from Boeing; Honeywell. 577See letters from CFA Institute; CII. 578See letters from Protective; USPE. 579See letter from BRT. 580 Id. 581See letters from ABA; BRT. 582See letter from ABA. 583See letters from ABA; Delaware Bar. 584 In this regard, we note that the staff process for aiding in the resolution of disputes related to nominations made pursuant to Rule 14a–11 is non￾exclusive. As discussed throughout this release, a company can seek the staff’s view with regard to its determination to exclude a nominee from its proxy materials, but it is not required to do so. A company could engage in negotiations with a nominating shareholder or group and ultimately reach a resolution outside of the staff process, or the parties could avail themselves of other alternatives, such as litigation. 585Other than the modifications to the standards relating to transmission and receipt of notices and responses, which are described below, we are adopting the process as proposed. 586We encourage companies and shareholders to attempt to resolve disputes independently. To the extent that a company and nominating shareholder or group are able to resolve an issue at any point during the staff process, the company should withdraw its request for a no-action letter from the staff. 587The final rule does not include the proposed 30-calendar day notice requirement when a company determines to exclude a nominee. We believe this requirement is rendered unnecessary by the requirement in paragraph (g)(3) of Rule 14a–11 that the company provide notice to the Commission staff and nominating shareholder or group no later than 80 calendar days before the company files its definitive proxy statement and form of proxy. In addition, if a company seeks the staff’s informal view with respect to the company’s determination to exclude a nominee, promptly following receipt than 80 calendar days before the company files its definitive proxy statement and form of proxy if the company demonstrates good cause for missing the deadline; 566

• The company’s notice to the
  Commission would be required to include:
• Identification of the nominating
  shareholder or each member of the nominating shareholder group, as applicable;
• The name of the nominee or
  nominees;
• An explanation of the company’s
  basis for determining that it may exclude the nominee or nominees; and
• A supporting opinion of counsel
  when the company’s basis for excluding a nominee or nominees relies on a matter of State law; 567
• The company would be required to
  file its notice of intent to exclude with the Commission and simultaneously provide a copy to the nominating shareholder or each member of the nominating shareholder or group; 568
• The nominating shareholder or
  group could submit a response to the company’s notice to the Commission. The response would be required to be postmarked or transmitted electronically no later than 14 calendar days after the nominating shareholder’s or group’s receipt of the company’s notice to the Commission. The nominating shareholder or group would be required to provide a copy of its response to the Commission simultaneously to the company; 569
• If requested by the company, the
  Commission staff would, at its discretion, provide an informal statement of its views (commonly known as a no-action letter) to the company and the nominating shareholder or group; 570
• The company would provide the
  nominating shareholder or group with notice, no later than 30 calendar days before it files its definitive proxy statement and form of proxy with the Commission, of whether it will include or exclude the shareholder nominee or nominees.571 Some commenters supported the proposed staff review process for handling disputes regarding a company’s determination to exclude a shareholder nominee.572 Other commenters expressed concerns about the staff’s expertise and ability to handle disputes in a timely manner.573 With respect to the timing requirements in the proposed process, two commenters supported the proposed 14-day time period for the company to respond to a nominating shareholder’s or group’s notice.574 A number of commenters criticized the proposed 14-day time period as too short or requested a longer time period for the company to respond.575 Commenters explained that boards would need time to consider various issues, such as if the election of a shareholder nominee would trigger issues under the laws and regulations relevant to the company’s business (e.g., antitrust laws, government procurement, security clearances and export control) as well as under listing standards and State law.576 Two commenters supported the proposed 14- day time period for a nominating shareholder or group to respond to a company’s notice of deficiency.577 Two commenters worried the 14-day time period would give too little time for a response and recommended instead a 21-day time period.578 One commenter warned that the Commission is underestimating the number of boards that would challenge shareholder nominees and the level of intensity of these challenges.579 This commenter suggested that such challenges and possible litigation would demand significant time and resources from the Commission’s staff.580 Commenters also argued that challenges to Rule 14a–11 nominations likely would raise highly complex issues that fall outside the scope of the staff’s expertise (e.g., whether a candidacy would violate State law).581 One commenter pointed to difficulties arising from the ‘‘dueling’’ legal opinions situation in the Rule 14a– 8 no-action process.582 A couple commenters believed that courts, rather than the staff, would be better able to resolve disputes regarding shareholder director nominations.583 After considering the comments, we believe that it is in shareholders’ and companies’ interest to have a process available for seeking to resolve certain disputes regarding nominations submitted pursuant to Rule 14a–11.584 Therefore, the rules we are adopting set out the process by which a company would determine whether to include a shareholder nominee and notify the nominating shareholder or group (or their authorized representative) of its determination.585 The rules also include a process by which a company would notify a nominating shareholder or group (or their authorized representative) of a deficiency in its notice on Schedule 14N, the nominating shareholder or group
  would have the opportunity to respond, and the company would send a notice to the Commission if the company intends to exclude a shareholder nominee from its proxy materials. Consistent with the Proposal, a company making the determination to exclude a shareholder nominee will be required to submit a notice to the Commission regarding its determination, and it may also choose to avail itself of the process to seek a no￾action letter from the staff with respect to its decision.586 While we understand the concerns raised by commenters regarding the rule’s timing requirements, we believe the requirements are appropriate in light of the need to facilitate the process between a company and its shareholders in time for an annual meeting.587 In

