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Thursday,

September 16, 2010

Part II

Securities andExchangeCommission17 CFR Parts 200, 232, 240 and 249

Facilitating Shareholder DirectorNominations; Final Rule

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117 CFR 200.82a.217 CFR 240.14a11.317 CFR 240.14a18.417 CFR 240.14n et seq.517 CFR 240.14n101.617 CFR 232.13.717 CFR 232.10 et seq.817 CFR 240.13a11.917 CFR 240.13d1.1017 CFR 240.14a2.1117 CFR 240.14a4.1217 CFR 240.14a5.1317 CFR 240.14a6.1417 CFR 240.14a8.1517 CFR 240.14a9.1617 CFR 240.14a12.1717 CFR 240.15d11.1817 CFR 240.13d102.1917 CFR 240.14a101.2017 CFR 249.308.2115 U.S.C. 78a et seq. (the Exchange Act). Part

200 Subpart DInformation and Requests andRegulation ST are also promulgated under theSecurities Act of 1933 [15 U.S.C. 77a et seq.] (theSecurities Act).

2217 CFR 240.14c101.

SECURITIES AND EXCHANGECOMMISSION

17 CFR PARTS 200, 232, 240 and 249

[Release Nos. 339136; 3462764; IC29384; File No. S71009]

RIN 3235AK27

Facilitating Shareholder DirectorNominations

AGENCY: Securities and ExchangeCommission.

ACTION: Final rule.

SUMMARY: We are adopting changes tothe Federal proxy rules to facilitate theeffective exercise of shareholderstraditional State law rights to nominateand elect directors to company boards ofdirectors. The new rules will require,under certain circumstances, acompanys proxy materials to provideshareholders with information about,

and the ability to vote for, ashareholders, or group of shareholders,nominees for director. We believe thatthese rules will benefit shareholders byimproving corporate suffrage, thedisclosure provided in connection withcorporate proxy solicitations, andcommunication between shareholdersin the proxy process. The new rulesapply only where, among other things,relevant state or foreign law does notprohibit shareholders from nominatingdirectors. The new rules will requirethat specified disclosures be madeconcerning nominating shareholders orgroups and their nominees. In addition,the new rules provide that companiesmust include in their proxy materials,under certain circumstances,shareholder proposals that seek toestablish a procedure in the companysgoverning documents for the inclusionof one or more shareholder directornominees in the companys proxymaterials. We also are adopting relatedchanges to certain of our other rules andregulations, including the existingsolicitation exemptions from our proxyrules and the beneficial ownershipreporting requirements.

DATES: Effective Date: November 15,2010.

Compliance Dates: November 15,2010, except that companies that qualifyas smaller reporting companies (asdefined in 17 CFR 240.12b2) as of theeffective date of the rule amendmentswill not be subject to Rule 14a11 untilthree years after the effective date.

FOR FURTHER INFORMATION CONTACT:Lillian Brown, Tamara Brightwell, orTed Yu, Division of CorporationFinance, at (202) 5513200, or, withregard to investment companies, Kieran

G. Brown, Division of InvestmentManagement, at (202) 5516784, U.S.Securities and Exchange Commission,100 F Street, NE., Washington, DC20549.

SUPPLEMENTARY INFORMATION: We areadding new Rule 82a of Part 200Subpart DInformation and Requests,1and new Rules 14a11,2 and 14a18,3and new Regulation 14N 4 and Schedule14N,5 and amending Rule 13 6 ofRegulation ST,7 Rules 13a11,8 13d1,914a2,10 14a4,11 14a5,12 14a6,1314a8,14 14a9,15 14a12,16 and 15d11,17 Schedule 13G,18 Schedule 14A,19and Form 8K,20 under the SecuritiesExchange Act of 1934.21 Although weare not amending Schedule 14C 22 underthe Exchange Act, the amendments willaffect the disclosure provided inSchedule 14C, as Schedule 14C requiresdisclosure of some items contained inSchedule 14A.

Table of Contents

I. Background and Overview of AmendmentsA. BackgroundB. Our Role in the Proxy ProcessC. Summary of the Final Rules

II. Changes to the Proxy RulesA. IntroductionB. Exchange Act Rule 14a111. Overview2. When Rule 14a11 Will Applya. Interaction With State or Foreign Law

b. Opt-In Not Requiredc. No Opt-Outd. No Triggering Eventse. Concurrent Proxy Contests3. Which Companies Are Subject to Rule

14a11

a. Generalb. Investment Companiesc. Controlled Companiesd. Debt Only Companiese. Application of Exchange Act Rule 14a

11 to Companies That Voluntarily

Register a Class of Securities UnderExchange Act Section 12(g)

f. Smaller Reporting Companies4. Who Can Use Exchange Act Rule 14a

11a. General

b. Ownership Thresholdi. Percentage of Securitiesii. Voting Poweriii. Ownership Position

iv. Demonstrating Ownershipc. Holding Periodd. No Change in Control Intente. Agreements With the Companyf. No Requirement To Attend the Annual

or Special Meetingg. No Limit on Resubmission5. Nominee Eligibility Under Exchange Act

Rule 14a11a. Consistent With Applicable Law and

Regulationb. Independence Requirements and Other

Director Qualificationsc. Agreements With the Companyd. Relationship Between the Nominating

Shareholder or Group and the Nomineee. No Limit on Resubmission of

Shareholder Director Nominees6. Maximum Number of Shareholder

Nominees To Be Included in CompanyProxy Materials

a. Generalb. Different Voting Rights With Regard to

Election of Directorsc. Inclusion of Shareholder Nominees in

Company Proxy Materials as CompanyNominees

7. Priority of Nominations Received by aCompany

a. Priority When Multiple ShareholdersSubmit Nominees

b. Priority When a Nominating Shareholderor Group or a Nominee Withdraws or IsDisqualified

8. Notice on Schedule 14Na. Proposed Notice Requirements

b. Comments on the Proposed NoticeRequirements

c. Adopted Notice Requirementsi. Disclosureii. Schedule 14N Filing Requirements9. Requirements for a Company That

Receives a Notice From a NominatingShareholder or Group

a. Procedure If Company Plans To IncludeRule 14a11 Nominee

b. Procedure If Company Plans To ExcludeRule 14a11 Nominee

c. Timing of Processd. Information Required in Company Proxy

Materials

i. Proxy Statementii. Form of Proxye. No Preliminary Proxy Statement10. Application of the Other Proxy Rules

to Solicitations by the NominatingShareholder or Group

a. Rule 14a2(b)(7)b. Rule 14a2(b)(8)11. 2011 Proxy Season Transition IssuesC. Exchange Act Rule 14a8(i)(8)1. Background2. Proposed Amendment3. Comments on the Proposal4. Final Rule Amendment5. Disclosure Requirements



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23See Facilitating Shareholder DirectorNominations, Release No. 339046, 3460089 (June10, 2009) [74 FR 29024] (Proposal or ProposingRelease). The Proposing Release was published for

comment in the Federal Register on June 18, 2009,and the initial comment period closed on August17, 2009. The Commission re-opened the commentperiod as of December 18, 2009 for thirty days toprovide interested persons the opportunity tocomment on additional data and related analysesthat were included in the public comment file at orfollowing the close of the original comment period.In total, the Commission received approximately600 comment letters on the proposal. The publiccomments we received are available on our Website at http://www.;sec.gov/comments/s7-10-09/s71009.shtml. Comments also are available for Website viewing and copying in the CommissionsPublic Reference Room, 100 F Street, NE.,Washington, DC 20549, on official business daysbetween the hours of 10 a.m. and 3 p.m.

24See, e.g., Securit[ies] and ExchangeCommission 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 1719 (1943) (Statement of theHonorable Ganson Purcell, Chairman, Securitiesand Exchange Commission) (explaining the initialCommission rules requiring the inclusion of

shareholder proposals in company proxy materials:We give [a stockholder] the right in the rules to puthis proposal before all of his fellow stockholdersalong with all other proposals * * * so that theycan see then what they are and vote accordingly.* * * The rights that we are endeavoring to assureto the stockholders are those rights that he hastraditionally had under State law, to appear at themeeting; to make a proposal; to speak on thatproposal at appropriate length; and to have hisproposal voted on. But those rights have beenrendered largely meaningless through the process ofdispersion of security ownership through[out] thecountry. * * * [T]he assurance of thesefundamental rights under State laws which havebeen, as I say, completely ineffective * * * becauseof the very dispersion of the stockholders intereststhroughout the country[;] whereas formerly * * *a stockholder might appear at the meeting and

address his fellow stockholders[, t]oday he can onlyaddress the assembled proxies which are lying atthe head of the table. The only opportunity that thestockholder has today of expressing his judgmentcomes at the time he considers the execution of hisproxy form, and we believe * * * that this is thetime when he should have the full informationbefore 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] beenlightened not only as to the financial conditionof the corporation, but also as to the majorquestions of policy, which are decided atstockholders meetings.).

25Dodd-Frank Wall Street Reform and ConsumerProtection Act, Public Law 111203, 971, 124 Stat.1376 (2010) (Dodd-Frank Act).

