Shareholder Proxy Access

Transcription

1 SEC Proposes Two Mutually Exclusive Alternatives on Shareholder Access; Proposals Would Prohibit or Permit Binding Shareholder Proposals SUMMARY At its July 25, 2007 meeting, the SEC revisited the issue of shareholder access. In two separate split votes, the SEC released opposing sets of proposed rules on the controversial topic, which involves granting shareholders the right to use a company s proxy materials directly to nominate candidates for the board of directors. The first set of rules, the so-called short proposal, would overturn a recent decision of the U.S. Court of Appeals for the Second Circuit and expressly provide that shareholders may not require a company to include in its proxy materials proposals that relate to a nomination or election of a director or procedures for that nomination or election. In particular, the proposal would prohibit shareholders from using Rule 14a-8 to propose bylaw amendments obligating a company to include shareholder nominees in subsequent company proxy statements, which essentially reinstates the no-action position taken by the SEC Staff for many years. The second, mutually exclusive, proposal (the so-called long proposal ), would expressly permit shareholders that (i) hold more than 5% of voting securities (subject to a minimum one-year holding period) and (ii) are eligible Schedule 13G filers, to propose binding bylaw amendments that establish a procedure under which shareholder nominees must be included in an issuer s proxy materials. The 5% shareholding requirement may limit the number of proposals, although smaller shareholders could form groups to aggregate their holdings in order to meet the threshold. The Schedule 13G qualification limits the proposal to institutional and passive shareholders that do not intend to change or influence control of the company. There is no such restriction, however, on which shareholders may participate in any New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney

2 subsequent director nomination process conducted pursuant to an adopted bylaw, except to the extent that the bylaw itself imposes restrictions. Shareholders electing to utilize the new procedure to propose a shareholder access bylaw will be subject to new reporting requirements in their Schedule 13G filings. In certain respects, these additional disclosure requirements would be more extensive than the disclosure now required in the filings of parties undertaking a full-fledged proxy contest or making a tender offer. Shareholders submitting a director nominee for inclusion in the company proxy materials pursuant to an adopted shareholder access bylaw would be subject to similar reporting requirements. In each case, the company would also face parallel disclosure obligations in its proxy statement. In addition, where a shareholder nominee is included in the company proxy pursuant to an adopted shareholder access bylaw, the company would be required to include in its proxy statement, or on a website to which the proxy refers, the information presently required with respect to nominees in contested board elections. The nominating shareholder would be responsible for providing this information to the company. The long proposal also includes proposed amendments to the proxy rules that would increase the ability of shareholders to communicate through the Internet. These rules would clarify that companies or shareholders operating electronic shareholder forums are not liable under federal securities laws for statements or information provided by another person to the forum, and that solicitations made in such forums are exempt solicitations under the federal proxy rules if no form of proxy (or similar authorization) is furnished or requested and the solicitation occurs more than 60 days prior to any meeting of shareholders. The SEC also requests comments on the topic of non-binding shareholder proposals, and in particular whether companies should be permitted under federal proxy rules to adopt bylaws that would supersede Rule 14a-8 with respect to shareholder proposals and whether companies should be permitted to follow an electronic petition model for non-binding proposals in lieu of Rule 14a-8. The SEC has not indicated what, if any, definitive proposals it might eventually pursue on this subject. Both the long and the short proposals apply only to companies that are subject to SEC proxy rules and thus do not apply to non-u.s. SEC-reporting issuers. BACKGROUND Public companies in the United States hold elections for their boards of directors on an annual basis (although, for companies with staggered boards, generally only a third of the board is elected each year). Except for rare instances, usually involving a change-of-control situation or an activist investor seeking board representation, the only nominees for election are those on the slate chosen by the incumbent board. The nominees appearing on the company slate are typically selected by a nominating or governance committee of the board of directors, and are usually drawn from among the incumbent -2-