of the staff’s response a company would be required to provide a notice to the nominating shareholder or group stating whether it will include or exclude the nominee. 588For example, suppose a company decided it did not have a reason to exclude a nominee submitted by a nominating shareholder during the first week of the window period. If we were to require that a company must respond to a nomination no later than 14 days after it was transmitted, the company would be required to respond to the nominating shareholder or group before the window period closed, and the company would inform the nominating shareholder that it intends to include the nominee. If, subsequent to the company sending a notice to the nominating shareholder of its intent to include the nominee, a nominating shareholder with a higher qualifying ownership percentage submits a nomination for the maximum number of nominees the company would be required to include under the rule, the company would be required to include those nominees assuming that the company determined that it did not have a reason to exclude the nominees. In that situation, confusion could result because, under the rule, the company would no longer be required to include the nominee submitted by the nominating shareholder during the first week of the window period, even though the company had informed the nominating shareholder it would include its nominee. 589Specifically, the final rule provides that a company could exclude a shareholder nominee because the nominating shareholder or group, or the nominee, fails to satisfy the applicable eligibility requirements in Rule 14a–11(b). In this regard, we note that the nominating shareholder or each member of the nominating shareholder group (or authorized representative) would be required to certify that, after reasonable inquiry and to the best of its knowledge and belief, the nominating shareholder or member of the nominating shareholder or group and the nominee satisfied the applicable requirements of Rule 14a–11(b). 590See new Rule 14a–11(d). 591See new Rule 14a–11(c). 592 In this regard, we note that this is consistent with Rule 14a–8, which specifies that a company may exclude a proposal if the proposal, including any accompanying supporting statement, exceeds 500 words. 593See new Rule 14a–9(c) and Rule 14a–11(f). addition, the staff is committed to timely addressing these matters. We are changing and clarifying the requirements related to the timing of sending and receiving notifications. As proposed, if a company determined that it could exclude a shareholder nominee, it would be required to notify the nominating shareholder or group and the notification would be required to be postmarked or transmitted electronically no later than 14 calendar days after the company received the notice on Schedule 14N. The proposed rule stated that the company would be responsible for providing the notice in a manner that evidences timely receipt by the nominating
shareholder or group. The proposed rule also included similar requirements for a response to the notice by the nominating shareholder or group. As adopted, the rules will keep the deadlines as they were proposed but will use a transmission standard in determining the deadlines, similar to the standard discussed above for new Rule 14a–11(g)(1). We believe using such a uniform standard for all notification aspects of the rule will provide clarity and ease of use. Under the final rule, a company’s notification must be postmarked or transmitted electronically no later than 14 calendar days after the close of the window period for submission of nominations pursuant to Rule 14a–11. We believe this change from the Proposal is appropriate because it will allow shareholders to submit their nominations, and companies to receive all the nominations, before requiring a company to send a notice to the nominating shareholder or group (or their authorized representative) as to whether it will include or exclude a nominee. Thus, a company will be able to make an informed decision with respect to individual nominations because it will be able to evaluate and respond to all the nominations it has received at one time, rather than evaluating and responding to the nominations as they are received. This approach should help reduce the possibility of any confusion that could result from requiring a company to respond to each nomination no later than 14 days after it is transmitted.588 A nominating shareholder’s or group’s response to the company’s notice must be postmarked or transmitted electronically no later than 14 calendar days after receipt of the company’s notification. We note that a timely transmission standard applies in both instances; however, we urge companies to send the notification, and nominating shareholders or groups to send a response, in a manner that will allow them to demonstrate when the communication is received, as doing so may avoid potential disputes. Under new Rule 14a–11(g), a company may exclude a shareholder nominee because:

• Rule 14a–11 is not applicable to the
  company;
• The nominating shareholder or
  group or nominee failed to satisfy the eligibility requirements in Rule 14a– 11(b);) 589 or
• Including the nominee or nominees
  would result in the company exceeding the maximum number of nominees it is required to include in its proxy statement and form of proxy.590 In addition, a company would be permitted to exclude a statement in support of a nominee or nominees if the statement in support exceeds 500 words for each nominee.591 In such cases, a company would be required to include the nominee or nominees, provided the eligibility requirements were satisfied, but would be permitted to exclude the statement in support. Although we did not propose to allow for exclusion of a supporting statement that exceeds the length specified in the rule, we believe that it is appropriate to provide the ability to do so in the final rule.592 We note that, in a change from the Proposal, under the final rule a company may not exclude a nominee or a statement in support on the basis that, in the company’s view, the Schedule 14N (which will include the statement in support) contains materially false or misleading statements. Nominating shareholders and groups will have liability for any materially false or misleading information or for making a false or misleading certification in the notice filed on Schedule 14N, and companies will not be responsible for this information.593 We believe that such disputes concerning whether information is false or misleading should be handled through disclosure, and if necessary, through private litigation, rather than through exclusion of the nominee under our rule. A company and the nominating shareholder or group will be in possession of the facts and circumstances regarding any disputes that arise about the truthfulness or accuracy of information or representations made by a nominating shareholder or group; thus, they will be in a better position than the staff to resolve those disputes. In addition, we note that in traditional proxy contests, companies and insurgents regularly use disclosure to communicate with a company’s shareholders about an insurgent’s nominee(s) and provide related information, including disclosure disputing the information provided by the other party. We believe that it is appropriate for companies and nominating shareholders engaged in the Rule 14a–11 nomination process to work together to resolve these types of issues. While we encourage private parties to resolve disputes under this provision, the Commission could, of course, bring enforcement actions in appropriate instances. All filings associated with a nomination included in the company’s proxy materials pursuant to Rule 14a–11, including the
  Schedule 14N, the company’s proxy
  statement and any additional soliciting materials provided by the company or the nominating shareholder, will be subject to the staff’s proxy contest review procedures and, as noted, will be subject to the Rule 14a–9 prohibition

594See letters from CII; Universities Superannuation. 595 In the Proposal, we noted that the exclusion of a nominee or nominees where the exclusion was not permissible would result in a violation of the rule. We are adopting that provision as proposed. 596Refer to Section II.B.8. for a discussion of comments received on the proposed disclosure and changes made in response to these comments. We did not receive comment specifically on new Items 7(e) or 22(b)(18) of Schedule 14A. 597See new Rule 14a–11(f). against materially false or misleading statements. In the Proposing Release, we noted that:

• Unless otherwise provided in Rule
  14a–11 (e.g., the nominating shareholder’s or group’s obligation to demonstrate that it responded to a company’s notice of deficiency, where applicable, within 14 calendar days after receipt of the notice of deficiency), the burden would be on the company to demonstrate that it may exclude a nominee or nominees; and
• All materials submitted to the
  Commission in relation to proposed Rule 14a–11(g) would be publicly available upon submission. We are adopting these aspects of the rules as proposed. We did not receive significant comment on these aspects of the proposed rules, although two commenters requested that companies bear the burden of proof when objecting to a nominee.594 The rule, as adopted and proposed, specifies that the burden is on the company to demonstrate that it may exclude a nominee or statement of support, unless otherwise specified.595 In addition, as we discussed in the Proposing Release, the staff’s responses to the submissions made pursuant to new Rule 14a–11(g) would reflect only informal views. The staff determinations reached in these responses would not, and cannot, adjudicate the merits of a company’s position with respect to exclusion of a shareholder nominee under Rule 14a–

11. Accordingly, a discretionary staff
    determination would not preclude an interested person from pursuing a judicial determination regarding the application of Rule 14a–11. As noted above, if a nominee withdraws or is disqualified, a company will be required to include an otherwise eligible nominee submitted by the shareholder or group with the next highest qualifying ownership percentage, if any. The company would be required to continue replacing withdrawn or disqualified nominees until it included the maximum number of nominees it is required to include in its proxy materials or the list of shareholder nominees is exhausted. As described above, a company will be required to give notice that it plans to exclude a nominee for any nominee that it intends to exclude, and the notice must include the reasons for the exclusion. If a company anticipates that it would seek a no-action letter from the staff with respect to its decision to exclude any Rule 14a–11 nominee or nominees, it should seek a no-action letter with regard to all nominees that it wishes to exclude at the outset and should assert all available bases for exclusion at that time. For example, if a company receives more nominees than it is required to include, its reasons for exclusion would note that basis. In addition, if the company believes it has other bases to exclude the nominee, it should note those other bases in its notice and include the other bases in its request for a no-action letter.
    c. Timing of Process
    The process generally would operate as follows:
    Due date Action required
    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. Nominating shareholder or group must provide notice on Schedule 14N to the company and file the Schedule 14N with the Commission. No later than 14 calendar days after the close of the window period for submission of nominations. Company must notify the nominating shareholder or group (or its au￾thorized representative) of any determination not to include the nomi￾nee or nominees. No later than 14 calendar days after the nominating shareholder’s or group’s receipt of the company’s deficiency notice. Nominating shareholder or group must respond to the company’s defi￾ciency notice and, where applicable, cure any defects in the nomina￾tion. No later than 80 calendar days before the company files its definitive proxy statement and form of proxy with the Commission. Company must provide notice of its intent to exclude the nominating shareholder’s or group’s nominee or nominees and the basis for its determination to the Commission and, if desired, seek a no-action letter from the staff with regard to its determination. No later than 14 calendar days after the nominating shareholder’s or group’s receipt of the company’s notice to the Commission. Nominating shareholder or group may submit a response to the com￾pany’s notice to the Commission staff. As soon as practicable ............................................................................. If requested by the company, Commission staff would, at its discretion, provide an informal statement of its views to the company and the nominating shareholder or group. Promptly following receipt of the staff’s informal statement of its views Company must provide notice to the nominating shareholder or group stating whether it will include or exclude the nominee. d. Information Required in Company Proxy Materials
    i. Proxy Statement
    As discussed in Section II.B.8. above, we proposed and are adopting a requirement that a company that is including a shareholder director nominee in its proxy statement and form of proxy pursuant to Rule 14a–11 include certain disclosure about the nominating shareholder or group and the nominee in the company proxy statement. This disclosure will be provided by the nominating shareholder or group in its notice on Schedule 14N in response to Item 5 of that Schedule and will be included in the company’s proxy statement pursuant to Item 7(e) (and, in the case of investment companies, Item 22(b)(18)) of Schedule 14A.596 As we proposed, the company will not be responsible for the disclosure; rather, the nominating shareholder or group will have liability for any materially false or misleading statements.597 As discussed in Section II.B.8., the disclosures to be included in the company’s proxy statement include:

• A statement that the nominee
  consents to be named in the company’s proxy statement and form of proxy and, if elected, to serve on the company’s board of directors;
• Disclosure about the nominee as
  would be provided in response to the disclosure requirements of Items 4(b),

598We have clarified in new Instruction 3 to Rule 14a–12 that inclusion of a shareholder director nominee pursuant to Rule 14a–11, an applicable state or foreign law provision, or a company’s governing documents as they relate to the inclusion of shareholder director nominees in the company’s proxy materials, or solicitations that are made in connection with that nomination, constitute solicitations subject to Rule 14a–12(c), except for purposes of the requirement for the company to file their proxy statement in preliminary form pursuant to Rule 14a–6(a). 599 In the Proxy Disclosure Enhancements Adopting Release, we amended our rules to require disclosure about directors that will provide investors with more meaningful disclosure to enable them to determine whether and why a director or nominee is an appropriate choice for a particular company. The information is required in the company’s proxy statement for each director nominee and each director who will continue to serve after the shareholder meeting. Under revised Item 401 of Regulation S–K, a nominating shareholder or group will be required to discuss the particular experience, qualifications, attributes or skills of the nominee or nominees that led the nominating shareholder or group to conclude that the person should be put forward as a candidate for director on the company’s board of directors. 5(b), 7(a), (b) and (c) and, for investment companies, Item 22(b) of Schedule 14A, as applicable;

