The Atlanta Chapter of NIRI

Proudly Presents a Discussion AboutNotice and Access and Emerging Proxy Issues

                                                                                                                                                                                       

AGENDA

Overview of the Notice and Access Regulation Important Compliance Dates, Content of Messaging, Web /Voting Abilities

Considerations of Notice and Access Developing your Strategy, Mechanics, Action Steps and Web Demo

Proxy Considerations Involving Notice and Access Proxy Implications, proposal Trends and Recommendations for your Meeting

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PRACTICE AREAS

Corporate Corporate Counseling Corporate Finance and Securities Corporate Responsibility Mergers and Acquisitions Public Finance Venture Capital and Private

Equity

EDUCATION J.D., Harvard Law School, cum

laude, 1998 B.A., with highest honors,

University of Texas at Austin, 1995

BAR ADMISSIONS Georgia

CIVIC/PROFESSIONAL AFFILIATIONS American Bar Association

Atlanta Bar Association

Georgia Bar Association

Partner, Atlanta

Email singram@mckennalong.com Phone 1.404.527.4647 Fax 1.404.527.4198

Stacy Ingram focuses on securities, corporate finance and mergers and acquisitions, along with providing general corporate counsel. She advises public companies on their reporting obligations under federal securities laws and the requirements of national stock exchanges. She also counsels public companies on governance matters and in particular Sarbanes-Oxley. Stacy serves as an editor of the McKenna Long & Aldridge Corporate Governance Quick Reference Guide, originally published in June 2004 and regularly updated as new rules and regulations are adopted.

Stacy’s practice includes representing companies in a wide variety of financings, including public and private equity, convertible and debt securities offerings, venture capital financings, merger and acquisition transactions and related aspects of federal and state securities laws.

Law & Politics and Atlanta Magazine recognized Stacy on their 2005 list of Georgia Super Lawyers Rising Stars.

Publications

Co-Authored “Tell Us About Executive Compensation NOW: The New Form 8-K Requirements under the SEC's New Executive Compensation Disclosure Rules,“ Financier Worldwide, December 2006.

Co-Authored “New Securities Litigation Hazards: The Ripple Effects of Sarbanes-Oxley,” Washington Legal Foundation (Vol. 18, No. 19), May 23, 2003

Presentations

Speaker, “What You Need to Know About E-Proxies: The SEC’s New E-Proxy Rules,” ICLE Advanced Securities Law, March, 2007.

Panelist, “Don’t Forget Your Warranty Obligations: Disclosure & Compliance Under Sarbanes-Oxley,” 2007 Warranty Chain Management Conference, March 14, 2007.

Panelist, “Expanded Compensation Disclosure and Other Proxy Process Changes…Are You Prepared?” National Investor Relations Institute, Atlanta Chapter, November 2006.

Panelist, “60 Minutes Is Calling and You Don’t Have a Crisis Plan Yet. Now What?” Audit Committee Seminar, January 26, 2006.

Panelist, “Proxy Season Lessons from ’05, Trends for ’06…” National Investor Relations Institute, Atlanta Chapter, November 2005.

Speaker, “Difficult Disclosure Issues – MD&A and Form 8-K,” ICLE Advanced Securities Law, March 25, 2005.

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Robert M. Folinus

Vice President & Product Manager BNY Mellon Shareowner Services

480 Washington Boulevard Jersey City, NJ 07310

E-mail: folinus.r@mellon.com Phone: (201) 680-3569 Fax: (201) 680-4607

At-a-Glance: Vice President & Product

Manager at BNY Mellon Shareowner Services

Specific focus is on the Meeting Services product portfolio

Nearly 25 years of experience

including product development, client management, transfer agency and annuity operations, process re-engineering and regulatory control.

Current member of Stock

Transfer Association’s Proxy Committee.