3 directors or selected through formal candidate search processes. Shareholders generally have little direct involvement in this process, although where a candidate is proposed by a significant shareholder (one holding 5% or more of a company s voting securities), current proxy rules require the company to disclose this fact in its proxy statement, and provide an explanation as to why that proposed nominee did or did not ultimately end up on the company slate. 1 As a matter of state law, shareholders also have the ability to nominate director candidates, subject to any reasonable procedural limitations a company may adopt in a bylaw (generally referred to as an advance notice bylaw ). 2 Although Rule 14a-8 provides shareholders with access to a company s proxy statement in order to make certain shareholder proposals at the annual meeting, the Rule does not permit a shareholder to use the company s proxy statement to nominate directors. Accordingly, a shareholder proposing its own candidates would have to conduct an independent proxy solicitation in favor of its nominees by filing proxy materials with the SEC and mailing a proxy statement to shareholders (the names and addresses of whom a company is obligated to provide). The substantial professional, printing and mailing costs associated with a full-blown proxy solicitation, however, mean that these contested board elections are an expensive, and rare, undertaking. Over the past several years, the institutional shareholder community has grown increasingly interested in establishing greater influence over board membership. This has resulted in several developments in the area of shareholder access and board influence generally including: a 2003 SEC proposal, which was never adopted, that would have permitted 5% or greater shareholders to nominate a portion of the board in the two years following the occurrence of certain triggering events; the movement to majority, rather than plurality, election of directors; the growing use of withhold votes; and SEC rules that require disclosure of whether the nominating committee will consider shareholder nominees and the procedures for a shareholder to make such a nomination. 3 In an effort to increase shareholder influence over the board nomination process, some shareholders have proposed amendments to company bylaws that require the company to include shareholder nominees in company proxy materials, in addition to the slate approved by the board (these bylaws are Item 7(d)(2)(ii)(L) of Schedule 14A. Such advance notice bylaws generally require a shareholder of record to give notice of the names of the proposed nominees, together with the information required with respect to such persons under the proxy rules, and their consent to serve if elected, during a window period typically falling three to four months prior to the anniversary of the prior year s meeting. Item 7(d)(2)(ii)(E)-(G) of Schedule 14A. -3-

4 often referred to as shareholder access bylaws). Under such a bylaw, a shareholder could nominate directors other than the board slate without the expense associated with a traditional proxy contest, because the nominees would be identified in the company s proxy statement. These bylaw amendments have generally been proposed under Rule 14a-8, to avoid the cost and effort of an independent proxy solicitation. 4 Rule 14a-8 contains a number of restrictions, including strict procedural requirements and a set of 13 enumerated grounds on which a company may exclude a shareholder proposal from its proxy. One such ground, set forth in Rule 14a-8(i)(8), exists where the proposal relates to an election for membership on the company s board of directors. For at least the past 17 years, the Staff of the SEC has taken the position that shareholder proposals involving director nomination procedures fall within this category, and therefore companies have been permitted to omit proposals relating to shareholder access bylaws from their proxy materials without fear of adverse SEC enforcement action. 5 This state of affairs was upset in September 2006 when the U.S. Court of Appeals for the Second Circuit issued a ruling 6 rejecting the SEC Staff s interpretation of the Rule 14a-8(i)(8) exclusionary ground (which interpretation was supported by the SEC itself in an amicus brief). The case before the court involved a shareholder access bylaw proposed by a shareholder under Rule 14a-8, which the company had excluded from its proxy statement in reliance on Rule 14a-8(i)(8) and on a no-action letter obtained from the Staff. Based on the court s reading of the SEC s original interpretation of Rule 14a-8(i)(8), contained in the 1976 proposing release, the Second Circuit determined that the exclusionary ground applied only to board elections themselves, and not to procedural proposals affecting board elections. The court essentially disregarded the SEC Staff s position, but invited the SEC to change the rule or its interpretation if it wanted a different outcome. The court s ruling has created significant uncertainty surrounding the scope of the exclusionary ground described in Rule 14a-8(i)(8), which the SEC is now seeking to resolve through the eventual adoption of one of the two proposals described in this memorandum Under most states corporations statute (including Delaware), adoption, amendment and repeal of bylaws are among the few enumerated powers of shareholders (although generally this power is also given to directors under the corporation s constituent documents). As a result, bylaw proposals under Rule 14a-8 are binding in such jurisdictions if passed, unlike the typical 14a-8 proposal, which is precatory in nature. Some states, however (e.g., Maryland), permit a company s certificate of incorporation to allocate bylaw amendment power solely to the board of directors, in which case the SEC s proposed amendments to 14a-8 will have little (if any) practical effect. There is no specific exclusion disallowing proposals for by-law amendments, and shareholder proposals to adopt by-laws requiring majority election, for example, have been made under Rule 14a- 8. American Federation of State, County & Municipal Employees, Employees Pension Plan v. American International Group, Inc., 462 F.3d 121 (2d Cir. 2006) (the AFSCME decision ). -4-