• Disclosure about the nominating
  shareholder or each member of a nominating shareholder group as would be required of a participant in response to the disclosure requirements of Items 4(b) and 5(b) of Schedule 14A, as applicable;
• Disclosure about whether the
  nominating shareholder or any member of a nominating shareholder group has been involved in any legal proceeding during the past ten years, as specified in Item 401(f) of Regulation S–K;
• Disclosure about whether, to the
  best of the nominating shareholder’s or group’s knowledge, the nominee meets the director qualifications set forth in the company’s governing documents, if any;
• A statement that, to the best of the
  nominating shareholder’s or group’s knowledge, in the case of a registrant other than an investment company, the nominee meets the objective criteria for ‘‘independence’’ of the national securities exchange or national securities association rules applicable to the company, if any, or, in the case of a registrant that is an investment company, the nominee is not an ‘‘interested person’’ of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940;
• The following information
  regarding the nature and extent of the relationships between the nominating shareholder or group, the nominee, and/ or the company or any affiliate of the company:
• Any direct or indirect material
  interest in any contract or agreement between the nominating shareholder or any member of the nominating shareholder group, the nominee, and/or 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 any member of the nominating shareholder group and/or the 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;
• Any other material relationship
  between the nominating shareholder or any member of the nominating shareholder group, the nominee, and/or the company or any affiliate of the company not otherwise disclosed; and
• The Web site address on which the
  nominating shareholder or nominating shareholder group may publish soliciting materials, if any. The disclosures set out in Items 4(b) and 5(b) of Schedule 14A are specifically tailored to contested elections and currently are provided by both companies and insurgents in traditional proxy contests. The disclosures required pursuant to Item 4(b) include:
• Who is making the solicitation and
  the methods of solicitation;
• If employees of the soliciting party
  are engaged in the solicitation, what types of employees are engaged in the solicitation and the manner and nature of their employment;
• If specially engaged employees are
  engaged in the solicitation, the material features of the engagement, the cost, and the number of employees;
• The total amount estimated to be
  spent and the total expenditures to date for the solicitation;
• Who will bear the cost of the
  solicitation; and
• The terms of any settlement
  between the company and the soliciting parties, including the cost to the company. The disclosures included pursuant to Item 5(b) include:
• Any substantial interest of the
  soliciting party in the matter to be voted on;
• Certain biographical information
  about the soliciting party, such as name and business address, principal occupation, and any criminal convictions in the past 10 years;
• The amount of company securities
  beneficially owned and owned of record;
• Dates and amounts of any securities
  purchased or sold within the past two years and the amount of funds borrowed and owed to purchase the securities;
• Whether the soliciting person is or
  was within the past year a party to any contracts, arrangements or understandings with respect to the company’s securities and the terms of the contract, arrangement or understanding;
• Beneficial ownership of company
  securities by any associate of the soliciting person;
• Beneficial ownership by the
  soliciting person of any parent or subsidiary of the company;
• Disclosure responsive to Item 404(a)
  of Regulation S–K with regard to the soliciting person and any associate;
• Disclosure of any arrangements
  concerning future employment or transactions with the company; and
• Any substantial interest in the vote,
  either by security holdings or otherwise, held by a party to an arrangement or understanding related to a director nominee. The company also will include in its proxy statement disclosure about the management nominees responsive to Items 4(b), 5(b), 7(a), (b) and (c) and, for investment companies, Item 22(b) of
  Schedule 14A, as applicable, as well as
  disclosure concerning the persons making the solicitation for the management nominees responsive to Items 4(b) and 5(b) of Schedule 14A, as applicable. We did not amend the disclosure requirements in this regard, as companies are already required to make these disclosures in the context of a ‘‘solicitation in opposition,’’ under Rule 14a–12(c).598 In addition, as discussed in Section II.B.8., we proposed and adopted a requirement that the company include in its proxy statement the nominating shareholder’s or group’s statement in support of the shareholder nominee or nominees, if the nominating shareholder or group elects to have such statement included in the company’s proxy materials. As discussed in Section II.B.8., we had proposed that this statement not exceed 500 words total, but in response to commenters’ concerns, we have revised this provision in the final rule to enable a nominating shareholder or group to include up to 500 words for each nominee. The company also would have the option to include a statement of support for the management nominees.599
  ii. Form of Proxy
  Under the Proposal, a company that is required to include a shareholder nominee or nominees on its form of proxy could identify the shareholder nominees as such and recommend

600This would be similar to the current practice with regard to shareholder proposals submitted pursuant to Rule 14a–8 where companies identify the shareholder proposals and provide a recommendation to shareholders as to how they should vote on each of those proposals. 601See letters from CII; COPERA; P. Neuhauser; RiskMetrics; USPE. 602Letter from CII. 603See letter from RiskMetrics. 604See 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. 605See letters from Aetna; American Express; Boeing; BorgWarner; JPMorgan Chase; Seven Law Firms; Society of Corporate Secretaries; U.S. Bancorp. 606See letters from BorgWarner; Pfizer; Society of Corporate Secretaries; Tenet. 607See letter from ABA. 608See letter from ICI. 609See 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. 610See proposed revisions to Rule 14a–6(a)(4) and Note 3 to that rule. whether shareholders should vote for, against, or withhold votes on those nominees and management nominees on the form of proxy.600 In addition, the company could determine the order in which its nominees and any shareholder nominees are listed in the form of proxy. The company would otherwise be required to present the nominees in an impartial manner in accordance with Rule 14a–4. Under the current rules, a company may provide shareholders with the option to vote for or withhold authority to vote for the company’s nominees as a group, provided that shareholders also are given a means to withhold authority for specific nominees in the group. In our view, as we stated in the Proposal, this option would not be appropriate where the company’s form of proxy includes shareholder nominees, as 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 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. 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

611See letters from ABA; CII. 612See also discussion in footnote 598 above. 613Under 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). 614See proposed Rule 14a–2(b)(7)(i). 615See letters from Group of 80 Professors of Law, Business, Economics and Finance (‘‘Bebchuk, et al.’’); CalSTRS; CII; P. Neuhauser; RiskMetrics; Schulte Roth & Zabel; USPE. 616Letter from Bebchuk, et al. 617See letter from CII. 618See letter from P. Neuhauser. 619See letter from RiskMetrics. 620See letters from ABA; Anadarko; BRT; Seven Law Firms. 621See letters from ABA; Seven Law Firms. 622See letter from ABA. 623 Id. 624See letters from ABA; Seven Law Firms. 625 Id. 626See letter from ABA. 627See letters from ABA; Seven Law Firms. 628Letter from Biogen. 629See letters from ABA; Seven Law Firms. 630See letter from Seven Law Firms. 631See letters from CII; Cleary; P. Neuhauser; Schulte Roth & Zabel; USPE. 632See letters from CII; USPE. 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
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. 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 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 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
• 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
• 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
• 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 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 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