D. Other Rule Changes1. Disclosure of Dates and Voting

Information2. Beneficial Ownership Reporting

Requirements3. Exchange Act Section 164. Nominating Shareholder or Group Status

as Affiliates of the CompanyE. Application of the Liability Provisions

in the Federal Securities Laws to

Statements Made by a NominatingShareholder or Nominating ShareholderGroup

III. Paperwork Reduction ActA. BackgroundB. Summary of the Final Rules and

AmendmentsC. Summary of Comment Letters and

Revisions to ProposalD. Revisions to PRA Reporting and Cost

Burden Estimates1. Rule 14a112. Amendment to Rule 14a8(i)(8)3. Schedule 14N and Exchange Act Rule

14a184. Amendments to Exchange Act Form 8

K

5. Schedule 13G Filings6. Form ID FilingsE. Revisions to PRA Reporting and Cost

Burden EstimatesIV. Cost-Benefit Analysis

A. BackgroundB. Summary of RulesC. Factors Affecting Scope of the New

RulesD. Benefits1. Facilitating Shareholders Ability To

Exercise Their State Law Rights ToNominate and Elect Directors

2. Minimum Uniform Procedure forInclusion of Shareholder DirectorNominations and Enhanced Ability forShareholders To Adopt Director

Nomination Procedures3. Potential Improved Board Performance

and Company Performance4. More Informed Voting Decisions in

Director Elections Due to ImprovedDisclosure of Shareholder DirectorNominations and Enhanced ShareholderCommunications

E. Costs1. Costs Related to Potential Adverse

Effects on Company and BoardPerformance

2. Costs Related to Additional Complexityof Proxy Process

3. Costs Related to Preparing Disclosure,Printing and Mailing and Costs ofAdditional Solicitations and Shareholder

ProposalsV. Consideration of Burden on Competition

and Promotion of Efficiency,Competition and Capital Formation

VI. Final Regulatory Flexibility AnalysisA. Need for the AmendmentsB. Significant Issues Raised by Public

CommentsC. Small Entities Subject to the RulesD. Reporting, Recordkeeping and Other

Compliance RequirementsE. Agency Action To Minimize Effect on

Small EntitiesVII. Statutory Authority and Text of the

Amendments

I. Background and Overview ofAmendments

A. Background

On June 10, 2009, we proposed anumber of changes to the Federal proxyrules designed to facilitate shareholderstraditional State law rights to nominateand elect directors. Our proposals

sought to accomplish this goal in twoways: (1) By facilitating the ability ofshareholders with a significant, long-term stake in a company to exercisetheir rights to nominate and electdirectors by establishing a minimumstandard for including disclosureconcerning, and enabling shareholdersto vote for, shareholder directornominees in company proxy materials;and (2) by narrowing the scope of theCommission rule that permittedcompanies to exclude shareholderproposals that sought to establish aprocedure for the inclusion ofshareholder nominees in companyproxy materials.23 We recognized at thattime that the financial crisis that thenation and markets had experiencedheightened the serious concerns ofmany shareholders about theaccountability and responsiveness ofsome companies and boards of directorsto shareholder interests, and that theseconcerns had resulted in a loss ofinvestor confidence. These concernsalso led to questions about whether

boards were exercising appropriateoversight of management, whether

boards were appropriately focused onshareholder interests, and whether

boards need to be more accountable fortheir decisions regarding issues such ascompensation structures and riskmanagement.

A principal way that shareholders canhold boards accountable and influencematters of corporate policy is throughthe nomination and election ofdirectors. The ability of shareholders toeffectively use their power to nominateand elect directors is significantly

affected by our proxy regulationsbecause, as has long been recognized, afederally-regulated corporate proxysolicitation is the primary way forpublic company shareholders to learnabout the matters to be decided by theshareholders and to make their viewsknown to company management.24 Asdiscussed in detail below, in light of

these concerns, we reviewed our proxyregulations to determine whether theyshould be revised to facilitateshareholders ability to nominate andelect directors. We have taken intoconsideration the comments received onthe proposed amendments as well assubsequent congressional action 25 andare adopting final rules that will, for thefirst time, require company proxymaterials, under certain circumstances,to provide shareholders withinformation about, and the ability tovote for a shareholders, or group ofshareholders, nominees for director. We

also are amending our proxy rules toprovide shareholders the ability toinclude in company proxy materials,under certain circumstances,shareholder proposals that seek toestablish a procedure in the companysgoverning documents for the inclusionof one or more shareholder director



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26For example, the Commission has consideredchanges to the proxy rules related to the electionof directors in recent years. See Security HolderDirector Nominations, Release No. 3448626(October 14, 2003) [68 FR 60784] (2003 Proposal);

Shareholder Proposals, Release No. 3456160 (July27, 2007) [72 FR 43466] (Shareholder ProposalsProposing Release); Shareholder ProposalsRelating to the Election of Directors, Release No.3456161 (July 27, 2007) [72 FR 43488] (Electionof Directors Proposing Release); and ShareholderProposals Relating to the Election of Directors,Release No. 3456914 (December 6, 2007) [72 FR70450] (Election of Directors Adopting Release).When we refer to the 2007 Proposals and thecomments received in 2007, we are referring to theShareholder Proposals Proposing Release and theElection of Directors Proposing Release and thecomments received on those proposals, unlessotherwise specified.

27Professor Karmel has described theCommissions proxy rules as having the purpose tomake the proxy device the closest practicablesubstitute for attendance at the [shareholder]

meeting. Roberta S. Karmel, The New Shareholderand Corporate Governance: Voting Power WithoutResponsibility or Risk: How Should Proxy ReformAddress the De-Coupling of Economic and VotingRights?, 55 Vill. L. Rev. 93, 104 (2010).

28Historically, a shareholders voting rightsgenerally were exercised at a shareholder meeting.As discussed in the Proposing Release, in passingthe Exchange Act, Congress understood that thesecurities of many companies were held throughdispersed ownership, at least in part facilitated bystock exchange listing of shares. Although votingrights in public companies technically continued tobe exercised at a meeting, the votes cast at themeeting were by proxy and the voting decision wasmade during the proxy solicitation process. Thisstructure continues to this day.

29See letters from American Federation of Laborand Congress of Industrial Organizations (AFLCIO); California Public Employees RetirementSystem (CalPERS); Council of InstitutionalInvestors (CII); Lynne L. Dallas (L. Dallas); LosAngeles County Employees Retirement Association(LACERA); Laborers International Union of NorthAmerica (LIUNA); The Nathan CummingsFoundation (Nathan Cummings Foundation); Pax

World Management Corp. (Pax World); PershingSquare Capital Management, L.P. (PershingSquare); Relational Investors, LLC (Relational);RiskMetrics Group, Inc. (RiskMetrics);Shareowner Education Network andShareowners.org (Shareowners.org); SocialInvestment Forum (Social Investment Forum);State of Wisconsin Investment Board (SWIB);International Brotherhood of Teamsters(Teamsters); Trillium Asset ManagementCorporation (Trillium); UniversitiesSuperannuation SchemeUK (UniversitiesSuperannuation); Washington State InvestmentBoard (WSIB).

30For a discussion of the Commissions previousactions in this area, see the Proposing Release andthe 2003 Proposal.

31See letters from CII; Colorado PublicEmployees Retirement Association (COPERA);CtW Investment Group (CtW Investment Group);L. Dallas; Thomas P. DiNapoli (T. DiNapoli);Florida State Board of Administration (FloridaState Board of Administration); InternationalCorporate Governance Network (ICGN); Denise L.Nappier (D. Nappier); Ohio Public EmployeesRetirement System (OPERS); Pax World;Teamsters.

32 Id.33See letters from AFLCIO; CalPERS; California

State Teachers Retirement System (CalSTRS); CII;L. Dallas; LACERA; LIUNA; Nathan Cummings

Foundation; Pax World; Pershing Square;Relational; RiskMetrics; Shareowners.org; SocialInvestment Forum; SWIB; Teamsters; Trillium;Universities Superannuation; WSIB.

34See letters from Group of 26 CorporateSecretaries and Governance Professionals (26Corporate Secretaries); 3M Company (3M);Advance Auto Parts, Inc. (Advance Auto Parts);The Allstate Corporation (Allstate); Avis BudgetGroup, Inc. (Avis Budget); American ExpressCompany (American Express); AnadarkoPetroleum Corporation (Anadarko); Association ofCorporate Counsel (Association of CorporateCounsel); AT&T Inc. (AT&T); Lawrence Behr (L.Behr); Best Buy Co., Inc. ( Best Buy); The BoeingCompany (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 ofCommerce/CMCC); Chevron Corporation(Chevron); CIGNA Corporation (CIGNA); W. DonCornwell (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); MichaelEng (M. Eng); FedEx Corporation (FedEx); FMCCorporation (FMC Corp.); FPL Group, Inc. (FPLGroup); Frontier Communications Corporation(Frontier); General Electric Company (GE);General Mills, Inc. (General Mills); Charles O.Holliday, Jr. (C. Holliday); HoneywellInternational Inc. (Honeywell); Constance J.

nominees in the companys proxymaterials.