5 THE ALTERNATIVE PROPOSALS At its July 25, 2007 meeting, the SEC once again took up the issue of shareholder access, although it did so in a highly unusual manner. Undoubtedly reflecting the strong sentiments held either for or against shareholder access by so many parties, the SEC simultaneously proposed two mutually exclusive rules, with the proposing releases for each being approved by a 3-2 split vote. One proposing release, termed the short proposal by the Commissioners, would resolve the uncertainty created by the AFSCME decision by expressly codifying in Rule 14a-8(i)(8) the SEC s interpretation of the existing language of that provision. This would preclude proponents of shareholder access bylaws from using Rule 14a-8 in support of such proposals. The second release (the long proposal ) takes the opposite approach. It would expressly permit certain shareholders to use the Rule 14a-8 framework to propose and solicit proxies in favor of shareholder access bylaws. It also creates an enhanced disclosure regime for shareholders making such proposals, as well as for shareholders that subsequently use shareholder access bylaws directly to nominate candidates for the company board. SEC Chairman Cox was the only Commissioner to support both proposals, saying that his intention in so doing was to facilitate a concurrent public comment process on each. The other four Commissioners each supported one, but not the other, proposal. The division on the Commission means that there remains substantial uncertainty as to which final rules (if any) will ultimately be adopted. The recently announced departure of Commissioner Campos, a supporter of the long proposal, perhaps makes the eventual approval of that option less likely. Chairman Cox stated that his goal was to have a definitive Rule in place in time for the 2008 proxy season, meaning that final rules would need to be taken up by the SEC soon after the comment period on the proposals ends on October 2, THE SHORT PROPOSAL The short proposal would amend Rule 14a-8(i)(8) to conform to the SEC s existing interpretation of the current form of that rule. This would reverse the outcome of the AFSCME decision, and once again permit companies to exclude shareholder access bylaw proposals that have been submitted under the Rule 14a-8 framework. The language of the proposed rule amendment itself would be simple: to the text of the present exclusionary ground in Rule 14a-8(i)(8), which reads relates to an election for membership on the company s board of directors or analogous governing body, would be added, or a procedure for such nomination or election. -5-

6 THE LONG PROPOSAL Unlike the short proposal, the long proposal contains rules that, if adopted, could fundamentally change the nature of shareholder participation in the board election process. These proposed rules affect two types of shareholder initiatives relating to director elections: Proposals for the adoption of shareholder access bylaws; and Shareholder nominations of director candidates conducted pursuant to a shareholder access bylaw. A. SHAREHOLDER ACCESS BYLAW PROPOSALS USING RULE 14a-8 The proposed rules contained in the long proposal would amend Rule 14a-8 to permit binding shareholder access bylaw proposals in the company s proxy materials. The content of any proposed bylaw would be determined by the shareholder proponent, subject only to any restrictions imposed by state law and to the requirement that the change in the company bylaws must be binding on the company if approved. 7 The proposed rules restrict these shareholder proposals to a much smaller group of shareholders than is ordinarily allowed to use the Rule 14a-8 mechanism. 8 They could be made only by a shareholder (or group of shareholders) that: Has continuously held, for a period of at least one year before submitting the proposal, more than 5% of the securities entitled to vote on the bylaw amendment at the shareholders meeting; Is eligible under Rule 13d-1 to file on Schedule 13G as an institutional or passive investor 9 ; and As with other shareholder proposals (including those made outside of the mechanism provided by Rule 14a-8), in order to be adopted, any proposed bylaw amendment must be duly presented by or on behalf of the proponent at the annual meeting. Rule 14a-8 is ordinarily available to any shareholder that has continuously held for one year voting securities in the company with a market value of at least $2,000 or 1% of the outstanding shares, whichever is lower. Rule 13d-1(b), (c) and (d) govern when a shareholder may file a Schedule 13G instead of the more detailed Schedule 13D with respect to greater than 5% shareholdings. With very limited exceptions, Schedule 13G is only available to institutional investors, such as investment companies, banks, insurance companies and broker-dealers, and other institutions and individuals holding less than 20% of an issuer s voting stock, in each case where the shareholder has not acquired the securities with the purpose or effect of influencing or changing the control of the issuer. Schedule 13G is also available for entities and individuals who acquired greater than 5% beneficial ownership before the issuer s initial public offering. For these shareholders, it is unclear whether the long proposal would permit them to propose a shareholder access bylaw, since these filers may have the purpose of influencing control over the issuer. -6-