633See letter from Cleary.
634See letters from ABA; CII.
635See letter from Schulte Roth & Zabel. 636See letter from ABA. 637See letters from CalSTRS; COPERA; P. Neuhauser. 638See letter from P. Neuhauser. 639See letter from COPERA. 640See letter from CalSTRS. 641See letters from ABA; CII; USPE. 642See letter from ABA. 643See letters from ABA; Seven Law Firms. 644See letter from ABA. 645See letter from Schulte Roth & Zabel. 646Shareholders 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. 647Materials 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. previously filed by the shareholder in connection with the nomination.633 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. 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:

• 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 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 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. 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

648See new Instruction to Rule 14a–2(b)(7). 649Similarly, the exemption would not be available for solicitations in connection with nominations made pursuant to foreign law provisions. 650See Exchange Act Rule 14a–12. 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. 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. 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. 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. 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.

651For a registered investment company, the filing would be made under the company’s Investment Company Act file number. 652See proposed Rule 14a–2(b)(8)(iii). 653See letters from CII; COPERA; P. Neuhauser. 654See letters from COPERA; P. Neuhauser. 655See letter from CII. 656See letter from ABA. 657The 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. 658See letter from Seven Law Firms. 659See 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). 660See new Rule 14a–2(b)(8)(ii). 661See new Rule 14a–2(b)(8)(iii). 662As noted above, the soliciting material will be filed under cover of Schedule 14N and will appear as Schedule 14N–S on EDGAR. 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 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. 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. 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
• Each written communication
  includes:660
• 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 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. We have added a new instruction to the exemption clarifying that a

663See Instruction 1 to Rule 14a–2(b)(8). 664See letter from ABA. 665See letter from CII. 666See Exchange Act Rule 14a–12(a). 667See letters from CII; COPERA; P. Neuhauser. 668See Instruction 3 to Rule 14a–2(b)(8). 669See Instruction 2 to Rule 14a–2(b)(8). 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 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. 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. 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. 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

670Similarly, the exemption would not be available for solicitations in connection with nominations made pursuant to foreign law provisions. 671See Rule 14a–11(b)(10) and discussion in
Section II.B.8.c.ii. above.
672See Election of Directors Adopting Release. 673See Election of Directors Adopting Release. 674Under 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. 675Currently, 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. 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.
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.
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.
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. 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 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.

677See 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’’). 678See 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. 679See letters from AFL–CIO; CFA Institute; CII; Governance for Owners; C. Levin; Marco Consulting; SWIB. 680See letters from CII; USPE. 681See letters from American Express; Brink’s; BRT; CSX; Davis Polk; DuPont; C. Holliday; GE; General Mills; MetLife; Safeway; Tenet; Verizon. 682See letters from ABA; BorgWarner; CII; J. McRitchie; P. Neuhauser; O’Melveny & Myers; Seven Law Firms. 683See letters from ABA; Seven Law Firms. 684See letter from ABA. 685As 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), Continued 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 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.
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

if the proposal or supporting statement was contrary to any of the Commission’s proxy rules. 686We 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. 687See letter from ICI. 688Shareholders 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. 689See letters from CII; Florida State Board of Administration; United Brotherhood of Carpenters. 690See letters from ICI; Keating Muething; O’Melveny & Myers. 691This 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— 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 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.

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. 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

generally, shareholder proponents are not required to provide any specific type of disclosure along with their proposal. 692See North Dakota Publicly Traded Corporations Act, N.D. Cent. Code § 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 § 10–35 et al. (2007). 693See proposed Rule 14a–19. 694See proposed Rule 14a–19. 695See proposed Rule 14a–19(a). 696See 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.
697See proposed Rule 14a–19(c).
698See proposed Rule 14a–19(d).
699See proposed Rule 14a–19(e).
700See proposed Rule 14a–19(f).
701See letter from P. Neuhauser.
702See letter from Cleary.
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 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 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
• 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
• 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
• 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
• 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
• Disclosure of any Web site address on
  which the nominating shareholder or group may publish soliciting materials.700 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

703See letter from Curtis. 704As 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. 705See proposed Rule 14a–9(c). 706As 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. 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. 708See proposed Item 5.07 to Form 8–K. 709See letter from ICI. 710See letter from ABA. suggested that we extend the disclosure requirement to nominations submitted pursuant to a provision under foreign law.703 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 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. 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. 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. 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 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

711See 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. 712See 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. 713We 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. 714See new Rule 14a–5(e)(3). 715The 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). 716See Exchange Act Rule 13d–1. 717See Exchange Act Rule 13d–1(b). 718See Exchange Act Rule 13d–1(c). 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. 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 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.
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 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.

719See 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. 720See 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. 721See letter from Schulte Roth & Zabel. 722See letter from P. Neuhauser. 723See letters from ABA; Alston & Bird; BRT; Cleary; Microsoft; Seven Law Firms; Shearman & Sterling; Society of Corporate Secretaries; Vinson & Elkins. 724See letters from ABA; Cleary; Microsoft; Seven Law Firm; Shearman & Sterling. 725See letter from ABA. 726See letter from Seven Law Firms. 727See letter from ABA. 728See letters from ABA; Alston & Bird; BRT; Seven Law Firms; Society of Corporate Secretaries; Vinson & Elkins. 729See letter from ABA. 730 Id 731We 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. 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. 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 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 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’

732 15 U.S.C. 78p.
733As 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. 734See Exchange Act Rule 13d–5(b) [17 CFR 240.13d–5(b)]. 735See Exchange Act Rule 16a–1(a)(1) [17 CFR 240.16a–1(a)(1)]. 736See 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. 737See letters from ICI; Schulte Roth & Zabel; ValueAct Capital. 738See letters from ICI; Schulte Roth & Zabel. 739See letters from ABA; Alston & Bird; CII; Seven Law Firms. 740See letters from ABA; CII; Seven Law Firms. 741This 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. 742See letters from CII; Protective; Schulte Roth & Zabel. 743See letter from CII. 744See letter from Protective. 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.
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. 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 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. 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

745See 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. 746See letters from ABA; Seven Law Firms. 747See letter from ABA. 748See letters from ABA; Seven Law Firms. 749See letter from CII. 750See letter from Protective. 751See letter from Verizon. 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 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. 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 a nominating group should be jointly and severally liable to the company for material misstatements or omissions provided to the company about the group or its members.751 Another commenter, noting investors’ concerns about exposure to joint liability from participating with other investors to nominate a candidate, requested that the Commission add additional commentary about the limits of joint liability for unapproved statements of other members of a nominating

752See letter from Universities Superannuation. 753See letter from Verizon. 754See proposed Rule 14a–11(e). 755See Note to proposed Rule 14a–19. 756See letters from ABA; Alaska Air; American Bankers Association; Ameriprise; BorgWarner; BRT; Caterpillar; Cleary; DTE Energy; ExxonMobil; Honeywell; ICI; Protective; S. Quinlivan; Seven Law Firms; Sidley Austin; Society of Corporate Secretaries; Southern Company; UnitedHealth; Verizon. 757See letters from American Bankers Association; Ameriprise; BorgWarner; BRT; Caterpillar; ExxonMobil; Honeywell; S. Quinlivan; UnitedHealth; Verizon. 758See letters from Alaska Air; BorgWarner; BRT; DTE Energy; Protective; Seven Law Firms; Society of Corporate Secretaries. 759See letters from Alaska Air; BorgWarner; BRT; DTE Energy; Protective; Seven Law Firms; Sidley Austin; Society of Corporate Secretaries; Southern Company; United Health; Verizon. 760See letter from ABA. 761See letters from ABA; BorgWarner; BRT; Caterpillar; Society of Corporate Secretaries; Southern Company. 762See letters from Alaska Air; BorgWarner; BRT; ICI; Protective. 763See letter from BRT. 764See letters from ABA; Sidley Austin. 765See letter from ABA. 766Letter from Sidley Austin. 767See letter from Ameriprise. group.752 One commenter suggested that a nominating shareholder or group should be required to indemnify the company for any costs incurred in connection with any misstatements or omissions in the information provided to the company for inclusion in the company’s proxy materials.753 We are adopting Rule 14a–9(c) largely as proposed, but with specific references to statements made in the
Schedule 14N and other related
communications and a clarification that the rule would apply where a nominee is submitted pursuant to a foreign law provision in addition to a State law provision or the company’s governing documents. New Rule 14a–9(c) provides 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 or foreign law provision, or a registrant’s governing documents as they relate to including shareholder nominees for director in registrant proxy materials, include in a notice on Schedule 14N, or include in any other related communication, 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.’’ The changes to the rule text are intended to clarify that a nominating shareholder or group would be liable for statements it makes regarding the nomination, regardless of whether those statements ultimately appear in the company’s proxy statement, as we consider any statements that are made in the
Schedule 14N or in other
communications to be part of the solicitation by the nominating shareholder or group. Consistent with this view, the Schedule 14N filing (as well as any other related communications) would be considering soliciting materials for purposes of
Section 14(a) liability.
Under the Proposal, the rule also included express language providing that the company would not be responsible for information that is provided by the nominating shareholder or group under Rule 14a–11 and then repeated by the company in its proxy statement, except where the company knows or has reason to know that the information is false or misleading.754 A similar provision was proposed in Rule 14a–19 with regard to information provided by the nominating shareholder or group in connection with a nomination made pursuant to an applicable State law provision or a company’s governing documents.755 A number of commenters opposed the ‘‘knows or has reason to know’’ standard.756 Many commenters argued generally that because the Commission’s Proposal would eliminate the board’s involvement in selecting the shareholder nominees and prevent a company from excluding any information from its proxy materials, the company should not be liable for information provided by the nominating shareholder, group, or nominee.757 Commenters further noted that companies would not have adequate time or sufficient means to investigate the statements made by the nominating shareholder, group, or nominee.758 Therefore, these commenters argued that it would be inappropriate to shift onto companies any liability for statements made by a nominating shareholder, group, or nominee or impose a duty to investigate or otherwise confirm the accuracy of the information provided by a nominating shareholder, group, or nominee.759 One commenter predicted that if a company is liable for information provided by a nominating shareholder or group and included in a company’s proxy materials pursuant to Rule 14a–11, an applicable State law provision, or a provision in a company’s governing documents, it would challenge in court any information provided by a nominating shareholder, group, or nominee that it suspects is materially false or misleading.760 The commenter asserted that this type of expensive and time-consuming litigation likely would undermine the Commission’s goals for the rule. Some commenters believed that the appropriate standard would be the standard in Rule 14a–8(l)(2) and Rule 14a–7(a)(2)(i): ‘‘the company is not responsible for the contents of [the shareholder proponent’s] proposal or supporting statement.’’761 Other commenters recommended generally that the Commission allow companies to provide certain disclaimers in their proxy materials regarding the statements provided by the nominating shareholder or group,762 with one commenter suggesting that companies also should be able to set the nominating shareholder’s or group’s statements apart from their own statements by using different fonts, colors, graphics or other visual devices.763 Two commenters addressed the issue of a company’s liability for disclosure provided by a nominating shareholder or group that is determined to be materially false or misleading after the proxy materials have been sent.764 One commenter
stated that companies should not have liability for failing to correct or recirculate proxy materials if, after the company mails its proxy materials, it is notified (or learns) that the information provided by a nominating shareholder or group is (or has become) materially false or misleading.765 The commenter noted that the burden of updating and correcting information provided by a nominating shareholder or group should be solely the obligation of that shareholder or group. Another commenter provided similar views, noting that ‘‘[i]n situations where the registrant’s changes have not been permitted, and certainly after the proxy materials have been published, we think the burden [of correcting or recirculating proxy materials] should be on the nominating shareholder and that the exception imposing liability on the registrant should not apply.’’ 766 One commenter recommended that if Rule 14a–11 is adopted, the rule should state that liability is only attached when ‘‘the company knows or is grossly negligent in not knowing that the information is false or misleading.’’ 767 Another commenter asked that the company be liable for false and misleading