Regulation of the proxy process wasone of the original responsibilities thatCongress assigned to the Commission aspart of its core functions in 1934. TheCommission has actively monitored theproxy process since receiving thisauthority and has considered changes

when it appeared that the process wasnot functioning in a manner thatadequately protected the interests ofinvestors.26 One of the key tenets of theFederal proxy rules on which theCommission has consistently focused iswhether the proxy process functions, asnearly as possible, as a replacement foran actual in-person meeting ofshareholders.27 This is important

because the proxy process representsshareholders principal means ofparticipating effectively at an annual orspecial meeting of shareholders.28 In ourProposal we noted our concern that the

Federal proxy rules may not befacilitating the exercise of shareholdersState law rights to nominate and electdirectors. Without the ability toeffectively utilize the proxy process,shareholder nominees do not have arealistic prospect of being elected

because most, if not all, shareholdersreturn their proxy cards in advance ofthe shareholder meeting and thus, inessence, cast their votes before the

meeting at which they may nominatedirectors. Recognizing that this failureof the proxy process to facilitateshareholder nomination rights has apractical effect on the right to electdirectors, the new rules will enable theproxy process to more closelyapproximate the conditions of theshareholder meeting. In addition,

because companies will be required toinclude shareholder-nominatedcandidates for director in companyproxy materials, shareholders willreceive additional information uponwhich to base their voting decisions.Finally, we believe these changes willsignificantly enhance the confidence ofshareholders who link the recentfinancial crisis to a lack ofresponsiveness of some boards toshareholder interests.29

The Commission has, on a number ofprior occasions, considered whether itsproxy rules needed to be amended to

facilitate shareholders ability tonominate directors by having theirnominees included in company proxymaterials.30 Most recently, in June 2009,we proposed amendments to the proxyrules that included both a new proxyrule, Exchange Act Rule 14a11, thatwould require a companys proxymaterials to provide shareholders withinformation about, and the ability tovote for, candidates for directornominated by long-term shareholders orgroups of long-term shareholders withsignificant holdings, and amendmentsto Rule 14a8(i)(8) to prohibit exclusionof certain shareholder proposals seeking

to establish a procedure in thecompanys governing documents for theinclusion of one or more shareholderdirector nominees in the companysproxy materials. We received significantcomment on the proposed amendments.Overall, commenters were sharply

divided on the necessity for, and theworkability of, the proposedamendments. Supporters of theamendments generally believed that, ifadopted, they would facilitateshareholders ability to exercise theirState law right to nominate directorsand provide meaningful opportunitiesto effect changes in the composition of

the board.31 These commenterspredicted that the amendments wouldlead to more accountable, responsive,and effective boards.32 Manycommenters saw a link between therecent economic crisis andshareholders inability to have nomineesincluded in a companys proxymaterials.33

Commenters opposed to our Proposalbelieved that recent corporategovernance developments, includingincreased use of a majority votingstandard for the election of directorsand certain State law changes, already

provide shareholders with meaningfulopportunities to participate in directorelections.34 These commenters viewed



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Horner (C. Horner); International BusinessMachines Corporation (IBM); Jones Day (JonesDay); Keating Muething & Klekamp PLL (KeatingMuething); James M. Kilts (J. Kilts); Reatha ClarkKing, Ph.D. (R. Clark King); Ned C. Lautenbach(N. Lautenbach); MeadWestvaco Corporation(MeadWestvaco); MetLife, Inc. (MetLife);Motorola, Inc. (Motorola); OMelveny & MyersLLP (OMelveny & Myers); Office Depot, Inc.(Office Depot); Pfizer Inc. (Pfizer); ProtectiveLife 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); TesoroCorporation (Tesoro); Textron Inc. (Textron);Texas Instruments Corporation (TI); Gary L.Tooker (G. Tooker); UnitedHealth GroupIncorporated (UnitedHealth); Unitrin, Inc.(Unitrin); U.S. Bancorp (U.S. Bancorp);Wachtell, Lipton, Rosen & Katz (Wachtell); WellsFargo & Company (Wells Fargo); West ChicagoChamber of Commerce & Industry (West ChicagoChamber); 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 BankersAssociation (American Bankers Association); The

American Business Conference (AmericanBusiness Conference); American Electric PowerCompany, Inc. (American Electric Power);Anadarko; Applied Materials, Inc. (AppliedMaterials); Artistic Land Designs LLC (ArtisticLand Designs); Association of Corporate Counsel;Avis Budget; Atlantic Bingo Supply, Inc. (AtlanticBingo); L. Behr; Best Buy; Biogen Idec Inc.(Biogen); James H. Blanchard (J. Blanchard);Boeing; Tammy Bonkowski (T. Bonkowski);BorgWarner Inc. (BorgWarner); Boston ScientificCorporation (Boston Scientific); The BrinksCompany (Brinks); BRT; Burlington NorthernSanta Fe Corporation (Burlington Northern); R.Burt; California Bar; Callaway Golf Company(Callaway); S. Campbell; Carlson; Carolina Mills(Carolina Mills); Caterpillar; Chamber ofCommerce/CMCC; Chevron; Rebecca Chicko (R.Chicko); CIGNA; Comcast Corporation (Comcast);

Competitive Enterprise Institutes Center forInvestors and Entrepreneurs (CompetitiveEnterprise Institute); W. Cornwell; CSX; EdwinCulwell (E. Culwell); Cummins; DardenRestaurants, Inc. (Darden Restaurants); DanielsManufacturing Corporation (DanielsManufacturing); Davis Polk; Delaware State BarAssociation (Delaware Bar); Tom Dermody (T.Dermody); Devon Energy Corporation ( Devon);DTE Energy Company (DTE Energy); Eaton; TheEdison Electric Institute (Edison ElectricInstitute); Eli Lilly and Company (Eli Lilly);Emerson Electric Co. (Emerson Electric); M. Eng;Erickson Retirement Communities, LLC(Erickson); ExxonMobil Corporation(ExxonMobil); FedEx; Financial ServicesRoundtable (Financial Services Roundtable);

Flutterby Kissed Unique Treasures (Flutterby);FPL Group; Frontier; GE; Allen C. Goolsby (A.Goolsby); C. Holliday; IBM; Investment CompanyInstitute (ICI); Intelect Corporation (Intelect);JPMorgan Chase & Co. (JPMorgan Chase); JonesDay; R. Clark King; Leggett & Platt Incorporated

(Leggett); Teresa Liddell (T. Liddell); LittleDiversified Architectural Consulting (Little);McDonalds Corporation (McDonalds);MeadWestvaco; MedFaxx, Inc. (MedFaxx);Medical Insurance Services (Medical Insurance);MetLife; Mary S. Metz ( M. Metz); MicrosoftCorporation (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); OMelveny & Myers; Office Depot; OmahaDoor & Window (Omaha Door); The Procter &Gamble Company (P&G); PepsiCo, Inc.(PepsiCo); Pfizer; Realogy Corporation(Realogy); Jared Robert (J. Robert); MarissaRobert (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 andGovernance Professionals, Inc. (Society ofCorporate 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); TerryTrummel (T. Trummel); Viola Trummel (V.Trummel); tw telecom inc. (tw telecom); LauraDAndrea Tyson (L. Tyson); United Brotherhoodof Carpenters and Joiners of America (UnitedBrotherhood of Carpenters); UnitedHealth; U.S.Bancorp; VCG Holding Corporation (VCG);Wachtell; The Way to Wellness (Wellness); WellsFargo; Whirlpool Corporation (Whirlpool); Xerox;Yahoo; Jeff Young (J. Young).