7 Has filed a Schedule 13G containing the enhanced disclosure requirements that the proposed rules impose on proponents of shareholder access bylaws (see Additional Disclosure Obligations below). Thus, in order to propose a shareholder access bylaw using Rule 14a-8, a shareholder would first need either to amend its existing Schedule 13G to reflect the additional disclosure requirements, or, in the case of a shareholder group formed for the purpose of making such a proposal, file an initial 13G with the same information. Restricting the availability of the new Rule 14a-8 provisions to passive shareholders holding more than 5% of outstanding voting securities is likely to limit significantly the prevalence of shareholder access proposals, especially for larger issuers. Based on our review of current SEC filings, companies in the S&P 500 index each have on average only approximately two shareholders making filings on Schedule 13G. The SEC has requested specific comment on this restriction, however, so the precise limit contained in any final rules, if the long proposal is adopted, remains uncertain. By restricting the use of the new provisions of Rule 14a-8 only to shareholders eligible to file on Schedule 13G, the SEC has sought to exclude shareholders that may intend to influence or change control of the company through their proposal. As a result, shareholders proposing a shareholder access bylaw with the intention of making a subsequent director nomination will need to consider carefully whether such an intention is inconsistent with the Schedule 13G qualifications. Even shareholders without a specific intention to nominate a director should bear in mind the Schedule 13G criteria when making a shareholder access bylaw proposal. While the SEC states in the proposing release that the mere act of proposing a shareholder access bylaw does not prevent subsequent use of Schedule 13G, there remains a substantial question whether a shareholder acquiring a 5% stake for the purpose of making such a proposal would be disqualified from filing Schedule 13G. Clarification of these matters in any final rules adopted by the SEC would provide very useful guidance. Smaller shareholders seeking to form a group for the purposes of qualifying to make a shareholder access proposal would also need to ensure that their organizational activities do not themselves amount to a proxy solicitation, triggering the filing and disclosure obligations of Regulation 14A. Where the group numbers ten or fewer shareholders, it is likely that the exemption provided in Rule 14a-2(b)(2) would avoid any such trigger. Where the group is larger, however, communications sent in support of a potential bylaw amendment without a filed definitive proxy statement could be viewed as an illegal solicitation. The SEC has requested comment on whether such communications should be exempt from the proxy rules. -7-