Frequent speaker at industry

events on a variety of Meeting Services topics

Robert M. Folinus is Vice President and Product Manager at BNY Mellon Shareowner Services. In this role, Rob oversees the ongoing development and enhancement of Meeting Services, a comprehensive product portfolio that includes proxy tabulation, solicitation, financial printing, and member services for associations and non-profit organizations. Rob has been with BNY Mellon Shareowner Services for seven years. During this time, he has managed several Service Delivery business groups, worked in Client Management, and in 2005, transitioned into his present Product Manager role. Prior to joining The Bank of New York Mellon organization, Rob was with Prudential Investments, where he managed annuity operations. He also has 17 years of prior experience with Merrill Lynch, where he served in various capacities, including managing process re-engineering, overseeing a call center, and serving as the regulatory control manager for retirement plans. Rob is a member of the Stock Transfer Association’s Proxy Committee and has served as president of the Securities Industry Association’s Customer Account Transfer Division. He has a bachelor’s degree from Kean University and a master’s degree from Rowan University. He has also been awarded business certificates from New York University and Rutgers University. Rob and his wife Sue have two sons, Jeff and Kevin. He enjoys boating, fishing and other outdoor activities.

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Ron Schneider Director, Business Development

Proxy Solicitation and Meeting Services Mellon Investor Services

480 Washington Boulevard Jersey City, NJ 07310

E-mail: schneider.r@mellon.com

Phone: (201) 680-5251

28 years’ experience with proxy solicitation, M&A and investor activism

Member, National Investor

Relations Institute (NIRI); Board member of NIRI’s Service Provider Advisory Group

Member, Society of Corporate

Secretaries and Governance Professionals (formerly ASCS)

Frequent speaker at industry

events Regular guest lecturer at the NYU

School of Continuing and Professional Studies – “Investor Relations: Issues in Corporate Disclosure”

Author of numerous articles and

white papers, including most recently “Flexible Proxy Voting in an Era of Disclosure” (IR Update, May 2005)

Ron and his team provide their extensive expertise to clients faced with difficult and sensitive proxy solicitations involving compensation, corporate governance, shareowner activism and control issues. In addition to public companies in all industries and of all sizes, his clients include stock exchanges, private healthcare organizations and other “mutual” or member-owned organizations. He has personally managed more than 1,500 proxy solicitations and 200 tender or exchange offers. With success in greater than 76 percent of his over 30 proxy fight assignments, Ron has what is believed to be the highest winning percentage in the industry on behalf of clients facing such issues. Ron joined the Mellon organization in July 2000 as Senior Analyst in its proxy solicitation group, was named Senior Manager for the group in 2002, and in 2004 became Product Manager. In his business development role, he serves his clients as senior consultant on proxy-related issues. Prior to joining Mellon, Ron spent four years at The Financial Relations Board, a leading investor relations agency. There he managed its proxy solicitation, corporate governance and stock surveillance practice. Before that, he was a consultant to important proxy intermediary ADP Investor Communication Services, where he served as its first “Issuer Liaison” with responsibility for its relationships with issuer companies. Additionally, Ron has held increasingly senior positions at major proxy solicitation firms Morrow & Company, D.F. King and Georgeson & Company, where he served on its first Board of Directors. Ron earned a B.A. in Economics from Princeton University in 1978.

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The New E-Proxy Rules:The Notice & Access Model

• Provides companies with the alternative of mailing a one page Notice of Internet Availability of Proxy Materials (“Notice”) and providing proxy materials electronically through an Internet web site instead of traditional paper delivery of all proxy materials.

• Three Options for Compliance:– Notice-Only Delivery

• Proxy materials posted on web site and only the Notice mailed to shareholders– Full Set Delivery

• Hard copies of all proxy materials mailed to shareholders, with Notice information incorporated in proxy statement and proxy card and proxy materials posted on web site

– Hybrid Delivery• Notice-only delivery to some shareholders and Full Set delivery to others.

