On October 16, 2012, the SEC's Division of Corporation Finance (DCF) issued Staff Legal Bulletin No. 14G (SLB No. 14G) providing guidance on shareholder proposals under Rule 14a-8 under the Exchange Act. The bulletin addresses:

For more on shareholder proposals, see Practice Note, How to Handle Shareholder Proposals.

Under Rule 14a-8, to establish its eligibility to submit a proposal, a beneficial owner of shares can prove its share ownership by submitting a written statement to the company from the "record" holder. According to Staff Legal Bulletin No. 14F (SLB No. 14F), only Depository Trust Company (DTC) participants will be viewed as record holders of securities held through DTC (for more on SLB No. 14F, see Legal Update, SEC Division of Corporation Finance Issues New Staff Legal Bulletin (No. 14F) on Shareholder Proposals).

In the most recent proxy season, however, some companies wondered whether proof of ownership letters issued by affiliate entities of DTC participants that were not themselves DTC participants were sufficient to meet the requirements of Rule 14a-8(b)(2)(i). SLB No. 14G clarifies that, because a securities intermediary holding shares through its affiliated DTC participant should be able to verify its customers' ownership of securities, a proof of ownership letter from an affiliate of a DTC participant satisfies this requirement.

SLB No. 14G also states that if a shareholder holds securities through a securities intermediary that is not a broker or a bank, the shareholder can meet the Rule 14a-8(b)(2)(i) document requirement by submitting both:

SLB No. 14F notes a common error in proof of ownership statements, namely, that they do not verify the shareholder's beneficial ownership for the entire one-year period preceding and including the proposal's submission date. For example, statements have verified ownership for a one-year period ending on a date:

In these circumstances, a company may exclude the proposal only if the shareholder fails to correct the error after receiving a notification of the defect from the company. SLB Nos. 14 and 14B make clear the company should provide adequate detail about what the shareholder needs to do to fix the defect. SLB No. 14G expresses concern about the adequacy of companies' notices of defect and states that going forward the DCF will not concur in the exclusion of a proposal unless the company:

SLB No. 14G provides additional guidance on the appropriate use of website addresses in proposals and supporting statements. It confirms the guidance in SLB No. 14 that a reference to a website address in a proposal counts as one word for purposes of the 14a-8(d) word limit. SLB No. 14G also confirms guidance in SLB No. 14 that references to website addresses in proposals or supporting statements can be excluded under Rule 14a-8(i)(3) if the information on the website is either:

SLB No. 14G indicates that if a proposal or supporting statement refers to a website that provides information not contained in the proposal or statement itself, which is necessary for shareholders and the company to understand the proposal, then the reference is subject to exclusion under Rule 14a-8(i)(3) as vague and indefinite. However, if the information on the website only supplements the proposal and supporting statement, the proposal is not subject to exclusion as vague and indefinite.

A proposal or supporting statement referencing a non-operational website may be excluded under Rule 14a-8(i)(3) as irrelevant to the subject matter of a proposal. However, the reference to the website may not be excluded if at the time the proposal is submitted the shareholder provides the company with both:

Also, if the information on the website changes after the proposal is submitted and the company believes that the revised information makes the website reference excludable, a company seeking concurrence can submit a letter to the DCF describing why. Normally, under Rule 14a-8(j), a company must submit its reasons for exclusion no later than 80 days before the company files its definitive proxy materials. However, changes to the referenced website would be "good cause" for the company to file its reasons for excluding the website reference within the 80-day deadline.