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2009 Proxy Season Review

Thomas A. Germinario Senior Vice President D.F. King & Co., Inc. July 17, 2009. 2009 Proxy Season Review. SSA Annual Conference Coeur d’Alene, ID. Bank of America – binding independent chair proposal approved; chairman, lead director, board changes Citigroup – “vote-no” campaign

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2009 Proxy Season Review

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  1. Thomas A. Germinario Senior Vice President D.F. King & Co., Inc. July 17, 2009 2009Proxy Season Review SSA Annual Conference Coeur d’Alene, ID

  2. Bank of America – binding independent chair proposal approved; chairman, lead director, board changes Citigroup – “vote-no” campaign Companies where directors did not receive the affirmative vote of majority of votes cast Pulte Homes Digi International Plexus 10% to call special meeting proposals; debate on acceptable level 18 majority votes on Say-on-Pay to date Increase in support for independent chair proposals Office Depot – 54% Weyerhaeuser – 59% Contentious Annual Meetings in 2009 2

  3. Declining economy and credit/mortgage crises fuel widespread discontent over compensation practices Against / Withhold recommendations on compensation committees Poor pay practices under microscope: Excise tax gross-ups Gross-ups on perquisites Discretionary bonuses Payments of dividend equivalents on awards prior to vest dates Large sign-on packages Severance, retirement and change of control payments Say-on-Pay is mandated at TARP entities and achieves increased investor support Increase in use of stock option exchange programs Compensation Practices Under Intense Scrutiny 3

  4. Proposed new proxy rule – 14a-11 released June ‘09 Applies to all companies subject to Exchange Act proxy rules Includes amendment to rule 14a-8(i)(8) to preclude companies from excluding proposals on proxy access Would not apply to change of control situations New proposal does not require triggering events Would apply unless state law or company’s governing documents prohibit action Summary of Proxy Access Proposal ‘09 4

  5. Eligibility Large accelerated filers - $700 million or more – 1% of securities eligible to vote Accelerated filers - $75 million to $700 million – 3% of securities eligible to vote Non-accelerated filers – 5% of securities eligible to vote Continuous ownership for at least one year Legal challenge looms? Summary of Proxy Access Proposal ’09 (cont’d) 5

  6. SEC approval July 1, 2009, by 3 to 2 vote Applies to all stockholder meetings of publicly listed companies, whether NYSE listed or not, commencing January 1, 2010 Reclassifies uncontested director elections as “non-routine” Controversy over uninstructed broker votes Citi, Bank of America, CVS Caremark cases Amendment to NYSE Rule 452 6

  7. Other factors that magnify importance? Negative proxy advisory firm recommendations on directors Majority voting standards – amendment will lead to increased instances of failure to win majority support “Vote No” campaigns – companies targeted for governance failures at greater risk Proxy Access – potential low cost alternative to oppose company nominees Notice and Access – increased use by issuers Amendment to NYSE Rule 452 (cont’d) 7

  8. Executive Compensation Special Meetings and Board Structure Shareholder Proposals Antitakeover Related Shareholder Proposals Icahn v. Biogen Idec Pershing Square Capital Mgmt v. Target Icahn v. Amylin Pharmaceuticals Key Proposals, Issues and Contests of 2009 8

  9. Companies on hot seat for performance, compensation and/or risk oversight: Bank of America Citigroup AIG Pulte Homes Proponents making significant noise in challenging market: CtW Investment Group AFSCME Connecticut Pension Funds Florida Pension Funds Carpenters Boards / Committees Under Fire 9

  10. Stricter compensation limits for the governments Troubled Asset Relief Program (TARP) Limiting annual incentive compensation and severance payments Performance-vested equity instruments Main proponents: Laborers’ International Union of North America, International Brotherhood of Teamsters and United Brotherhood of Carpenters and Joiners Eliminate excise tax gross-ups for senior executives Compensation consultant independence: proposals seek more disclosure and greater independence Short-slate proxy reimbursement: calls for reimbursing the proxy expenses of successful short-slate dissidents New Shareholder Proposals 10

  11. Adopt & Disclose succession planning Request retention period on stock awards of two years past retirement Reincorporate in North Dakota: firms can subject themselves to a new state law that mandates proxy access, split CEO and chairman roles, declassified boards, majority voting, and annual pay votes Golden coffin: agreements that provide generous death benefits to family members of CEOs and other top executives Triennial Say-on-Pay New Shareholder Proposals (Cont’d) 11

  12. 359 social and environmental proposals filed. 274 are currently pending or have been voted on. For all of 2008, 410 resolutions were filed and 202 came to a vote Increased dialogue – Nearly 40% of resolutions were withdrawn after successful dialogue between companies and proponents SEC challenges remain consistent, between 25-28% in 2007. However, omissions permitted by the SEC dropped from 63% in 2007 to 47% in 2009 Set GHG emission reduction goals – 41% support Report on political donations – 28% support Report on predatory lending -17% support Social / Environmental Proposals 12

  13. Advisory Vote on Compensation (“Say on Pay”) 13

  14. Shareholder Right to Call Special Meeting 14

  15. Separate Chairman & CEO 15

  16. Political Contributions Proposal 16

  17. Repeal Classified Board Proposal 17

  18. Poison Pill Proposal 18

  19. Approve/Disclose/Limit SERPs Proposal 19

  20. Revised Proxy Access proposal submitted for industry comment Elimination of discretionary voting in director elections, January 1, 2010 Delaware facilitates movement towards proxy access and reimbursement of solicitation expenses Compensation committees, practices and perks continue to be under intense scrutiny Poor economy and political environment advance initiatives on compensation practices Challenging environment creating increased volume of proxy contests Credit markets lead to decline in volume of large M&A transactions Looking Ahead to 2010 20

  21. More companies will use Notice & Access model Renewed focus on separation of chairman and CEO issue Next step for Say-on-Pay? Mandate for all? Dialogue with shareholders and proponents continues at unprecedented levels Hedge Funds continue to pressure companies for short-term gains and negotiate for board representation Environment heading towards greater disclosure of derivatives and SWAPS Looking Ahead to 2010 (cont’d) 21

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