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Notice & Access Model

Send Notice

(or full set of proxy materials) to shareholders

Fileproxy materials, including Notice,

with the SEC

Postproxy materials on a specified

web site

On the same dayOn the same day

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Compliance Dates

• Voluntary Compliance – Use of the Notice-only model is permitted for mailings on

or after July 1, 2007 for any company

• Mandatory Compliance– Large Accelerated Filers must use one of the three new

methods (Notice-only, Full Set delivery or Hybrid) for any mailing on or after January 1, 2008

– All other filers must use one of the three new methods (Notice-only, Full Set delivery or Hybrid) for any mailing on or after January 1, 2009

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Who Can Use Notice & Access?

• Available for issuers, intermediaries and soliciting persons other than the issuer

• Specific model used is at the election of the issuer or soliciting person – election is meeting specific– Intermediary must use the method selected by

the issuer or soliciting person– Not permitted in connection with business

combination transactions

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Delivery of the Notice

• If Notice-only or Hybrid delivery is used, the Notice must be sent at least 40 calendar days prior to the meeting date– Note that the Notice must actually be completed 45-47 days prior to

the meeting date to give intermediaries time to create the voting instruction cards for beneficial holders

• Only two things can accompany (or be combined with) the Notice:– Notice of meeting required by state law (if permitted under state law)– Reply card to request paper or e-mail copies of proxy materials

• For any Notice-only deliveries, a proxy card cannot be sent with the first Notice

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Ability to Vote

• Concurrently with delivery of the Notice, the issuer must provide a means of voting – but not without access to proxy materials– Electronic voting platform linked to the Web site– Telephone number on the Web site

• For Notice-only delivery – hard copy of proxy card can be sent 10 calendar days or more after the Notice– Must be accompanied with another copy of the Notice or

with the proxy materials

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Content of the Notice – Required• Plain English text• Bold-face legend with web site address and recommended deadline for

requesting paper copies• Date, time and location of the meeting• Description of matters to be voted on and issuer’s recommendations –

but no supporting statements• List of proxy materials available on the web site• Toll-free phone number, e-mail address and Internet address for

requesting paper or e-mail copies (not required for Full Set delivery)• Any control/identification numbers needed to vote• Instructions on how to access the proxy card – no execution of proxy

without access to proxy materials• Information about attending the meeting and voting in person

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Content of the Notice – Optional

• State law meeting notice

• Advisory statement that no personal information is required

• Pictures/logos/designs if not misleading

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Web Site Posting

• Direct access to materials on publicly accessible web site

• Materials accessible on the site at no charge from the time the Notice (or full set of materials) is sent until the end of the meeting

• Materials must be:– Readable and readily searchable on screen– Printable like a paper copy

• Amended/additional materials posted (and filed) no later than the day they are first made public

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“Opting Out”

• Upon request, paper or e-mail copies must be sent to shareholders who receive Notice-only delivery:– Until the conclusion of the meeting, materials must be

sent within 3 business days of request and, if paper is requested, they must be sent by first class mail (or similar prompt service)

– Paper or email copies can be requested up to one year after the meeting – but only “prompt” delivery is required

– Request can be for the particular meeting or for all future solicitations

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33 Rule of Delivery for Beneficial Owners

Issuer

Intermediary

Owner

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3

3

Request for Materials

• Intermediary must request materials from issuer within 3 business days of owner’s request

• Issuer must send to intermediary within 3 business days of intermediary’s request

• Intermediary must send to owner within 3 business days of receipt

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Concerns Raised by the Notice & Access Model

• Misuse of shareholder information

• Over/Underestimation of number of printed copies

• Timing and coordination

• Additional solicitation efforts

• New or uncertain costs

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Other Items on the 2008 Proxy Agenda

• Executive Compensation Disclosure– Results of SEC review of 350 public companies now

available– ISS (RiskMetrics) has released “best practices” report– Expecting revisions to disclosures in “Year 2” to reflect

SEC commentary and best practices• Shareholder access to the proxy with respect to

director elections– Competing proposed SEC rules– SEC says it will adopt one for the 2008 proxy season, but

so far, no indication of when (or if) that will occur

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Elimination of Broker Discretionary Vote in Director Elections

• Proposed change to NYSE Rule 452 to eliminate the discretion of brokers to vote shares beneficially owned by their clients for the election of directors if the client does not provide voting instructions– Would change director elections from:

• A “routine” matter, on which brokers have discretion to vote if the beneficial owner does not provide voting instructions

TO • A “non-routine” matter, on which brokers cannot vote without

beneficial owner instruction– Would apply to any company publicly traded in the U.S.

• The majority of U.S. brokerage firms are regulated by the NYSE

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Elimination of Broker Discretionary Vote in Director Elections

• What issues/concerns does the proposed rule change raise?– Difficulty obtaining a quorum for meetings – need for a “routine” matter on

the ballot– Interaction with Majority Voting requirements – difficulty in obtaining a

majority vote for directors– Difficulty and cost of reaching investors to encourage voting

• When will it go into effect?– NYSE approved the rule in 2006 but determined to table the rule change for

2007 proxy season to allow companies to prepare– NYSE filed its proposed rule change with the SEC with an expectation of

approval by the SEC for shareholder meetings on or after January 1, 2008 – due to other ongoing developments in 2008 (proxy access, notice & access, executive compensation disclosures) SEC has delayed approval so that effectiveness will not occur before January 1, 2009

Core Competencies Comprehensive, integrated solutions Highly experienced staff Industrial strength Highly scalable You already know and trust us

Services Solicitation Printing and Logistics Tabulation

Market Segments Public Corporations Shareholders/dissidents Mutual Funds

Open end Closed End

Member organizations Health Care Academic Non-profits

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Meeting Services Offering

Notice-only Mailing Model Available to all issuers, effective July 1, 2007

Voluntary to use any aspect of the Notice and Access model

Mandatory Notice Mailing Model For Large Accelerated Filers

Mandatory compliance will be effective January 1, 2008

Allows for issuers to mail full set of compliance materials to shareowners as long as the

following conditions are met: Compliance materials must still be housed online as per the voluntary model requirements

Notice language must be included with the mailing

The Notice and Access Rule

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Mailing of physical ‘Notice’ to shareowners announcing availability of proxy materials on a specific web site Unique shareowner voter control number is printed on notice Mailing cannot include proxy card or links to voting sites

Notice and Access web site must include: Online proxy materials Option to link to online voting Option to request printed material

Shareowners may request paper proxy materials & opt-out of future Notice mailings

Shareowners consented to electronic delivery will receive email as usual -- no Notice needs to be mailed

BNY Mellon Shareowner Services is prepared to help you maximize the benefits by leveraging systems and processes we’ve built to support this rule.

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Mechanics of Notice and Access - Overview

Notice must include:

URL to Web site where materials are posted

Date, time & location of shareowner meeting

Identification of proposals

Toll-free #, e-mail address and URL to request hard copy proxy materials (provided by BNY Mellon)

Complete list of materials posted to Web site

Materials must be posted 40 calendar days prior to the meeting and for 12 months total

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Mechanics of Notice and Access – Overview (continued)

Determine with your legal counsel the date by which you are required to comply with the mandatory model and communicate this date with your Relationship Manager

Large accelerated filers are required to comply with all mailings commencing on or after January 1, 2008

All other companies are required to comply with all mailings commencing on or after January 1, 2009

Work with your Disclosure Committee to formulate a compliance timeline as necessary, noting that the 40-days before meeting mail date requirement is firm (translates to having materials completed at least 45 days before the meeting)

Work with your Relationship Manager to analyze likely requirements for hard copy delivery requests

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Client Action Steps

Decide on delivery method, and if Notice is chosen…

1. Communicate this information with your Relationship Manager

Fulfillment – set-up for “opt-out” requests

Mailing – Notice-only vs. Notice of -plus full package (Mandatory option)

2. Finalize all compliance materials 45 days prior to meeting

3. Create a PDF version for Mobular to add to website

4. Approve Notice card and Proxy card

5. Ship stock to mailing facility

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Client Action Steps (continued)

URL for our test site: http://preview.mobular.net/Mellon/64/13/307/index.html 

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Web Prototype – Materials Presentation

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Web Prototype – Materials Presentation

Will it result in decreased retail vote participation and less support for management’s recommendations versus assertive institutional voters?

If so, will other (costly?) measures be required to restore this lost vote?(e.g. NOBO list, telephone calls, reminder mailings)

Related proxy considerations:

NYSE proposes to eliminate broker discretionary voting on directors. All proposal types? Quorum? Reprieve for 2008 proxy season

Increasing frequency and degree of “director withhold” votes (perceived poor pay practices; ignored shareholder-proposals)

Pressure to switch to majority from plurality election standard

Specific proposals on the proxy agenda (management versus shareholder sponsored)? Vote requirements? Your unique owner/voter profile?

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Notice and Access – Not in a Vacuum

Primarily Retail Blended Institutionally-dominated

Insiders10%

Retail50%

VC20%

EMP1%

Institutions19%

Employees Insiders Inst. Retail Venture Capital

Insiders5%

Retail40%

Institutions42%

EMP3%

VC10%

Employees Insiders Inst. Retail Venture Capital

Institutions65%

Retail26%

Insiders4%

EMP5%

Employees Insiders Inst. Retail

• Average 1/3 voting rate for retail

• Tend to support management, if they vote

• Loss of broker discretionary voting will be significant

• Retail component still important

• Loss of broker discretionary voting still significant

• Anticipate Influence of Proxy Advisor recommendations

• Leverage IR relationships with key analysts and portfolio managers to support the proxy effort

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Companies’ Unique Ownership Profiles – Proxy Implications

Type of Proposal 2002 2003 2004 2005 2006 2007 2008Board

Separate Chair/CEO 2 30 36 29 51 39Board independence 12 5 13 3 1 0

14 35 49 32 52 39Anti-takeover

Declassify board 42 48 46 48 43 36*Redeem/vote on poison pill 50 84 52 23 12 6

92 132 98 71 55 42Executive Compensation

Expensing of options 2 69 34 11 0 0Review/limit executive compensation 8 28 82 68 27 2Performance-based/indexed options 4 60 5 28 13 28Approve/restrict “golden parachutes” 19 18 26 22 16 12

33 175 147 129 56 42New Issues

Majority vote to elect directors 12 62 87 38Advisory Vote on Compensation 7 43

* Thus far in 2007, there were also 43 management-sponsored proposals of this type.

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Trends in Shareholder-sponsored Resolutions

I. Approach holistically, giving equal consideration to potential cost-savings, investor preferences, and potential vote impact

II. Internal collaboration: IR; Corporate Secretary; HR

III. External collaboration: IR agency; Stock Watch provider; Proxy Solicitor (“know your owner/voter profile”)

IV. Consider stratified approach in year one (still mailing to the larger holders), and analyze those results before taking the full plunge

V. Review the % of instructed vs discretionary votes (Broadridge)

VI. Continue to learn from the early adopters!!

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Recommendations in Response

Name Service Phone EmailRon Schneider Director, Business

Development Proxy Solicitation201 680 5251 schneider.r@mellon.com

Peter Tomaszewski Vice President,Proxy Solicitation Group

212 680 5269 tomaszewski.p@mellon.com

Rob Folinus Vice President andProduct Manager,Meeting Services

201 680 3569 folinus.r@mellon.com

Beth Broadwater Product Manager,

Proxy Solicitation

201 680 3127 broadwater.b@mellon.com

Bev Verrico Director, Business Development

201 680 3866 verrico.b@mellon.com

Your RelationshipManager

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