8 B. NOMINATION OF DIRECTOR CANDIDATES UNDER A SHAREHOLDER ACCESS BYLAW Existing proxy rules contemplate that contested board elections will necessarily involve competing proxy solicitations, with each soliciting party (including the company, soliciting in favor of its slate) providing shareholders with a separate proxy statement meeting the requirements of Schedule 14A. As a result, the obligation to make certain disclosures, such as those surrounding the soliciting party s business affiliations, recent transactions in company securities and any past criminal convictions, is triggered only by the existence of a solicitation in opposition to the board candidates nominated by the company. However, under a shareholder access bylaw, contested board elections could regularly arise where only one proxy statement the company s is sent to shareholders. In that instance, there would be no solicitation in opposition under the current definition, and shareholders would receive little of the disclosure required by the proxy rules in the context of a contested election. 10 The proposed rules address this deficiency by imposing additional disclosure requirements, on Schedule 13G and under a new Rule 14a-17, on any shareholder that nominates a board candidate pursuant to a shareholder access bylaw adopted under the new Rule 14a-8 provisions. In addition to including it on any required Schedule 13G filing, a nominating shareholder must also provide this information to the company so it can be made available on the company s website and in its proxy statement. ADDITIONAL DISCLOSURE REQUIREMENTS The rules proposed in the long proposal would impose several new disclosure requirements on shareholders and companies in the context of both a proposed shareholder access bylaw and any subsequent contested board election conducted pursuant to such a bylaw. A. REQUIRED DISCLOSURE BY SHAREHOLDERS REVISIONS TO SCHEDULE 13G AND NEW RULE 14a-17 The proposed rules create additional disclosure obligations in a new Item 8 to Schedule 13G and a new Rule 14a-17 for certain shareholders in connection with proposed shareholder access bylaws or the nomination of a director candidate pursuant thereto. These new disclosure obligations apply to: Any person or group that has formed any plans or proposals regarding an amendment to a company s bylaws in accordance with the shareholder access bylaw provision in Rule 14a-8; Any shareholder or group of shareholders that forms any plans or proposals regarding the submission of a board nominee pursuant to a shareholder access bylaw adopted under the Rule 14a-8 framework; and 10 Under current proxy rules, where there is a solicitation in opposition (and, under the long proposal, if a nomination is made pursuant to a shareholder access bylaw), greater disclosure with respect to each participant in the solicitation is required under Item 5(b) of Schedule 14A. -8-

9 Any affiliate, executive officer or agent of, or anyone acting in concert with, any of the foregoing persons. The explanatory notes to this new Item of Schedule 13G and Rule 14a-17 state that plans or proposals include situations where a shareholder has only indicated to company management an intent to either submit a proposal or nominee or has conditioned non-submission of a proposal or nominee on the taking of a particular corporate action. As was made clear at a May 2007 public roundtable discussion held by the SEC in connection with its shareholder access proposal, many institutional shareholders believe that discussing privately potential proposals with companies in the hope of reaching consensus is preferred to submitting a Rule 14a-8 proposal. If the long proposal is adopted, such investors may be deterred from joining in groups under the new rules. The persons and groups listed above would be required to disclose: Any direct or indirect contractual interest between the shareholder proponent and the company or any affiliate (including any employment, collective bargaining or consulting agreement); Any pending or threatened litigation involving the company, any of its officers or directors, or its affiliates in which the shareholder proponent is a party or a material participant; Any other material relationship between the shareholder proponent and the company or any affiliate of the company not otherwise disclosed; and The shareholder proponent s shareholdings in (if greater than 5%), or material relationships with, a competitor of the company (a competitor is defined as any issuer with the same Standard Industrial Classification code) as of the date the shareholder proponent first formed any plans or proposals. In addition, details of the following must be disclosed if they occurred within the year preceding the formation of the shareholder s plan or proposal, or during the pendency of a shareholder proposal or nomination: Any material transaction between the shareholder proponent and the company or any affiliate; Any discussions with a proxy advisory firm regarding the proposal or nomination; and Any meetings or contacts between the shareholder proponent and the company s management or directors (including the details as to the content, the actions discussed, the date, the parties present or involved, and any response) To the extent the shareholder proponent conducts regular meetings with management or directors of the company, the shareholder proponent may describe the frequency of the meetings and the subjects covered at the meetings rather than providing information for each meeting, unless a material event occurred at a specific meeting. -9-