36See letters from ABA; American Mailing

Service (American Mailing); All Cast, Inc. (AllCast); Always N Bloom (Always N Bloom);American Carpets (American Carpets); JohnArquilla (J. Arquilla); Beth Armburst (B.Armburst); Artistic Land Designs; Charles Atkins(C. Atkins); Book Celler (Book Celler); KathleenG. Bostwick (K. Bostwick); Brighter Day Painting(Brighter Day Painting); Colletti and Associates(Colletti); Commercial Concepts (CommercialConcepts); Complete Home Inspection (CompleteHome Inspection); Debbie Courtney (D.Courtney); Sue Crawford (S. Crawford); CrespinsCleaning, Inc. (Crespin); Dons Tractor Repair(Dons); Theresa Ebreo (T. Ebreo); M. Eng;eWareness, Inc. (eWareness); Evans Real EstateInvestments, LLC (Evans); Fluharty Antiques(Fluharty); Flutterby; Fortuna Italian Restaurant &Pizza (Fortuna Italian Restaurant); Future FormInc. (Future Form Inc.); Glaspell Goals

(Glaspell

); Cheryl Gregory (

C. Gregory

);Healthcare Practice Management, Inc. (Healthcare

Practice); Brian Henderson (B. Henderson); SheriHenning (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 WineCreators (LMS Wine); Tabitha Luna (T. Luna);Mansfield Childrens Center, Inc. (MansfieldChildrens Center); Denise McDonald (D.McDonald); Meisters Landscaping (Meister);Merchants Terminal Corporation (MerchantsTerminal); Middendorf Bros. Auctioneers and RealEstate (Middendorf); Mingo Custom Woods(Mingo); Moore Brothers Auto Truck Repair(Moore Brothers); Moutons Salon (Mouton);Doug Mozack (D. Mozack); Ms. Dees 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); RCFurniture Restoration (RC); RTW Enterprises Inc.(RTW); Debbie Sapp (D. Sapp); SouthwestBusiness Brokers (SBB); Security Guard IT&TAlarms, Inc. (SGIA); Peggy Sicilia (P. Sicilia);Slycers Sandwich Shop (Slycers); SouthernServices (Southern Services); Steele Group;Sylvron Travels (Sylvron); Theragenics; Erin

White Tremaine (E. Tremaine

); Wagner HealthCenter (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 ofCorporate 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; OMelveny & Myers; OfficeDepot; Pfizer; Protective; S&C; Safeway; Sara Lee;Shearman & Sterling; Sherwin-Williams; SidleyAustin; 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 ofthe large percentage of public companiesincorporated under that law. The Delaware Divisionof Corporations reports that over 50% of U.S. publiccompanies are incorporated in Delaware. Seehttp://www.corp.delaware.gov.

39Del. Code Ann. tit. 8, 112. In December 2009,the Committee on Corporate Laws of the AmericanBar Association Section of Business Law Committeeadopted amendments to the Model Act thatexplicitly authorize bylaws that prescribe

Continued

the amendments as inappropriatelyintruding into matters traditionallygoverned by State law or imposing aone size fits all rule for all companiesand expressed concerns about specialinterest directors, forcing companies tofocus on the short-term rather than thecreation of long-term shareholder value,and other perceived negative effects of

the amendments, if adopted, on boardsand companies.35 Finally, commenters

worried about the impact of theproposed amendments on small

businesses.36

After considering the comments andweighing the competing interests offacilitating shareholders ability toexercise their State law rights tonominate and elect directors againstpotential disruption and cost tocompanies, we are convinced thatadopting the proposed amendments tothe proxy rules serves our purpose to

regulate the proxy process in the publicinterest and on behalf of investors. Weare not persuaded by the arguments ofsome commenters that the provisions ofRule 14a11 are unnecessary.37 Thosecommenters argued that changes incorporate governance over the past sixyears have obviated the need for aFederal rule to allow shareholders toplace their nominees in company proxymaterials and that shareholders should

be left to determine whether, on acompany-by-company basis, such a ruleis necessary at any particular company.

While we recognize that some states,

such as Delaware,38

have amended theirstate corporate law to enable companiesto adopt procedures for the inclusion ofshareholder director nominees incompany proxy materials,39 as was

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shareholder access to company proxy materials orreimbursement of proxy solicitation expenses. SeeABA Press Release, Corporate Laws Committee

Adopts New Model Business Corporation ActAmendments to Provide For Proxy Access AndExpense Reimbursement, December 17, 2009,available athttp://www.abanet.org/abanet/media/release/news_release.cfm?releaseid=848.

In addition, in 2007, North Dakota amended itscorporate code to permit 5% shareholders toprovide a company notice of intent to nominatedirectors and require the company to include eachsuch shareholder nominee in its proxy statementand form of proxy. N.D. Cent. Code 103508(2009); see North Dakota Publicly TradedCorporations Act, N.D. Cent. Code 1035 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 BritishInsurers (British Insurers); CalPERS; CII; TheCorporate Library (Corporate Library); L. Dallas;Florida State Board of Administration; ICGN;LIUNA; D. Nappier; Paul M. Neuhauser ( P.Neuhauser); Comment Letter of Nine Securitiesand Governance Law Firms ( Nine Law Firms); PaxWorld; Pershing Square; theRacetotheBottom.org(RacetotheBottom); RiskMetrics; Schulte Roth &Zabel LLP (Schulte Roth & Zabel); Sodali(Sodali); Teachers Insurance and AnnuityAssociation of America and College RetirementEquities Fund (TIAACREF); United States ProxyExchange (USPE); ValueAct Capital, LLC(ValueAct Capital).

41

Despite the rate of adoption of a majority votingstandard for director elections by companies in theS&P 500, only a small minority of firms in theRussell 3000 index have adopted them. Seediscussion in footnote 69 in the Proposing Release.

42See letters from AFSCME; AllianceBernstein;CalPERS; CII; L. Dallas; D. Nappier; P. Neuhauser;RiskMetrics; TIAACREF. One commentercharacterized a majority voting standard as amechanism for registering negative sentimentabout an incumbent board nominee, not amechanism to ensure board accountability. Seeletter 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 ElectricPower; Anadarko; Applied Materials; Artistic LandDesigns; Association of Corporate Counsel; AvisBudget; Atlantic Bingo; L. Behr; Best Buy; Biogen;J. Blanchard; Boeing; T. Bonkowski; BorgWarner;

Boston Scientific; Brinks; BRT; BurlingtonNorthern; 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; DardenRestaurants; Daniels Manufacturing; Davis Polk;Delaware Bar; T. Dermody; Devon; DTE Energy;Eaton; Edison Electric Institute; Eli Lilly; EmersonElectric; M. Eng; Erickson; ExxonMobil; FedEx;Financial Services Roundtable; Flutterby; FPLGroup; Frontier; GE; A. Goolsby; Grundfest; C.Holliday; IBM; ICI; Intelect; JPMorgan Chase; JonesDay; R. Clark King; Leggett; T. Liddell; Little;McDonalds; MeadWestvaco; MedFaxx; MedicalInsurance; Metlife; M. Metz; Microsoft; J. Miller; M.Moretti; Motorola; NACD; NAM; NIRI; OMelveny& 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 CorporateSecretaries; Southern Company; Southland; SteeleGroup; Style Crest; Tesoro; Textron; Theragenics;TI; R. Trummel; T. Trummel; V. Trummel; twtelecom; L. Tyson; United Brotherhood ofCarpenters; 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 ofmodification by agreement or provision in thecertificate of incorporation or bylaws), including: (i)The requirement to hold an annual election ofdirectors (Del. Code Ann., tit. 8, 211(b);JonesApparel Group v. Maxwell Shoe Co., 883 A.2d 837,

highlighted by a number of commenters,other states have not.40 Thesecommenters noted that, as a result,companies not incorporated in Delawarecould frustrate shareholder efforts toestablish procedures for shareholders toplace board nominees in the companysproxy materials by litigating the validityof a shareholder proposal establishingsuch procedures, or possibly repealingshareholder-adopted bylawsestablishing such procedures. Inaddition, due to the difficulty thatshareholders could have in establishingsuch procedures, we believe that itwould be inappropriate to rely solely onan enabling approach to facilitateshareholders ability to exercise theirState law rights to nominate and electdirectors. Even if bylaw amendments topermit shareholders to includenominees in company proxy materialswere permissible in every state,

shareholder proposals to so amendcompany bylaws could face significantobstacles.

We also considered whether the moveby many companies away from pluralityvoting to a general policy of majorityvoting in uncontested director electionsshould lead to a conclusion that ouractions are unnecessary or whether weshould premise our actions on thefailure of a company to adopt majority

voting.41 We agree with commenters 42who argued that a majority votingstandard in director elections does notaddress the need for a rule to facilitatethe inclusion of shareholder nomineesfor director in company proxy materials.While majority voting impactsshareholders ability to elect candidatesput forth by management, it does not

affect shareholders ability to exercisetheir right to nominate candidates fordirector.

We also do not believe that the recentamendments to New York StockExchange (NYSE) Rule 452, whicheliminated brokers discretionary votingauthority in director elections, negatethe need for the rule. Certaincommenters specifically noted theirconcurrence with us on this point.43The amendments to NYSE Rule 452address who exercises the right to voterather than shareholders ability to havetheir nominees put forth for a vote.

While these and other changes havebeen important events, they bolstershareholders ability to elect directorswho are already on the companys proxycard, not their ability to affect whoappears on that card. We therefore areconvinced that the Federal proxy rulesshould be amended to better facilitatethe exercise of shareholders rightsunder State law to nominate directors.

We also considered whether weshould amend Rule 14a8 to narrow theelection exclusion, without alsoadopting Rule 14a11. We note that asignificant number of commenterssupported the proposed amendments to

Rule 14a8(i)(8).44 We concluded,however, as certain commenters pointedout, that adopting only the proposedamendments to Rule 14a8(i)(8),without Rule 14a11, would not achievethe Commissions stated objectives.45We

believe that the amendments to Rule14a8(i)(8) will provide shareholderswith an important mechanism forincluding in company proxy materialsproposals that would address theinclusion of shareholder directornominees in the companys proxymaterials in ways that supplement Rule

14a11, such as with a lower ownershipthreshold, a shorter holding period, orto allow for a greater number ofnominees if shareholders of a companysupport such standards.