768See letter from ICI.
769See Rule 14a–11(f).
770See Instruction to new Rule 14a–18. See also Note to proposed Rule 14a–19. 771See the Instruction to proposed Item 7(e) of
Schedule 14A; Instruction to proposed Item
22(b)(18) of Schedule 14A. 772See the Instruction to proposed Item 7(f) of
Schedule 14A; Instruction to proposed Item
22(b)(19) of Schedule 14A. 773See letters from ABA; CII; Protective. 774See letters from ABA; Protective. 775See the Instruction to Item 7(e) of Schedule 14A and Instruction to Item 22(b)(18) of Schedule 14A with regard to information provided in connection with a Rule 14a–11 nomination. See the Instruction to Item 7(f) of Schedule 14A and Instruction to Item 22(b)(19) of Schedule 14A with regard to information provided in connection with a nomination made pursuant to applicable State law or a company’s governing documents. 776 44 U.S.C. 3501 et seq. 777 44 U.S.C. 3507(d) and 5 CFR 1320.11. 778The proxy rules apply only to domestic companies with securities registered under Section 12 of the Exchange Act and to investment companies registered under the Investment Company Act. The number of annual reports by reporting companies may differ from the number of proxy and information statements filed with the Commission in any given year. This is because some companies are subject to reporting requirements by virtue of Section 15(d) of the Exchange Act, and therefore are not covered by the proxy rules. Also, some companies are subject to the proxy rules only because they have a class of debt registered under Section 12. These companies generally are not required to hold annual meetings for the election of directors. In addition, companies that are not listed on a national securities exchange or national securities association may not hold annual meetings and therefore would not be required to file a proxy or information statement. information provided by a nominating shareholder or group only if it knew the information was false or misleading.768 After considering the comments, we are adopting the proposed provision stating that companies will not be responsible for information that is provided by the nominating shareholder or group under Rule 14a–11 and then repeated by the company in its proxy statement. This is the same standard used in Rule 14a–8. We modified the proposed provision in response to commenters to remove the reference to information that the company knows or has reason to know is false or misleading. We believe that the standard that currently is used in Rule 14a–8 is well understood and that it would add unnecessary confusion and create significant uncertainty for companies to alter the standard in the context of Rule 14a–11. Using the Rule 14a–8 standard also is consistent with our revision to Rule 14a–11 to remove as a basis for exclusion of a nominee that information in the Schedule 14N is false or misleading. Accordingly, the final rule contains express language providing that the company will not be responsible for information that is provided by the nominating shareholder or group under Rule 14a–11 and then reproduced by the company in its proxy statement.769 A similar provision is included in an instruction to new Rule 14a–18 with regard to information that is provided by the nominating shareholder or group in connection with a
nomination made pursuant to an applicable state or foreign law provision, or the company’s governing documents.770 As noted above, commenters raised concerns about correcting or recirculating proxy materials and potential liability for failing to correct or recirculate proxy materials after learning that material a nominating shareholder or group provided is false or misleading. As discussed above, under the rules as adopted, a company will not be responsible for any information that is provided by the nominating shareholder or group under Rule 14a–11 and then reproduced by the company in its proxy statement—the nominating shareholder or group will have liability for that information. Accordingly, a company will not be required to recirculate or correct proxy materials if it learns that the materials provided to shareholders included false or misleading information from the nominating shareholder or group. Under the Proposal, any information provided to the company in the notice from the nominating shareholder or group under Rule 14a–11 (and, as required, filed with the Commission by the nominating shareholder or group) and then included in the company’s proxy materials would not be incorporated by reference into any filing under the Securities Act, the Exchange Act, or the Investment Company Act unless the company determines to incorporate that information by reference specifically into that filing.771 A similar provision was proposed regarding information provided by the nominating shareholder or group in connection with a nomination made pursuant to an applicable State law provision or a company’s governing documents.772 Those commenting on this provision stated that information provided by a nominating shareholder, group, or nominee should not be deemed to be incorporated by reference into Securities Act, Exchange Act or Investment Company Act filings,773 but if it is, it should be treated as the responsibility of the nominating shareholder, group, or nominee rather than the company.774 We are adopting this provision as proposed.775 To the extent the company does specifically incorporate the information by reference or otherwise adopt the information as its own, however, we will consider the company’s disclosure of that information as the company’s own statements for purposes of the anti-fraud and civil liability provisions of the Securities Act, the Exchange Act, or the Investment Company Act, as applicable.
III. Paperwork Reduction Act
A. Background
Certain provisions of the final rules contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995.776 We published a notice requesting comment on the collection of information requirements in the Proposing Release for the rules, and we submitted these requirements to the Office of Management and Budget for review in accordance with the PRA.777 The titles for the collections of information are:
(1) ‘‘Proxy Statements—Regulation 14A and Schedule 14A’’ (OMB Control No. 3235–0059); (2) ‘‘Information Statements— Regulation 14C and Schedule 14C’’ (OMB Control No. 3235–0057); (3) ‘‘Form ID’’ (OMB Control No. 3235–0328); (4) ‘‘Schedule 14N’’; (5) ‘‘Securities Ownership— Regulation 13D and 13G (Commission Rules 13d–1 through 13d–7 and Schedules 13D and 13G)’’ (OMB Control No. 3235–0145); (6) ‘‘Form 8–K’’ (OMB Control No. 3235–0060); and (7) ‘‘Rule 20a–1 under the Investment Company Act of 1940, Solicitations of Proxies, Consents, and Authorizations’’ (OMB Control No. 3235–0158). These regulations, rules and forms were adopted pursuant to the Exchange Act and the Investment Company Act, among other statutes, and set forth the disclosure requirements for securities ownership reports filed by investors, proxy and information statements,778 and current reports filed by companies to provide investors with the information they need to make informed voting or investing decisions. The hours and costs associated with preparing, filing, and sending these schedules and forms constitute reporting and cost burdens imposed by each collection of information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Compliance with the rules is mandatory. Responses to the

779For an additional discussion of the Rule 14a– 11 eligibility requirements, see Section II.B.4 above. 780Exchange Act Rule 14a–8 requires a company to include a shareholder proposal in its Schedule 14A unless the shareholder has not complied with the procedural requirements in Rule 14a–8 or the proposal falls within one of the 13 substantive bases for exclusion in Rule 14a–8, including Rule 14a– 8(i)(8). 781 In this regard, we note that to the extent that a shareholder proposal seeks to establish a procedure for the inclusion of shareholder nominees for director in a company’s proxy materials, generally any such proposal adopted by shareholders would not affect the availability of Rule 14a–11. To the extent that a proposal seeks to restrict shareholder reliance on Rule 14a–11, the proposal would be subject to exclusion pursuant to Rule 14a–8(i)(2) because it would cause the company to violate Federal law or pursuant to Rule 14a–8(i)(3) because the proposal would be contrary to the proxy rules. 782See Sections II.B.8 and II.C.5 above. 783Schedule 14A prescribes the information that a company with a class of securities registered under Exchange Act Section 12, or a person soliciting shareholders of such a company, must include in its proxy statement to provide shareholders with material information relating to voting decisions.
Schedule 14C prescribes the information that a
company with a class of securities registered under Exchange Act Section 12 must include in its information statement in advance of a shareholders’ meeting when it is not soliciting proxies from its shareholders, including when it takes corporate action by written authorization or consent of shareholders. Investment Company Act Rule 20a1 requires registered investment companies to comply with Exchange Act Regulation 14A or 14C, as applicable. The annual responses to Investment Company Act Rule 20a–1 reflect the number of proxy and information statements that are filed by registered investment companies. 784See Item 5 of Schedule 14N. 785See Item 6 of Schedule 14N. information collection will not be kept confidential and there is no mandatory retention period for the information disclosed. B. Summary of the Final Rules and Amendments As discussed above in more detail, the final rules provide shareholders with two ways to more fully exercise their traditional State law rights to nominate and elect directors. First, new Exchange Act Rule 14a–11 will, under certain circumstances, require companies to include in their proxy materials shareholder nominees for director submitted by long-term shareholders or groups of shareholders with significant holdings. Rule 14a–11 will apply to all reporting companies subject to the Exchange Act proxy rules, with a few exceptions. Rule 14a–11 will apply only when applicable state or foreign law or a company’s governing documents do not prohibit shareholders from nominating a candidate for election as a director. Further, Rule 14a–11 will not apply to companies subject to the proxy rules solely because they have a class of debt securities registered under Section 12 of the Exchange Act. Rule 14a–11 will apply to smaller reporting companies, but on a delayed basis. Consistent with the Proposal, companies are not able to ‘‘opt out’’ of the rule in favor of a different framework for including shareholder director nominees in company proxy materials. In addition, as was proposed, the rule will apply regardless of whether any specified event has occurred to trigger the rule and regardless of whether the company is subject to a concurrent proxy contest. A nominating shareholder or group seeking to use Rule 14a–11 to require a company to include a nominee or nominees in the company’s proxy materials will be required to meet certain conditions, including an ownership threshold and holding period and filing a Schedule 14N to provide required disclosures and certifications. Under the rule, a company will not be required to include a shareholder nominee or nominees for director in the company’s proxy materials where the nominating shareholder or group holds the 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 company could be required to include under Rule 14a–11. A company also will not
be required to include a nominee submitted pursuant to Rule 14a–11 who does not meet the requirements of the rule. For example, a company would not be required to include a nominee if that nominee’s candidacy, or if elected, board membership, would violate applicable Federal law, State law, foreign law, or the rules of a national securities exchange or a national securities association (other than the rules related to director independence) and such violation could not be cured during the time period provided in the rule.779 Second, the new amendment to Exchange Act Rule 14a–8(i)(8) 780 will preclude a company from relying on Rule 14a–8(i)(8) to exclude from its proxy materials shareholder proposals by qualifying shareholders seeking to establish procedures under a company’s governing documents for the inclusion of one or more shareholder nominees in a company’s proxy materials including, for example, proposals to allow lower ownership thresholds or higher numbers of shareholder director nominees.781 In connection with Rule 14a–11 and the amendment to Rule 14a–8(i)(8), we also are adopting new rules that will require a notice to be filed with the Commission on new Schedule 14N, and transmitted to the company, when a shareholder seeks to submit a nomination to a company pursuant to Rule 14a–11 or pursuant to applicable state or foreign law provision or the company’s governing documents.782 The Schedule 14N will require a nominating shareholder or group to provide disclosure similar to the disclosure currently required in a contested election. The company will be required to include the disclosure provided by the nominating shareholder or group in its proxy materials. Thus, the new rules will require a company to provide additional disclosure on Schedules 14A and 14C,783 as well as Form 8–K, and a nominating shareholder or group to provide disclosure on new Schedule 14N. When filed in connection with Rule 14a–11, Schedule 14N requires disclosure about the amount and percentage of securities entitled to be voted on the election of directors by the nominating shareholder or group and the length of ownership of such securities. Schedule 14N also requires disclosure similar to the disclosure currently required for a contested election and disclosure of whether the nominee satisfies the company’s director qualifications.784 Schedule 14N also requires a certification that the nominating shareholder or group is not holding any of 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 company could be required to include under Rule 14a–11. A nominating shareholder or group also will be required to certify that the nominating shareholder or group and the nominee satisfy the applicable requirements of Rule 14a–11. When a Schedule 14N is filed in connection with a nomination pursuant to an applicable state or
foreign law provision or a company’s governing documents providing for the inclusion of one or more shareholder director nominees in company proxy materials, the Schedule 14N requires similar, but more limited, disclosures than a
Schedule 14N filed in connection with
a nomination pursuant to Rule 14a–
11.785 In addition, a nominating
shareholder or group filing a Schedule 14N in connection with a nomination submitted for inclusion in a company’s proxy materials pursuant to applicable state or foreign law or a company’s governing documents will be required to provide a more limited certification