10 In what is the farthest reaching disclosure requirement, particularly as similar disclosure is not required either in a contested election or a tender offer, if the proponent is not a natural person, disclosure must be made of: the identity of the natural person or persons associated with the entity responsible for the formation of any plans or proposals ; the manner in which such person or persons were selected, including a discussion of whether or not the equity holders or other beneficiaries of the shareholder proponent entity played any role in the selection of such person or persons or otherwise played any role in connection with any plans or proposals ; whether the person or persons associated with the entity responsible for the formation of any plans or proposals have, in forming such plans or proposals, a fiduciary duty to the equity holders or other beneficiaries of the entity ; the qualifications and background of such person or persons relevant to the plans or proposals ; and any interests or relationships of such person or persons, and of that entity, that are not shared generally by the other shareholders of the company and that could have influenced the decision by such person or person and the entity to submit a proposal or nomination. The last two of these disclosures are also required for all shareholder proponents who are natural persons. Shareholders not meeting the 5% threshold who make a director nomination pursuant to a shareholder access bylaw will not have to file a Schedule 13G; however, as discussed below, they will have to provide the information described above to the company directly to be included in the company proxy statement and provided immediately on the company s website. The proposed rules would not revise Schedule 13D, so significant shareholders filing on that form would not need to amend their filings in connection with a director nomination, although the additional information will again have to be provided to the company for eventual inclusion in the company proxy statement and immediately on their website. B. REQUIRED DISCLOSURE BY THE COMPANY RULE 14a-17 AND REVISIONS TO SCHEDULE 14A In addition to the new Rule 14a-17, which applies to shareholder nominations, the proposed rules would add additional Items to the Schedule 14A proxy statement in connection with both shareholder nominations and proposals for shareholder access bylaws under Rule 14a-8. Under Rule 14a-17, a nominating shareholder would be required at the time the shareholder forms any plans or proposals regarding the submission of a nominee to provide the information described above required under proposed new Item 8 of Schedule 13G (whether or not the shareholder is a greater than 5% beneficial owner) to the issuer, which must immediately post the information on its website. In addition, at the time it -10-

11 formally submits a nominee, the nominating shareholder would also be required to provide the company for inclusion in its proxy materials information meeting the disclosure requirements of Items 4(b), 5(b), 7 and, if an investment company, 22(b) of Schedule 14A, 12 as well as the consent of the nominee to be named in the proxy statement and to serve if elected. The information provided by the nominating shareholder will not be deemed incorporated by reference into any filing, except to the extent the registrant specifically incorporates that information by reference, and the company will have no responsibility for such information. Items 24 and 25 would be added to Schedule 14A, and would require the company to make the same disclosures described above under proposed Item 8 of Schedule 13G, whenever a shareholder nomination is made or when a shareholder access bylaw is proposed. While the company may rely to some extent on the information provided by the proponent when responding to these Items in its proxy statement, the rules do not address what the company should do where its version of events differs from that of the proponent. Proxy statements containing a shareholder-nominated board candidate would have to be filed in preliminary form, as is the case currently for proxy statements subject to a solicitation in opposition. Interestingly, with respect to contested board elections conducted under a shareholder access bylaw, the enhanced disclosure requirements would apply only if the particular shareholder access bylaw in use were proposed (and ultimately adopted) using the Rule 14a-8 mechanism. If the bylaw were adopted in another manner (for example, following a traditional proxy contest, or at the initiative of the company itself), no additional disclosure requirements would be imposed by the proposed rules on any subsequent contested board elections. The greater disclosure concerning the selection, qualifications and duties of natural persons formulating policies for a proponent would also not apply in a contested election where the proponent circulates its own proxy materials. ELECTRONIC SHAREHOLDER FORUMS The long proposal also includes new proposed rules that would clarify the application of the federal securities laws to electronic shareholder forums, which include chat rooms or other Internet-based discussion groups relating to a company and its securities. The SEC has expressed its intent to 12 This disclosure includes (i) the methods and expenses involved in the shareholder proponent s planned proxy solicitation activities with respect to the nominee, (ii) information regarding the shareholder proponent s identity, material interests and securities holdings in the company, recent transactions in the company s securities, arrangements with third parties with respect to company securities and material transactions with the company, (iii) information regarding the director nominee, including any material relationships or transactions between the nominee and the company, and (iv) information as to the nominee s relationship to the fund and fund complex, independence and background. -11-