We recognize that many commentersadvocated that shareholders ability toinclude nominees in company proxymaterials should be determined

exclusivelyby what individualcompanies or their shareholdersaffirmatively choose to provide, or thatcompanies or their shareholders should

be able to opt out of Rule 14a11 orotherwise alter its terms for individualcompanies (the private orderingarguments).46 After carefulconsideration of the numerouscomments advocating thisperspective,47 we believe that thearguments in favor of this perspectiveare flawed for several reasons.

First, corporate governance is notmerely a matter of private ordering.

Rights, including shareholder rights, areartifacts of law, and in the realm ofcorporate governance some rightscannot be bargained away but rather areimposed by statute. There is nothingnovel about mandated limitations onprivate ordering in corporategovernance.48

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848849 (Del. Ch. 2004) citing Rohe v. RelianceTraining Network, Inc., 2000 Del. Ch. LEXIS 108 at

*10*11 (Del. Ch. July 21, 2000)); (ii) the limitationagainst dividing the board of directors into morethan three classes (Del. Code Ann., tit. 8, 141(d);see also Jones Apparel); (iii) the entitlement ofstockholders to inspect the list of stockholders andother corporate books and records (Del. Code Ann.,tit. 8, 219(a) and 220(b); Loews Theatres, Inc. v.Commercial Credit Co., 243 A.2d 78, 81 (Del. Ch.1968)); (iv) the right of stockholders to vote as aclass on certain amendments to the certificate ofincorporation (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, revisedMay 30, 1989),reported at 15 Del. J. Corp. L. 218, 236 (1990); cf.Del. Code Ann., tit. 8, 102(b)(7), permittingelimination of director liability for monetarydamages for breach of the duty of care). See alsoEdward P. Welch and Robert S. Saunders, What WeCan Learn From Other Statutory Schemes: FreedomAnd Its Limits In The Delaware GeneralCorporation Law, 33 Del. J. Corp. L. 845, 857859(2008); Jeffrey N. Gordon, Contractual Freedom InCorporate Law: Articles & Comments; TheMandatory Structure Of Corporate Law, 89 Colum.L. Rev. 1549, 1554 n.16 (1989) (identifying severalof these and other mandatory aspects of Delawarecorporation 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 thatdoes not qualify as a foreign private issuer (asdefined in Exchange Act Rule 3b4), we will lookto the underlying law of the jurisdiction oforganization. See Rule 14a11(a).

51 It has been argued to us, as a basis forexcluding a shareholder proposal under Rule 14a8, that Delaware law does not permit a bylaw todeprive the board of directors of the power toamend or repeal it, where the corporationscertificate of incorporation confers upon the boardthe power to adopt, amend and repeal bylaws. See,e.g., CVS Caremark Corp., No-Action Letter (March9, 2010). See also Del. Code Ann., tit. 8, 109(b)and Centaur Partners, IVv. National Intergroup,Inc., 582 A.2d 923, 929 (Del. 1990).

52See Beth Young, The Corporate Library, TheLimits of Private Ordering: Restrictions onShareholders Ability to Initiate Governance Changeand Distortions of the Shareholder Voting Process(November 2009), available athttp://www.sec.gov/comments/s7-10-09/s71009-568.pdf. See, e.g., Ind.Code 231391; Okla. Stat., tit. 18, 181013.

53Throughout this release, when we refer to anomination pursuant to Rule 14a11, a Rule 14a11 nomination, or other similar statement, we arereferring to a nomination submitted for inclusion ina companys proxy materials pursuant to Rule 14a11.

Second, the argument that there is aninconsistency between mandatinginclusion of shareholder nominees incompany proxy materials and ourconcern for the rights of shareholdersunder the Federal securities laws 49mistakenly assumes that basicprotections of, and rights of, particularshareholders provided under the

Federal proxy rules should be able to beabrogated by the shareholders of aparticular corporation, acting in theaggregate. The rules we adopt todayprovide individual shareholders theability to have director nomineesincluded in the corporate proxymaterials if State law 50 and governingcorporate documents permit ashareholder to nominate directors at theshareholder meeting and therequirements of Rule 14a11 aresatisfied. Those rules similarly facilitatethe right of individual shareholders tovote for those nominated, whether by

management or another shareholder, ifthe shareholder has voting rights underState law and the companys governingdocuments. The rules we adopt todayreflect our judgment that the proxy rulesshould better facilitate shareholderseffective exercise of their traditionalState law rights to nominate directorsand cast their votes for nominees. Whenthe Federal securities laws establishprotections or create rights for securityholders, they do so individually, not insome aggregated capacity. No provision

of the Federal securities laws can bewaived by referendum. A rule thatwould permit some shareholders (evena majority) to restrict the Federalsecurities law rights of othershareholders would be withoutprecedent and, we believe, afundamental misreading of basicpremises of the Federal securities laws.

In addition, allowing some shareholdersto impair the ability of othershareholders to have their directornominees included in company proxymaterials cannot be reconciled with thepurpose of the rules we are adoptingtoday. In our view, it would be no moreappropriate to subject a Federal proxyrule that provides the ability to includenominees in the company proxystatement to a shareholder vote than itwould be to subject any other aspect ofthe proxy rulesincluding the otherrequired disclosuresto abrogation byshareholder vote.

Third, the net effect of our rules willbe to expand shareholder choice, notlimit it. Our rules will result in a greaternumber of nominees appearing on aproxy card. Shareholders will continueto have the opportunity to vote solelyfor management candidates, but ourrules will also give shareholders theopportunity to vote for directorcandidates who otherwise might nothave been included in company proxymaterials.

In addition to these basic conclusions,we note that there are other significantconcerns raised by a private orderingapproach. A company-by-company

shareholder vote on the applicability ofRule 14a11 would involve substantialdirect and indirect, market-wide costs,and it is possible that boards ofdirectors, or shareholders acting withtheir explicit or implicit encouragement,might seek such shareholder votes,perhaps repeatedly, at no financial costto themselves but at considerable cost tothe company and its shareholders.Another concern relates to the nature ofthe shareholder vote on whether to optout of Rule 14a11: Specifically, in thatcontext management can draw on thefull resources of the corporation to

promote the adoption of an opt-out,while disaggregated shareholders haveno similarly effective platform fromwhich to advocate against an opt-out.

In addition, the path to shareholderadoption of a procedure to includenominees in company proxy materials is

by no means free of obstructions. Whileshareholders may ordinarily have theState law right to adopt bylawsproviding for inclusion of shareholdernominees in company proxy materialseven in the absence of an explicitauthorizing statute like Delawares, the

existence of that right in the absence ofsuch a statute may be challenged.Moreover, we understand that underDelaware law, the board of directors isordinarily free, subject to its fiduciaryduties, to amend or repeal anyshareholder-adopted bylaw.51 Inaddition, not all state statutes conferupon shareholders the power to adopt

and amend bylaws, and even whereshareholders have that power it isfrequently limited by requirements inthe companys governing documentsthat bylaw amendments be approved bya supermajority shareholder vote.52

After careful consideration of theoptions that commenters havesuggested, we have determined that themost effective way to facilitateshareholders exercise of theirtraditional State law rights to nominateand elect directors would be throughRule 14a11 and the relatedamendments to the proxy rules that we

proposed in June 2009. We haveconcluded that the ability to includeshareholder nominees in companyproxy materials pursuant to Rule 14a11 53 must be available to shareholderswho are entitled under State law tonominate and elect directors, regardlessof any provision of State law or acompanys governing documents thatpurports to waive or prohibit the use ofRule 14a11. In this regard, we note thatalthough the rules we are adopting donot permit a company or itsshareholders to opt out of or alter theapplication of Rule 14a11, theamendments do contemplate that any

additional ability to include shareholdernominees in the companys proxymaterials that may be established in acompanys governing documents will bepermissible under our rules. Moreover,our amendments to Rule 14a8 willfacilitate the presentation of proposals

by shareholders to adopt company-

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54 In the case of a non-U.S. domiciled issuer thatdoes not qualify as a foreign private issuer, we willlook to the underlying law of the jurisdiction oforganization. See footnote 50 above.

55See letters from Ameriprise; AT&T; L. Behr;BRT; Burlington Northern; CMCC; Dewey; M. Eng;FedEx; Grundfest; Keating Muething; OPLP; SidleyAustin.

56When it adopted Section 14(a) of the ExchangeAct, Congress determined that the exercise ofshareholder voting rights via the corporate proxy isa matter of Federal concern, and the statutes grantof authority is not limited to regulating disclosure.Rooseveltv. E.I. DuPont de Nemours & Co., 958F.2d 416, 421422 (D.C. Cir. 1992) (Congress did

not narrowly train [S]ection 14(a) on the interest ofstockholders in receiving information necessary tothe intelligent exercise of their State law rights;Section 14(a) also shelters use of the proxysolicitation process as a means by whichstockholders * * * may communicate with eachother.); see also, e.g., TSC Indus., Inc. v. Northway,Inc., 426 U.S. 438, 449 n.10 (1976) (Section 14(a)is a grant ofbroad statutory authority). Theadoption of Rule 14a11 reflects our continuingpurpose to ensure that proxies are used as a meansto enhance the ability of shareholders to makeinformed choices, especially on the critical subjectof who sits on the board of directors.

57Dodd-Frank Act 971(a) and (b). Theseprovisions expressly provide that the Commission

may issue rules permitting shareholders to use anissuers proxy solicitation materials for the purposeof nominating individuals to membership on theboard of directors of the issuer.

58Exchange Act 14(a) and Investment CompanyAct 20(a).

59Dodd-Frank Act 971(b).60See letter from BRT.61Pacific Gas and Electric Companyv. Public

Utilities Commn of California, 475 U.S. 1, 14 n.10(1986) (emphasis in original).

62Nor does Rule 14a11 violate the FifthAmendment, as it does not constitute a regulatorytaking. See, e.g., Lingle v. Chevron U.S.A., 544 U.S.528, 54647 (2005); Penn Central Transp. Co. v.City of New York, 438 U.S. 104 (1978).

63Throughout this release, the terms proxycontest, election contest, and contested electionrefer to any election of directors in which anotherparty commences a solicitation in oppositionsubject to Exchange Act Rule 14a12(c).

specific procedures for includingshareholder nominees for director incompany proxy materials, and ouradoption of new Exchange Act Rule14a18 (which requires disclosureconcerning the nominating shareholderor group and the nominee or nomineesthat generally is consistent with thatcurrently required in an election

contest) will help assure that investorsare adequately informed aboutshareholder nominations made throughsuch procedures.

In contrast, if State law 54 or aprovision of the companys governingdocuments were ever to prohibit ashareholder from making a nomination(as opposed to including a validlynominated individual in the companysproxy materials), Rule 14a11 wouldnot require the company to include inits proxy materials information about,and the ability to vote for, any suchnominee. The rule defers entirely to

State law as to whether shareholdershave the right to nominate directors andwhat voting rights shareholders have inthe election of directors.

While we have concluded that weshould provide shareholders the meansto have nominees included in proxymaterials in certain circumstances, wealso are mindful that to accomplish thisgoal the regulatory structure must arriveat a solution that ultimately is workable.Accordingly, we are adopting a numberof significant changes to the rules weproposed in order to address the manythoughtful and constructive comments

we received on the specifics of ourproposed amendments. The changesthat we are making to the amendmentsare described in detail throughout thisrelease. There also were a number ofsuggested changes that we consideredand decided not to adopt, as detailed

below.

B. Our Role in the Proxy Process

Several commenters challenged ourauthority to adopt Rule 14a11.55 Weconsidered those comments carefully

but continue to believe that we have theauthority to adopt Rule 14a11 underSection 14(a) as originally enacted.56 In

any event, Congress confirmed ourauthority in this area and removed anydoubt that we have authority to adopt arule such as Rule 14a11.57 Asdescribed more fully below, Rule 14a11 is necessary and appropriate in thepublic interest and for the protection ofinvestors.58 Additionally, as explained

below, the terms and conditions of Rule

14a11 are also in the interests ofshareholders and for the protection ofinvestors.59 Therefore, this challenge isnow moot.

Although our statutory authority toadopt Rule 14a11 is no longer at issue,the constitutionality of Rule 14a11 alsohas been challenged by commenters. Wedisagree with their arguments.60 Proxyregulations do not infringe on corporateFirst Amendment rights both becausemanagement has no interest incorporate property except such interestas derives from the shareholders, and

because such regulations govern speech

by a corporation to itself and thereforedo not limit the range of informationthat the corporation may contribute tothe public debate. 61 Even if statementsin proxy materials are viewed as morethan merely internal communications,this communication is of acommercialnot politicalnature, andregulation of such statements throughRule 14a11 is consistent withapplicable First Amendmentstandards.62

C. Summary of the Final Rules

As noted above, we carefullyconsidered the comments and havedecided to adopt new Exchange Act

Rule 14a11 with significantmodifications in response to thecomments. We believe that the new rulewill benefit shareholders and protectsinvestors by improving corporatesuffrage, the disclosure provided inconnection with corporate proxysolicitations, and communication

between shareholders in the proxy

process. Consistent with the Proposal,Rule 14a11 will apply only whenapplicable State law or a companysgoverning documents do not prohibitshareholders from nominating acandidate for election as a director. Inaddition, as adopted, the rule will applyto a foreign issuer that is otherwisesubject to our proxy rules only whenapplicable foreign law does not prohibitshareholders from making suchnominations. Also consistent with theProposal, companies may not opt outof the ruleeither in favor of a differentframework for inclusion of shareholder

director nominees in company proxymaterials or no framework. In addition,as was proposed, the rule will applyregardless of whether any specifiedevent has occurred to trigger the ruleand will apply regardless of whether thecompany is subject to a concurrentproxy contest.63 Also as proposed, thefinal rule will apply to companies thatare subject to the Exchange Act proxyrules, including investment companiesand controlled companies, but will notapply to debt-only companies. Therule will apply to smaller reportingcompanies, but we have decided to

delay the rules application to thesecompanies for three years. We believethat a delayed effective date for smallerreporting companies should allow thosecompanies to observe how the ruleoperates for other companies andshould allow them to better prepare forimplementation of the rules. Delayedimplementation for these companiesalso will allow us to evaluate theimplementation of Rule 14a11 bylarger companies and provide us withthe additional opportunity to considerwhether adjustments to the rule would

be appropriate for smaller reportingcompanies before the rule becomesapplicable to them. To use Rule 14a11,a nominating shareholder or group will

be required to satisfy an ownershipthreshold of at least 3% of the votingpower of the companys securitiesentitled to be voted at the meeting.Shareholders will be able to aggregatetheir shares to meet the threshold. The



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64 In the case of an investment company, thenominee may not be an interested person of thecompany as defined in Section 2(a)(19) of theInvestment Company Act of 1940 (15 U.S.C. 80a2(a)(19)). See Section II.B.3.b. for a more detaileddiscussion of the applicability of Rule 14a11 toregistered investment companies.

required ownership threshold has beenmodified from the Proposal, whichwould have required that a nominatingshareholder or group hold 1%, 3%, or5% of the companys securities entitledto be voted on the election of directors,depending on accelerated filer status or,in the case of registered investmentcompanies, depending on the net assets

of the company. The final rule requiresthat a nominating shareholder or groupmust hold both investment and votingpower, either directly or through anyperson acting on their behalf, of thesecurities. In calculating the ownershippercentage held, under certainconditions, a nominating shareholder ormember of the nominating shareholdergroup would be able to includesecurities loaned to a third party in thecalculation of ownership. Indetermining the total voting power held

by the nominating shareholder or anymember of the nominating shareholder

group, securities sold short (as well assecurities borrowed that are nototherwise excludable) must be deductedfrom the amount of securities that may

be counted towards the requiredownership threshold. In addition, anominating shareholder (or in the caseof a group, each member of the group)will be required to have held thequalifying amount of securitiescontinuously for at least three years asof the date the nominating shareholderor group submits notice of its intent touse Rule 14a11 (on a filed Schedule14N), rather than for one year, as was

proposed. Consistent with the proposedamendments, we are adopting arequirement that the nominatingshareholder or members of the groupmust continue to own the qualifyingamount of securities through the date ofthe meeting at which directors areelected and provide disclosureconcerning their intent with regard tocontinued ownership of the securitiesafter the election of directors. Inaddition, the nominating shareholder(or where there is a nominatingshareholder group, any member of thenominating shareholder group) may not

be holding the companys securitieswith the purpose, or with the effect, ofchanging control of the company or togain a number of seats on the board ofdirectors that exceeds the maximumnumber of nominees that the companycould be required to include under Rule14a11, and may not have a direct orindirect agreement with the companyregarding the nomination of thenominee or nominees prior to filing theSchedule 14N.

The nominating shareholder or groupmust provide notice to the company of

its intent to use Rule 14a11 no earlierthan 150 days prior to the anniversaryof the mailing of the prior years proxystatement and no later than 120 daysprior to this date. The final rule differsfrom the Proposal, which would haverequired the nominating shareholder orgroup to provide notice to the companyno later than 120 days prior to the

anniversary of the mailing of the prioryears proxy statement or in accordancewith the companys advance noticeprovision, if applicable. As wasproposed, under the final rule thenominating shareholder or group will berequired to file on EDGAR and transmitto the company its notice on Schedule14N on the same date.

The rule also includes certainrequirements applicable to theshareholder nominee. Consistent withthe Proposal, the final rule provides thatthe company will not be required toinclude any nominee whose candidacy

or, if elected, board membership wouldviolate controlling state or Federal law,or the applicable standards of a nationalsecurities exchange or nationalsecurities association, except withregard to director independencerequirements that rely on a subjectivedetermination by the board, and suchviolation could not be cured during theprovided time period.64 In addition, therule we are adopting provides that acompany will not be required to includeany nominee whose candidacy or, ifelected, board membership wouldviolate controlling foreign law. As weproposed, the rule does not include any

restrictions on the relationshipsbetween the nominee and thenominating shareholder or group.

As was proposed, under Rule 14a11,a company will not be required toinclude more than one shareholdernominee, or a number of nominees thatrepresents up to 25% of the companys

board of directors, whichever is greater.Where there are multiple eligiblenominating shareholders, thenominating shareholder or group withthe highest percentage of the companysvoting power would have its nomineesincluded in the companys proxy

materials, rather than the nominatingshareholder or group that is first tosubmit a notice on Schedule 14N, as wehad proposed. We also have clarified inthe final rule that when a company hasa 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 haveadded a provision to the rule designedto prevent the potential unintendedconsequences of discouraging dialogueand negotiation between companymanagement and nominatingshareholders. Under this provision,shareholder nominees of an eligible

nominating shareholder or group withthe highest qualifying voting powerpercentage that a company agrees toinclude as company nominees after thefiling of the Schedule 14N would counttoward the 25%.

The notice on Schedule 14N will berequired to include:

Disclosure concerning: The amount and percentage of

voting power of the companyssecurities entitled to be voted by thenominating shareholder or groupand the length of ownership ofthose securities;

Biographical and other informationabout the nominating shareholderor group and the shareholdernominee or nominees, similar to thedisclosure currently required in acontested election;

Whether or not the nominee ornominees satisfy the companysdirector qualifications, if any (asprovided in the companysgoverning documents);

Certifications that, after reasonableinquiry and based on the nominatingshareholders or groups knowledge,the:

Nominating shareholder (or wherethere is a nominating shareholdergroup, each member of thenominating shareholder group) isnot holding any of the companyssecurities with the purpose, or withthe effect, of changing control of thecompany or to gain a number ofseats on the board of directors thatexceeds the maximum number ofnominees that the company could

be required to include under Rule14a11;

Nominating shareholder or groupotherwise satisfies the requirementsof Rule 14a11, as applicable; and

Nominee or nominees satisfy therequirements of Rule 14a11, asapplicable;

A statement that the nominatingshareholder or group members willcontinue to hold the qualifyingamount of securities through the dateof the meeting and a statement withregard to the nominatingshareholders or group membersintended ownership of the securitiesfollowing the election of directors(which may be contingent on the



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results of the election of directors);and

A statement in support of eachshareholder nominee, not to exceed500 words per nominee (the statementwould be at the option of thenominating shareholder or group).

These requirements for Schedule 14Nare largely consistent with the Proposal,with some modifications made inresponse to comments. Among themodifications is the new disclosurerequirement concerning whether, to the

best of the nominating shareholders orgroups knowledge, the nominee ornominees satisfy the companys directorqualifications, if any (as provided in thecompanys governing documents). Wealso have revised the certifications torequire certification not only withregard to control intent, but also withregard to the other nominatingshareholder and nominee eligibilityrequirements.

A company that receives a notice onSchedule 14N from an eligiblenominating shareholder or group will berequired to include in its proxystatement disclosure concerning thenominating shareholder or group andthe shareholder nominee or nominees,and include on its proxy card the namesof the shareholder nominees. Thenominating shareholder or group will beliable for any statement in the notice onSchedule 14N which, at the time and inlight of the circumstances under whichit is made, is false or misleading withrespect to any material fact or that omits

to state any material fact necessary tomake the statements therein not false ormisleading, including when thatinformation is subsequently included inthe companys proxy statement. Thecompany will not be responsible for thisinformation. These liability provisionsare included in the final rules largely asproposed, but with two changes inresponse to comments. Final Rule 14a9(c) makes clear that the nominatingshareholder or group will be liable forany statement in the Schedule 14N orany other related communication that isfalse or misleading with respect to any

material fact, or that omits to state anymaterial fact necessary to make thestatements therein not false ormisleading, regardless of whether thatinformation is ultimately included inthe companys proxy statement. Inaddition, consistent with the existingapproach in Rule 14a8, under Rule14a11 as adopted, a company will not

be responsible for any informationprovided by the nominating shareholderor group and included in the companysproxy statement. Under the Proposal, acompany would not have been

responsible for any informationprovided by the nominating shareholderor group except where the companyknows or has reason to know that theinformation is false or misleading.

A company will not be required toinclude a nominee or nominees if thenominating shareholder or group or thenominee fails to satisfy the eligibility

requirements of Rule 14a11. Acompany that determines it mayexclude a nominee or nominees mustprovide a notice to the Commissionregarding its intent to exclude thenominee or nominees. The companyalso may submit a request for the staffsinformal view with respect to thecompanys determination that it mayexclude the nominee or nominees(commonly referred to as no-actionrequests). In addition, a company couldexclude a nominating shareholders orgroups statement of support if thestatement exceeds 500 words per

nominee and could seek a no-actionletter from the staff with regard to thisdetermination if it so desired. In theevent that a nominating shareholder orgroup or nominee withdraws or isdisqualified prior to the time thecompany commences printing the proxymaterials, under certain circumstancescompanies will be required to include asubstitute nominee if there are othereligible nominees. Therefore, companiesseeking a no-action letter from the staffwith respect to their decision to excludeany Rule 14a11 nominee or nomineeswould need to seek a no-action letter onall nominees that they believe they can

exclude at the outset.We also have adopted two new

exemptions, slightly modified from theProposal, to the proxy rules forsolicitations in connection with a Rule14a11 nomination. The first exemptionapplies to written and oral solicitations

by shareholders who are seeking to forma nominating shareholder group.Reliance on this new exemption willrequire:

That the shareholder not be holdingthe companys securities with thepurpose, or with the effect, of changingcontrol of the company or to gain a

number of seats on the board ofdirectors that exceeds the maximumnumber of nominees that the registrantcould be required to include under Rule14a11;

Limiting the content of writtencommunications to certain informationspecified in the rule;

Filing all written solicitingmaterials sent to shareholders inreliance on the exemption with theCommission or, in the case of oralcommunications, a filing under cover ofSchedule 14N with the appropriate box

checked before or at the same time asthe first solicitation in reliance on thenew exemption; and

No solicitations in connection withthe subject election of directors otherthan pursuant to the provisions of Rule14a11 and the new exemptiondescribed below.

Shareholders that do not want to rely onthis new exemption could opt to rely onother exemptions from the proxy rules(e.g., Rule 14a2(b)(2), which is limitedto solicitations of not more than 10persons).

The second new exemption applies towritten and oral solicitations by or on

behalf of a nominating shareholder orgroup whose nominee or nominees areor will be included in the companysproxy materials pursuant to Rule 14a11in favor of shareholder nominees or foror against company nominees. Relianceon this new exemption will require:

That the nominating shareholder or

group does not seek the power to act asa proxy for another shareholder;

Disclosing certain information(including the identity of thenominating shareholder or group, and aprominent legend about availability ofthe proxy materials) in all writtencommunications;

Filing all written solicitingmaterials sent to shareholders inreliance on the exemption with theCommission under cover of Schedule14N with the appropriate box checked;and

No solicitations in connection with

the subject election of directors otherthan pursuant to the provisions of Rule14a11 and this new exemption.

Consistent with the Proposal, we alsoare amending our beneficial ownershipreporting rules so that shareholdersrelying on Rule 14a11 would not

become ineligible to file a Schedule13G, in lieu of filing a Schedule 13D,solely as a result of activities inconnection with inclusion of a nomineeunder Rule 14a11. Also consistent withthe proposed amendments, we are notadopting an exclusion from ExchangeAct Section 16 for activities inconnection with a nomination underRule 14a11 that may trigger a filingrequirement by nominatingshareholders. In addition, afterconsidering the comments, we are notadopting a specific exclusion from thedefinition of affiliate for nominatingshareholders.

Finally, consistent with the Proposal,we are narrowing the scope of theexclusion in Rule 14a8(i)(8) relating tothe election of directors. The revisedrule will provide that companies mustinclude in their proxy materials, under



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65See Section II.C.5. below.

66See discussion in footnote 50 above.67Under State law, a companys governing

documents may have various names. When we referto governing documents throughout the release andrule text, we generally are referring to a companyscharter, articles of incorporation, certificate ofincorporation, declaration of trust, and/or bylaws,as applicable.

68We are not aware of any law in any state or inthe District of Columbia or in any country thatcurrently prohibits shareholders from nominatingdirectors. Nonetheless, should any such law beenacted in the future, Rule 14a11 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 fromnominating candidates for director, a shareholderproposal seeking to prohibit shareholdernominations for director generally or, conversely, toallow shareholder nominations for director, wouldnot be excludable pursuant to Rule 14a8(i)(8).

71See the Proposing Release; the 2003 Proposal;the Election of Directors Proposing Release; and theShareholder Proposals Proposing Release. See alsothe Roundtable on the Federal Proxy Rules andState Corporation Law and the Roundtable onProposals of Shareholders available athttp://www.sec.gov/spotlight/proxyprocess.htm.

72See letters from CII; COPERA; CtW InvestmentGroup; L. Dallas; T. DiNapoli; Florida State Boardof Administration; ICGN; D. Nappier; OPERS; PaxWorld; Teamsters.

73See letters from ABA; Advance Auto Parts;Atlas Industries, Inc. (Atlas); J. Blanchard; Samuel

W. Bodman (S. Bodman

); Boeing; Brinks; BRT;Burlington Northern; Callaway; Cargill (Cargill);

Carlson; Carolina Mills; Chamber of Commerce/CMCC; Jaime Chico (J. Chico); ConsolidatedEdison, Inc. (Con Edison); Anthony Conte (A.Conte); W. Cornwell; Crown Battery ManufacturingCo. (Crown Battery); CSX; Darden Restaurants;Eaton; FedEx; FPL Group; Frontier; HickoryFurniture Mart (Hickory Furniture); IBM; KeatingMuething; Little; Louisiana Agencies LLC(Louisiana Agencies); Massey Services, Inc.(Massey Services); John B. McCoy (J. McCoy); D.McDonald; MedFaxx; Metlife; M. Metz; NorfolkSouthern Corporation (Norfolk Southern); O3Strategies, Inc. (O3 Strategies); Office Depot;Victor Pelson (V. Pelson); PepsiCo; Pfizer; Ryder;Sidley Austin; Southland; Style Crest; TenetHealthcare Corporation (Tenet); TI; tw telecom; L.Tyson; United Brotherhood of Carpenters; T. White.

74

See letters from ABA; Anonymous letter datedJune 26, 2009 (Anonymous #2); Atlas; AT&T;Book Celler; Carlson; Carolina Mills; Chamber ofCommerce/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; O3Strategies; Roppe Holding Company (Roppe);Rosen Hotels and Resorts (Rosen); Safeway; SaraLee; Schneider National, Inc. (Schneider);Southland; Style Crest; Tenet; TI; tw telecom; RickVanEngelenhoven (R. VanEngelenhoven);Wachtell; Wells Fargo; Weyerhaeuser; Yahoo.

certain circumstances, shareholderproposals that seek to establish aprocedure in the companys governingdocuments for the inclusion of one ormore shareholder director nominees ina companys proxy materials.

As we proposed, the final rulesprovide that a nominating shareholderthat is relying on a procedure under

State law or a companys governingdocuments to include a nominee in acompanys proxy materials would berequired to provide disclosureconcerning the nominating shareholderand nominee or nominees to thecompany on Schedule 14N and file theSchedule 14N on EDGAR. In response tocomment, we have clarified that thedisclosure also would be required fornominations made pursuant to foreignlaw.65 The disclosure requirements onSchedule 14N for nominations madepursuant to a procedure under state orforeign law, or a companys governing

documents largely mirror those for aRule 14a11 nomination. As with Rule14a11 nominees, a company wouldinclude in its proxy materials disclosureconcerning the nominating shareholderor group and shareholder nomineesimilar to the disclosure currentlyrequired in a contested election. Thenominating shareholder or group wouldhave liability for any statement in thenotice on Schedule 14N or ininformation otherwise provided to thecompany and included in thecompanys proxy materials which, at thetime and in light of the circumstances

under which it is made, is false ormisleading with respect to any materialfact or that omits to state any materialfact necessary to make the statementstherein not false or misleading. Thecompany would not be responsible forthe information provided to thecompany and required to be included inthe company proxy statement.

II. Changes to the Proxy Rules

A. Introduction

After careful consideration of thecomments received on the Proposal, weare adopting amendments to the proxy

rules to facilitate the effective exerciseof shareholders traditional State lawrights to nominate and elect directors tocompany boards of directors. Under thenew rules, shareholders meeting certainrequirements will have two ways tomore fully exercise their right tonominate directors. First, we areadopting a new proxy rule, Rule 14a11,which will, under certaincircumstances, require companies toprovide shareholders with information

about, and the ability to vote for, ashareholders, or group of shareholders,nominees for director in the companiesproxy materials. This requirement willapply unless State law, foreign law,66 ora companys governing documents 67prohibits shareholders from nominatingdirectors.68 In addition to the standardsprovided in new Rule 14a11,provisions under State law, foreign law,or a companys governing documents 69could provide an additional avenue forshareholders to submit nominees forinclusion in company proxy materials,

but would not act as a substitute forRule 14a11. Thus, Rule 14a11 willcontinue to be available to shareholdersregardless of whether they also can availthemselves of a provision under Statelaw, foreign law, or a companysgoverning documents.

Second, we are amending Rule 14a8(i)(8) to preclude companies from

relying on Rule 14a8(i)(8) to excludefrom their proxy materials shareholderproposals by qualifying shareholdersthat seek to establish a procedure undera companys governing documents forthe inclusion of one or moreshareholder director nominees in thecompanys proxy materials. A companymust include such a shareholderproposal under the final rules as long asthe procedural requirements of Rule14a8 are met and the proposal is notsubject to exclusion under one of theother substantive bases. In this regard, ashareholder proposal seeking to limit or

remove the availability of Rule 14a11would be subject to exclusion underRule 14a8.70

As described throughout this release,we have made many changes to the finalrules in response to comments received.We believe the final rules reflect acareful balancing of the policy,workability, and other comments wereceived on the Proposal.

B. Exchange Act Rule 14a11

1. Overview

Based on the comments received inresponse to our solicitation of publicinput on the Proposal and on priorreleases and in roundtables,71 weunderstand that shareholders facesignificant obstacles to effectivelyexercising their rights to nominate andelect directors to corporate boards. Wehave received significant publiccomment supporting the view thatincluding shareholder nominees fordirector in company proxy materialswould be the most direct and effectivemethod of facilitating shareholdersrights in connection with thenomination and election of directors.72

On the other hand, many commentershave expressed concern that mandatingshareholder access to company proxymaterials would lead to more proxycontests or politicized elections, 73

which would be distracting, expensive,time-consuming, and inefficient forcompanies, boards, and management.74

http://www.sec.gov/spotlight/proxyprocess.htmhttp://www.sec.gov/spotlight/proxyprocess.htmhttp://www.sec.gov/spotlight/proxyprocess.htmhttp://www.sec.gov/spotlight/proxyprocess.htm


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75See letters from 3M; ABA; American ElectricPower; 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; HeadwatersIncorporated (Headwaters); C. Holliday; IBM;Intelect; R. Clark King; Lange Transport (Lange);Louisiana Agencies; MetLife; NIRI; O3 Strategies; V.Pelson; PepsiCo; Pfizer; Roppe; Rosen; Ryder; SaraLee; Sidley Austin; tw telecom; Wachtell; WellsFargo; 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 14a11.

78See letters from S&C; Curtis, Mallet-Prevost,Colt & Mosle LLP (Curtis).

79See footnote 70 above.

80New Schedule 14N, which is described furtherin Section II.B.8. below, includes check boxeswhere a nominating shareholder or group mustspecify whether it is seeking to include the nomineeor nominees in the companys proxy materialsunder Rule 14a11 or pursuant to a provision inState law, foreign law, or a companys governingdocuments.

81See letters from 26 Corporate Secretaries; ABA;ACE; Advance Auto Parts; AGL; Aetna; Allstate;Alston & Bird; American Bankers Association;

Commenters also opined that theincreased likelihood of a contestedelection could discourage experiencedand capable individuals from serving on

boards, making it more difficult forcompanies to recruit qualified directorsor create boards with the proper mix ofexperience, skills, and characteristics.75The current filing and other

requirements applicable to shareholderswho wish to propose an alternate slateare, in the view of these commenters,more appropriate than includingshareholder nominees for director incompany proxy materials.76

As we also noted in the ProposingRelease, we recognize that there arelong-held and deeply felt views onevery side of these issues. To the extentshareholders have the right to nominatedirectors at meetings of shareholders,the Federal proxy rules should facilitatethe exercise of this right. We believe therules we are adopting today will better

accomplish this goal and will furtherour mission of investor protection.New Rule 14a11 will require

companies to include information aboutshareholder nominees for director incompany proxy statements, and thenames of the nominee or nominees aschoices on company proxy cards, underspecified conditions.77 The rule willpermit companies to exclude a nomineeor nominees from the companys proxymaterials under certain circumstances,such as when a nominating shareholderor group fails to satisfy the eligibilityrequirements of the rule. In thefollowing sections we describe, indetail, the final rules, commentsreceived on the Proposal, and changesmade in response to the comments.

2. When Rule 14a11 Will Apply

In this section, we address the rulesapplication, including when there areconflicting or overlapping provisionsunder state or foreign law or acompanys governing documents,during concurrent proxy contests, andin the absence of any specific triggering

events. We also address the reasons whyneither an opt-in nor opt-out provisionis necessary or appropriate.

a. Interaction With State or Foreign Law

While we are not aware of any law inany state or in the District of Columbiathat prohibits shareholders fromnominating directors, consistent with

the Proposal, a company to which therule would otherwise apply will not besubject to Rule 14a11 if applicableState law or the companys governingdocum

shareholder rule 092010

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