12 encourage the use of electronic means to facilitate shareholder interaction. These proposed rules have been issued in response to the concerns of some shareholders and companies that the operators of such forums could face potential liabilities for false or misleading statements made by third parties, or that engaging in discussions on such forums could in certain cases trigger the disclosure and filing obligations associated with proxy solicitations. The proposed rules would clarify that no company or shareholder who establishes, maintains or operates an electronic shareholder forum is liable under federal securities laws for statements made in such a forum by third parties. The rules would also exempt from the application of the proxy rules any solicitation made on an electronic forum that does not furnish or request a form of proxy (or similar shareholder authorization), and which occurs more than 60 days before the shareholder meeting or two days following the date of the company s announcement of the meeting date. Subject to those two exceptions, the forum must comply with the federal securities laws, including the provisions for liability for fraud, deception and manipulation. ADDITIONAL REQUESTS FOR COMMENT NON-BINDING SHAREHOLDER PROPOSALS In addition to the proposed rules on shareholder access and electronic shareholder forums, the long proposal contains a general request for comments on the subject of non-binding shareholder proposals, including the appropriate role of Rule 14a-8 in facilitating the raising of these proposals at shareholder meetings. In particular, the SEC has asked questions regarding the following: Whether companies should be allowed to adopt bylaws concerning non-binding shareholder proposals (including procedures for dealing with such proposals or bylaws prohibiting them) that would supersede the provisions of Rule 14a-8; and Whether a company should be able to adopt an electronic petition system that would replace Rule 14a-8 for non-binding shareholder proposals. These questions stem from issues raised at the roundtable discussions held by the SEC earlier this year as part of its consultations in connection with its shareholder access proposals. It is unclear, however, whether the general request for comments will result in any definitive proposals on these matters. -12-

13 PUBLIC COMMENT PERIOD AND ADOPTION OF FINAL RULES The proposals set forth in the proposing releases are expected to generate significant public comment. Comments on the releases are due to the SEC by October 2, 2007, and Sullivan & Cromwell LLP expects to submit a comment letter as part of this process. In order to satisfy Chairman Cox s desire to have the new rules in place for the 2008 proxy season, the SEC would need to adopt final rules by the end of the year. * * * Copyright Sullivan & Cromwell LLP

14 ABOUT SULLIVAN & CROMWELL LLP Sullivan & Cromwell LLP is a global law firm that advises on major domestic and cross-border M&A, finance and corporate transactions, significant litigation and corporate investigations, and complex regulatory, tax and estate planning matters. Founded in 1879, Sullivan & Cromwell LLP has more than 600 lawyers on four continents, with four offices in the U.S., including its headquarters in New York, three offices in Europe, two in Australia and three in Asia. CONTACTING SULLIVAN & CROMWELL LLP This publication is provided by Sullivan & Cromwell LLP as a service to clients and colleagues. The information contained in this publication should not be construed as legal advice. Questions regarding the matters discussed in this publication may be directed to any of our lawyers listed below, or to any other Sullivan & Cromwell LLP lawyer with whom you have consulted in the past on similar matters. If you have not received this publication directly from us, you may obtain a copy of any past or future related publications from Jennifer Rish ( ; rishj@sullcrom.com) or Alison Alifano ( ; alifanoa@sullcrom.com) in our New York office. CONTACTS New York H. Rodgin Cohen cohenhr@sullcrom.com John T. Bostelman bostelmanj@sullcrom.com James C. Morphy morphyj@sullcrom.com David B. Harms harmsd@sullcrom.com Robert W. Reeder III reederr@sullcrom.com Andrew D. Soussloff soussloffa@sullcrom.com Marc R. Trevino trevinom@sullcrom.com Los Angeles Alison S. Ressler resslera@sullcrom.com Frank H Golay, Jr golayf@sullcrom.com Palo Alto Scott D. Miller millersc@sullcrom.com John L. Savva savvaj@sullcrom.com Washington, D.C. Janet Geldzahler geldzahlerj@sullcrom.com Robert S. Risoleo risoleor@sullcrom.com -14-

15 London William A. Plapinger Richard C. Morrissey Kathryn A. Campbell David B. Rockwell Paris Nikolaos G. Andronikos Beijing Robert Chu Hong Kong William Y. Chua Chun Wei John D. Young, Jr Melbourne John E. Estes George B. Henly Sydney Waldo D. Jones, Jr Tokyo Izumi Akai NY12530: