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June 17, 2010

Re: __________ – Voting Shares Held by __________

Dear __________:

This responds to your letters of April 12, and May 25, 2010, regarding the issue of
whether the voting shares of a California state chartered bank held by various
__________ should be aggregated for purposes of determining whether the Funds
control the bank in accordance with Financial Code Section 700, et seq. It is your
position that the holdings of each __________ should not be aggregated since each
__________ is individually responsible for determining how the bank shares should be
voted, whether the shares are voted directly or by proxy.
For the reasons set forth in your letters, including the sample voting guidelines enclosed
with your May 25th letter, we agree with your position. Accordingly, the Department of
Financial Institutions (the “Department”) will not aggregate the stock holdings of the
various __________ in any one California state chartered bank for purposes of
determining whether __________ controls that bank.
Please understand that the decision reflected in this letter is based solely on the
representations contained in your letters. Any change in the facts may change the
result reached by the Department.
If you have any questions regarding this matter, please feel free to contact me at (916)
322-1570.
Very truly yours,
KENNETH SAYRE-PETERSON
Acting General Counsel
KSP:pjp
April 12, 2010
Confidential Treatment Requested
VIA ELECTRONIC MAIL
Mr. Kenneth Sayre-Peterson
Assistant General Counsel
California Department of Financial Institutions
1810 -13th Street
Sacramento, CA 95811-7118
Re: __________ — Rebuttal of Control
Dear Mr. Sayre-Peterson:
On behalf of our client __________ (“__________”), we seek to rebut the presumption under the
California Financial Code that __________ controls a California state-chartered bank (a “Bank”)
if __________’s aggregate indirect holdings, as described more fully below, in the Bank equal or
exceed 10% of the voting securities of such Bank. Bank holding company and bank shares are
held by a variety of customer accounts and investment funds (collectively, “funds and accounts”)
that are advised by affiliates of __________ and __________ and its affiliates (“__________”
and together with the affiliates of __________, the “__________”).
__________’s beneficial ownership of securities held by funds and accounts advised by
__________ currently equals approximately 10.048% of the voting securities of __________
(“__________,).1 As this letter will explain, __________ believes that it has not acquired control
of __________ for purposes of the California Financial Code. Accordingly, __________
requests confirmation that it may rebut the presumption of control that arose due to
__________’s interest reaching and exceeding 10% of the voting securities of __________ and
that it will not be necessary to file an application for approval to acquire control with the
California Department of Financial Institutions (the “DFI’) under the California Financial Code
with respect to its beneficial ownership of __________ securities.
I. Factual Background
__________ Structure
The __________ provide investment advice and discretionary investment management
services to various funds and accounts, including a family of mutual funds (the “__________”)
that are managed by __________ (“__________”), a direct wholly owned subsidiary of
__________. Generally, each __________ represents a separate portfolio of investment
1 __________ controls __________, a California state-chartered member bank headquartered in
__________, California.
April 12, 2010
Page 2
securities and is organized as a series of a Massachusetts business trust or Delaware statutory
trust. Certain of these trusts have a single portfolio, in which case the trust issues a single class or
series of shares of beneficial interest to its shareholders and registers with the Securities and
Exchange Commission (the “SEC”) as an investment company under the Investment Company
Act of 1940, as amended (the “Investment Company Act”). To achieve administrative
efficiencies, the other trusts have two or more distinct portfolios of investment securities that are
separately managed. Each portfolio is registered with the SEC as an investment company, and
the trust issues a distinct class or series of shares of beneficial interest for it. Each portfolio has
its own shareholders who can elect to reinvest or redeem their holdings in a given portfolio
without affecting other portfolios held within the same or other trusts. Each trust has its own
legally separate board of trustees, although for many __________ the boards of trustees consist of
the same individuals. At least a majority of the board of trustees of each trust is comprised of
individuals who are independent of __________ and the __________ for purposes of the
Investment Company Act.
Each of the __________ has own investment objectives and its own investment policies.
The uniqueness of each __________’s objectives and policies means that investments appropriate
for one __________ may not be appropriate for another, and investment decisions are made on a
fund by fund basis. Moreover, each __________ is marketed to investors on the basis of a
specified investment strategy which is predicated upon its acting as a passive investor. If a
portfolio investment ceases to be consistent with this investment objective and policy, then the
__________’s policy would lead to consideration of liquidating the investment and redeploying
the proceeds in other investments consistent with such __________’s objective and policies. In
such a case, the __________ would not seek to influence the portfolio company’s management to
adopt a different business plan. In other words, the __________ are in the business of picking
stocks, not shaping business plans.
The voting of portfolio securities by the __________ is subject to written guidelines
(“Voting Guidelines”) adopted by the __________’ boards of trustees. __________, as
investment adviser to the __________, carries out the voting of the __________’ shares of
portfolio companies in connection with regular or special meetings of the shareholders of such
companies in accordance with the Voting Guidelines. The Voting Guidelines are predicated on
the basic principle that the __________’ portfolio holdings are acquired and held for passive
investment purposes, not for the purpose of exercising control over the operations or
management of a portfolio company. At the same time, the Voting Guidelines seek to vindicate
the interests of the __________ as investors by, for example, protecting the voting rights of
common stockholders.
Furthermore, __________ has regularly asserted in filings submitted with the SEC on
Schedule 130 under the Securities Exchange Act of 1934 (the”1934 Act”) that it does not
April 12, 2010
Page 3
influence or control, nor intend to influence or control, the policies or management of
__________ and that, to the extent that beneficial ownership of __________ shares may be
attributed to __________, it arises solely in the context of passive investment activities by the
__________ and other accounts advised by the __________.
__________ Investment
On December 31, 2009 __________ had, as a result of investment holdings across 29
different funds and accounts advised by the __________, indirect beneficial ownership of
4,027,644 of the 41,010,528 __________ common shares outstanding, or 9.821% of the total
__________ common shares outstanding.2
On March 15, 2010, __________’s indirect beneficial ownership percentage increased to
10.048% due to the inadvertent exclusion of an individual fund’s holdings from the aggregate
ownership compliance monitoring system in connection with a systems modification. This
incorrectly created the appearance on the compliance system that additional __________
common shares could be purchased while still remaining below the existing 10% limit.
__________ funds and accounts purchased 24,085 additional shares on March 15, 2010. The
largest holding of any single fund or account is 1,741,010 __________ common shares, or
4.208% of the total __________ common shares outstanding. __________ believes that, given
the aggregate holdings of __________ common shares by __________ funds and accounts, it
currently has the largest single beneficial ownership interest of outstanding __________
common shares.
__________, through its control of __________, may be deemed to have sale power to
dispose of the 4,140,639 __________ common shares owned by the __________. __________
(“__________”), an indirect wholly-owned subsidiary of __________, is the beneficial owner of
16,370 __________ common shares in its capacity as investment adviser to institutional accounts
holding the shares. __________, through its control of __________, may be deemed to have sole
dispositive power over 16,370 __________ common shares and sole power to vote or to direct
the voting of 12,860 __________ common shares. __________, a qualified institution that is
separate from __________ but in which __________, Chairman of __________, and certain
members of his family hold an ownership interest, is not the beneficial owner of any
__________common shares.3
2 __________ filed with the SEC a schedule I3G dated February 12, 2010 concerning its ownership of
__________ shares pursuant to Rule l3d-l(b) under the 1934 Act.
3 __________ and __________ are separate and independent corporate entities, and their Boards of Directors
are generally composed of different individuals. __________ and __________ are of the view that they are not
acting as a “group” for purposes of Section 13(d) of the 1934 Act and that they are not otherwise required to
attribute to each other the “beneficial ownership” of securities “beneficially owned” by the other corporation within
the meaning of Rule 13d-3 promulgated under the 1934 Act. Therefore, they are of the view that the shares held by
the other corporation need not be aggregated for purposes of Section 13(d). However, __________ regularly makes
securities filings on a voluntary basis as if all of the shares are beneficially owned by __________ and __________
on a joint basis.
April 12, 2010
Page 4
II. Legal Background
For purposes of the California Financial Code, a person controls a bank if it possesses,
directly or indirectly, the power to (i) vote 25% or more of any class of the voting securities
issued by the bank, or (ii) direct or cause the direction of the management and policies of a bank,
whether through the ownership of voting securities, by contract or otherwise.4 In addition, there
is also a rebuttable presumption of control if an acquiring person, directly or indirectly, owns,
controls, holds with power to vote, or holds proxies representing, 10% or more (but less than
25%) of any of the then outstanding voting securities issued by a bank.5 Pursuant to the
California Financial Code, any person, whether acting directly or indirectly, must file an
application with the DFI before acquiring control of a bank.6
III. Analysis
Rebuttal of Control Regarding __________
As indicated by __________’s filings with the SEC under the 1934 Act, the __________
acquired all __________ shares on behalf of the funds and accounts in the ordinary course of their
investment management business, with neither the purpose nor with the effect of changing or
influencing the control of __________, nor in connection with or as a participant in any
transaction having such purpose or effect. The funds’ and accounts’ investment in __________ is
not a proprietary investment by __________ or the __________. Rather, it is an investment made
in a fiduciary capacity on behalf of the beneficial owners of customer accounts, and client funds
are used to purchase the shares to make the investment. Moreover, investments are made with
the expectation of holding for an appreciable return and eventual resale and are not made for the
purpose of exercising a controlling influence over the management or policies of a bank. The
funds and accounts are not operating companies, and __________ and the __________ do not lend
to the funds and accounts they advise or the portfolio companies owned by such funds and
accounts.
Furthermore, each of the __________ acts in accordance with its own investment
objectives and cannot be deemed to be acting in concert with other __________. None of the
__________ individually own or control, nor will they own or control, 10% or more of any class
of voting securities of a bank. In addition, __________ commits that the __________ will use best
efforts, consistent with their applicable fiduciary duties, to cause shares owned or controlled by
__________ funds and accounts (not including certain institutional accounts that have
4 Cal. Fin. Code § 700(b).
5 Id.
6 Cal. Fin. Code § 701.
April 12, 2010
Page 5
not delegated voting discretion to any __________) equal to or in excess of 10% to be voted in
the same proportion as all other shares are voted or, alternatively, not to be voted. Thus,
__________ does not believe that the factual circumstances surrounding its indirect beneficial
ownership of __________ securities trigger the presumption described above.
We would like to emphasize that __________ inadvertently reached and exceeded the
10% beneficial ownership threshold of __________. __________ has been observing and
monitoring this limitation on bank share investments. For example, __________ uses a global
reporting tool that, on a daily basis, tracks holdings in individual securities by __________ and its
affiliates and rigorously checks the securities against lists of bank holding companies and banks.
Securities are given an industry type based on the Standard Industrial Classification (SIC) codes.
Based on these classifications, a security is restricted at a predetermined percentage below an
applicable regulatory or other ownership restriction and an application or notification process is
started if required. The security is completely frozen upon reaching the percentage immediately
below the ownership restriction until such notification or prior approval is complete. __________
has an additional vendor product that helps it identify banking entities otherwise hidden within a
corporate structure.
__________ is also willing to enter into certain commitments with the DFI that are
generally indicative of a lack of control. Specifically, __________ is willing to commit to the
DFI as follows:7
1. __________ will not acquire, directly or indirectly, shares of any class or series of
__________ ‘s voting securities that would result in __________ ‘s aggregate ownership
percentage of such securities to exceed its ownership percentage as of the date hereof
(10.048%);
2. __________ will use best efforts to vote shares equal to or in excess of 10% of any
class or series of __________ ‘s voting securities (“excess __________ shares”) in the
same proportion as all other shares are voted, and if such efforts fail, will not vote any
excess __________ shares;
3. __________ will not take any action that would cause __________ or any of its
subsidiaries to become its subsidiary for purposes of the Bank Holding Company Act;
4. __________will not accept, have or seek any director, officer, agent or employee
interlocks with __________ or its subsidiaries;
5. __________ will not propose a director or a slate of directors in opposition to any
nominee or slate of nominees proposed by the management or board of directors of
__________;
7 __________ ‘s proposed passivity commitments to the DFI are substantially similar to passivity
commitments of __________ to the Board of Governors of the Federal Reserve System contained in a relief letter
discussed below in the “Standing Relief’ section.
April 12, 2010
Page 6
6. Except in the context of a tender offer or in certain other limited transactions,
__________ will not dispose of __________ voting shares (i) to any person whom
__________ knows is seeking control over __________, (ii) to any person whom
__________ knows has made an SEC filing with respect to the ownership of more
than 5% of __________ ‘s voting securities or would be required to make such a filing
as a result of the purchase of __________ shares from __________, or (iii) in block
transactions exceeding 5% of any class of __________ voting securities;
7. __________ will not threaten to dispose of voting securities in any manner as a
condition of specific action or non-action by __________;
8. Neither __________ nor any single subsidiary of __________ will individually own,
control, or hold with power to vote 10% or more of any class of __________ voting
securities; and
9. __________ will not take any action to control the management or policies of
__________.
In order to provide for the above-listed commitments of __________, we are attaching as
Exhibit A to this letter a draft passivity agreement between __________ and the DFI with respect
to __________’s indirect holdings of __________ securities.
Standing Relief
As a separate matter (outside of the timeframe of the processing of the rebuttal request in
connection with the specific investment in __________ discussed in this letter), __________ would
also like to raise with you whether, in order to avoid the need for future rebuttal letters and
discussions with the DFI, the DFI would consider accepting generic commitments similar to the
above-listed commitments from __________ with respect to other passive investments. The
result would be to provide a standing rebuttal of control, similar to that provided pursuant to the
relief letter of the Board of Governors of the Federal Reserve System (the “FRB”) discussed
below, and allow __________ to hold a beneficial interest, directly or indirectly, of up to 15% of
any class of voting securities of any California state-chartered bank (including, for the avoidance
of doubt, __________). Such relief would be subject to the continued validity of the factual
representations made by __________ in this letter and to __________’s compliance with the
above-listed commitments.
In a letter dated April 18, 2000 (and from which the above-listed commitments are
drawn), the FRB has allowed __________ to acquire beneficial ownership up to 15% of any class
of voting securities of a bank holding company (or indirectly of a state member bank) without
being deemed to have acquired control of that institution under the Bank Holding Company Act
or the Change in Bank Control Act. Pursuant to the FRB’s letter attached hereto as Exhibit B
(the “FRB Letter”), __________ committed to:
April 12, 2010
Page 7
(i) not acquire, directly or indirectly, an aggregate of more than 15% of any class or
series of voting securities of any bank;
(ii) use best efforts to vote shares in excess of 10% of any class or series of voting
securities of a bank (“excess shares”) in the same proportion as all other shares are
voted, and if such efforts fail, not to vote any excess shares;
(iii) not take any action that would cause a bank or any of its subsidiaries to become
its subsidiary for purposes of the Bank Holding Company Act;
(iv) not accept, have or seek any director, officer, agent or employee interlocks with
the bank or its subsidiaries;
(v) not propose a director or a slate of directors in opposition to any nominee or slate
of nominees proposed by the management or board of directors of any bank;
(vi) except in the context of a tender offer or in certain other limited transactions, not
dispose of voting shares of the bank (a) to any person whom __________ knows is
seeking control over the bank, (b) to any person whom __________ knows has
made an SEC filing with respect to the ownership of more than 5% of the bank’s
voting securities or would be required to make such a filing as a result of the
purchase of bank shares from __________, or (c) in block transactions exceeding
5% of any class of voting securities of the bank;
(vii) not threaten to dispose of voting securities in any manner as a condition of
specific action or non-action by the bank;
(viii) not individually own, or permit any single of its subsidiaries to individually own,
control, or hold with power to vote more than 10% of any class of voting
securities of the bank; and
(ix) not take any action to control the management or policies of the bank.
The FRB has recently reaffirmed the acceptability of the commitments contained in the
FRB Letter in connection with a pending transaction.
* * *
__________ respectfully requests on behalf of itself and its affiliates that all information
contained in this letter and in the referenced documents (together, the “Confidential Material”)
April 12, 2010
Page 8
be maintained in confidence and exempt from disclosure by the DFl and its staff. Accordingly,
this letter and referenced documents have been marked “Confidential Treatment Requested.”
The Confidential Material concerns the conduct of __________’s business, is proprietary
and maintained in confidence by __________. The Confidential Material also concerns or may
concern customarily sensitive, non-public, confidential and privileged business and commercial
information concerning __________ and/or its affiliates. Release of the Confidential Material to
the public, including __________’s competitors, could provide competitors with knowledge of
__________’s business, financial plans and activities, and result in substantial harm to its
competitive position and damage the business of __________ and/or its affiliates.
The Confidential Material is exempt from disclosure under various provisions of the
California Public Records Act, codified at Cal. Govt. Code §§ 6250 – 6270. Accordingly, this
Confidential Material is submitted to the DFI with our request that it be kept in a non-public file
and that only DFI staff have access to it. If any person not a member of the DFI’s staff
(including, without limitation, any governmental employee) should request an opportunity to
inspect or copy the Confidential Material, or if any member of the DFI’s staff contemplates
disclosure of the Confidential Material to any other person, __________ requests that the
undersigned immediately be notified of such request, be furnished a copy of all written materials
pertaining to such request (including but not limited to the request itself) and be given advance
notice of any intended disclosure so that __________ may, if deemed necessary or appropriate,
request that such information not be disclosed and pursue any available remedies.
The requests set forth in the preceding paragraphs also apply to any memoranda, notes,
transcripts or other writings of any sort whatsoever that are made by, or at the request of, any
employee of the DFI (or any other governmental agency) and which (i) incorporate, include or
relate to any of the Confidential Material, or (ii) refer to any conference, meeting or telephone
conversation between __________, its current or former employees, representatives, agents,
auditors or counsel on the one hand and employees of the DFl (or any other government agency)
on the other, relating to the Confidential Material. Because release of the Confidential Material
would be damaging to its business and/or that of its affiliates, __________ requests that the DFl
maintain the Confidential Material in confidence indefinitely.
If the DFI or its staff determines to transfer any of the Confidential Material to another
governmental agency, we request that you forward a copy of this letter to any such agency with
the Confidential Material. If the DFI is not satisfied that the Confidential Material is exempt
from disclosure, we stand ready to supply further particulars and request a hearing on the claim
of exemption.
* * *
April 12, 2010
Page 9
In conclusion, __________ believes that the representations and factual circumstances set
forth in this letter, along with the proposed passivity agreement, should support a determination
by the DFI that __________ has not acquired control of __________. Accordingly, __________
does not believe that it has an obligation to file a control application with the DFI pursuant to the
California Financial Code.
Please do not hesitate to contact me, or my colleague __________ at __________, if you
have any questions about this letter, the FRB Letter or the draft passivity agreement, or about our
request for confidential treatment.
Sincerely,
EXHIBIT A
Draft Passivity Agreement
See attached.
Confidential Treatment Requested
PASSIVITY AGREEMENT
By and between
__________
and
The California Department of Financial Institutions
This Passivity Agreement (this “Agreement”) is entered into as of April __, 2010 by and between
the California Department of Financial Institutions (the “DFI”) and __________, a Delaware limited
liability company (“__________”). __________’s principal office is in __________.
WHEREAS, generally, no person may acquire control, directly or indirectly, of a California
state-chartered bank unless the DFI first approves such acquisition of control;
WHEREAS, generally, pursuant to the California Financial Code, any person acting directly or
indirectly, who acquires control of a parent company of a California state-chartered bank, and is not
excepted from the requirements of the California Financial Code, is assumed to have acquired indirect
control of such bank;
WHEREAS, __________ (the “Parent Company”), controls __________, a California statechartered
member bank headquartered in __________, California (the “Bank”);
WHEREAS, the Parent Company is registered under Section 12 of the Securities Exchange Act
of1934;
WHEREAS, from time to time and in the ordinary course of business, voting securities of the
Parent Company may be acquired and held, exclusively for investment purposes, by various investment
companies (the “__________”) registered with the Securities and Exchange Commission (the “SEC”)
under the Investment Company Act of 1940 (the “1940 Act”) and other institutional client accounts (the
“Accounts”) that are advised by direct and indirect subsidiaries of __________ or by __________ and its
direct or indirect subsidiaries;
WHEREAS, __________, on behalf of the __________ and the Accounts, will not acquire
shares of any class or series of voting securities of the Parent Company or the Bank that would result in
__________’s aggregate ownership percentage of such securities to exceed its aggregate ownership
percentage as of the date hereof (10.048 percent);
WHEREAS, absent this Agreement, the DFI could consider that __________ has acquired
indirect control of the Bank with respect to any acquisition resulting in its ownership, control, or holding
with power to vote at least 10 percent, in the aggregate, of any class of voting securities of the Parent
Company and would be required to file a control application under the California Financial Code; and
2
WHEREAS, in order to show that __________ does not indirectly control the Bank, __________
has offered to make the commitments and representations contained in this Agreement.
NOW THEREFORE, it is agreed between __________, through its duly authorized
representative, and the DFl, through its duly authorized representative, that __________ shall enter into,
and at all times operate in compliance with, the articles of this Agreement.
ARTICLE I
PASSIVITY
(1) __________ commits that it will not, directly or indirectly:
(a) Acquire securities that would cause the aggregate ownership of __________ and
its affiliates to exceed their aggregate ownership percentage as of the date hereof
(10.048 percent) of any class of voting securities of the Parent Company;
(b) Take any action that would cause __________ or any of its subsidiaries to
become its subsidiary for purposes of the Bank Holding Company Act;
(c) Have or seek to have any representative serve on the board of directors of the
Parent Company or the Bank (the “Boards”), or to nominate any candidate to
serve on the Boards or otherwise seek representation on the Boards;
(d) Have or seek to have any employee or representative serve as an officer, agent or
employee of the Parent Company or the Bank;
(e) Propose a director or slate of directors in opposition to a nominee or slate of
nominees proposed by management of the Parent Company or the Bank, or the
Boards;
(f) Threaten to dispose of securities of the Parent Company in any manner as a
condition of specific action or non-action by the Parent Company or the Bank; or
(g) Take any action to control the management decisions or policies of the Parent
Company or the Bank.
(2) __________ commits that:
(a) The acquisition of any securities equal to or in excess of 10 percent of a class of
voting securities of the Parent Company is exclusively for investment purposes;
(b) It will use best efforts to:
(i) grant the Parent Company a proxy (“Proxy”) to vote shares equal to or in
excess of 10 percent of each class of voting securities of the Parent
3
Company owned in total by __________, any subsidiary of __________,
and any __________ or any Account over which any of them,
respectively, exercise voting discretion, and instruct the Parent Company
that the securities covered by such Proxy will be voted in the same
proportion as all other securities voted by all other shareholders; or,
alternatively,
(ii) cause the securities over which __________, any subsidiary of
__________, any __________ or any Account, respectively, exercise
voting discretion equal to or in excess of 10 percent of each class of
voting securities of the Parent Company not to be voted.
(c) None of __________, any subsidiary of __________, any __________ or any
Account will individually own, control or hold with power to vote 10 percent or
more of any class of voting securities of the Parent Company.
(3) __________ commits that none of __________, any subsidiary of __________, any
__________ or any Account will dispose of voting securities of the Parent Company:
(a) to any person if __________ or any of its subsidiaries knows that such person
seeks to change the control of the Bank in any manner;
(b) to any person whom __________ or any of its subsidiaries knows (i) has made a
filing with the SEC or other federal agency with respect to the ownership of more
than 5 percent of the Parent Company’s voting securities or (ii) would be required
to do so as a result of the purchase from __________, its subsidiary, a
__________ or an Account; or
(c) in an amount of more than 5 percent of the Parent Company’s voting securities in any
single transaction;
provided that notwithstanding paragraphs (a) through (c) above, the __________ and
Accounts may dispose of their Parent Company stock in the following circumstances:
(i) in a cross trade between two or more __________ or Accounts in
compliance with the rules governing such cross trades under the 1940
Act;
(ii) in the case of paragraph (c) above, in a bunched trade effected for two or
more __________ or Accounts in compliance with the rules governing
bunched trades under the 1940 Act;
(iii) in a sale by a __________ or Account to the Parent Company or one of
its subsidiaries;
(iv) in a tender or exchange offer for voting stock of the Parent Company; or
4
(v) in one or more open market transactions effected on a stock exchange or
in the over-the-counter market (which may include a sale to one or more
broker-dealers acting as market makers or otherwise intending to resell
the shares sold to it or them in accordance with its or their normal
business practices).
(4) __________ represents and warrants that it has full power and the authority to execute
this Agreement, and that this Agreement is binding and enforceable.
(5) Before deviating from any of the foregoing commitments, __________ will either file a
control application pursuant to the California Financial Code or obtain a written opinion from the DFI
that such an application is not required.
(6) If __________ complies with the commitments and other provisions of this Agreement,
and if the representations made herein by __________ are, and remain, true and correct, the DFI will not
determine that __________ has acquired control of the Parent Company or the Bank through the
acquisition of voting shares of the Parent Company when such acquisition would result in __________,
its affiliates, and their respective officers, directors, and employees, owning, controlling, or holding with
power to vote, in the aggregate, 10.048 percent or less of any class of voting shares of the Parent
Company.
ARTICLE II
EFFECTIVENESS OF AGREEMENT
(1) The provisions of this Agreement shall be effective upon execution by the parties hereto
and its provisions shall continue in full force and effect unless or until such provisions are amended in
writing by mutual consent of the parties to this Agreement, or are excepted, waived or terminated in
writing by the DFI.
(2) If its holdings of any class of voting securities in the Parent Company fall below 10
percent, but thereafter again equal or exceed 10 percent, but remain equal to or less than 10.048 percent,
__________ will be subject to this Agreement immediately.
ARTICLE III
GENERAL PROVISIONS
(1) The following terms have the meanings indicated.
(a) The term “affiliate” means any company that controls, is controlled by, or is
under common control with, another company.
(b) The term “control” has the meaning given it in Section 700(b) of the California
Financial Code.
(c) The term “subsidiary” means any company that is directly or indirectly controlled
by another company.
5
(2) __________ acknowledges that the failure to comply with any provision of this
Agreement, the inaccuracy of any representation, or the violation of any warranty made herein may be
viewed as a violation of the California Financial Code.
(3) All notices, reports, or other communications required hereunder shall be in writing and
shall be made by facsimile transmission, with a copy sent by certified mail, return receipt requested,
addressed as follows:
If to DFI:
Mr. Kenneth Sayre-Peterson
Assistant General Counsel
California Department of Financial Institutions
1810 -13th Street Sacramento, CA 95811-7118
If to _____________
Such notice or communication shall be deemed to have been given or made as of the date that the notice
or communication was delivered to the certified mail carrier.
(4) This Agreement and the rights and obligations hereunder shall be governed by, and
construed in accordance with, the laws of the State of California.
(5) The terms of this Agreement, including this paragraph, are not subject to amendment or
modification by any extraneous expression, prior agreements or prior arrangements between the parties,
whether oral or written.
[Signature Page Follows.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year
indicated above.
CALIFORNIA DEPARTMENT
OF FINANCIAL INSTITUTIONS
By: ________________________
Name:
Title
______________________________
By: _________________________
Name:
Title
[Signature Page to DFI Passivity Agreement.]
EXHIBIT B
FRB Letter
See attached.
Confidential Treatment Requested
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Washington, D.C. 20551
April 18, 2000
Dear Mr. __________:
This is in response to your request for a determination that __________,
__________ (“__________”) may acquire up to fifteen percent of any class of voting securities
of a bank holding company or bank without being deemed to have acquired control of that
institution under the Bank Holding Company Act (” BHC Act”) or the Change in Bank Control
Act (“CIBC Act”) when the acquisition complies with certain conditions described in this letter
and related correspondence.1
__________ holds bank holding company and bank shares in a variety of
customer accounts (the “Accounts”) and investment funds (the “Funds”) that are managed by
__________ and its affiliates, __________ (“__________”) and __________ (“__________”).
The Funds include mutual funds registered under the Investment Company Act of 1940.
__________ is the parent of __________, a limited purpose trust company
organized under the laws of Massachusetts. Amendment to the BHC Act enacted in the
Competitive Equality Banking Act of 1987 (“CEBA”) provide that a company, such as
__________, that controls a “nonbank bank,” such as __________, may retain ownership of its
nonbank bank without being considered a bank holding company under the BHC Act if,
1 You also have requested specific confirmation that __________ does not control __________,
Detroit, Michigan (“__________ “), a bank holding company under the BHC Act, and is not required to
file with the Board a notice under the CIBC Act regarding __________.
– 2 –
among other things, that company docs not acquire more than five percent of the shares of any
additional bank or savings association. 2
Section 4(f) of the BHC Act specifically provides that shares of an additional
bank or savings association held as a “bona fide fiduciary” do not count toward the CEBA limit.3
The House Conference Report accompanying CEBA provides that the bona fide fiduciary
exemption in section 4(f)(2)(A)(ii) “is intended to cover situations in which . . . an SECregistered
diversified investment company within the meaning of Section 5(b)(1) of the
Investment Company Act of 1940 managed by an investment adviser affiliated with a company
makes passive investments in the ordinary course of business and thereby does not acquire
‘control’ as determined under the Bank Holding Company Act or the Change in Bank Control
Act.4
The issue raised by your request is whether acquisitions of bank holding company
or bank shares under specific circumstances by the Funds and the Accounts would qualify for the
exemption in section 4(f) for shares held as a bona fide fiduciary. If so, these shares would not
be subject to the 5 percent limit imposed by CEBA on companies such as __________ that
control a nonbank bank.
For purposes of the BHC Act, a company controls a bank holding company or
bank if the first company (i) directly or indirectly or acting through one or more other persons
owns, controls, or has power to vote more than 25 percent of any class of voting securities of the
bank holding company or bank; (ii) controls in any manner the election of a majority of the
directors of the bank holding company or bank; or (iii) directly or indirectly exercises a
controlling influence over the policies or management of the bank holding company or bank.5
Regulation Y also sets forth a set of rebuttable presumptions of control.6 Under the proposal,
__________ and its affiliates would not own control, or hold with power to vote more than 25
percent of a class of voting securities of, or control the election of a majority of the directors of, a
bank holding company or bank (other than __________). In addition, __________and its
2 12 U.S.C. § 1843(f).
3 12 U.S.C. § 1843(f)(2)(A)(ii)(I).
4 See House Conf. Rep. 261, 100th Cong., 1st Sess. 124, reprinted in 1987 United States Code Cong.
and Admin. News 588, 593.
5 12 U.S.C.§ 1841(a)(2); 12 C.F.R. § 225.2(e).
6 12 C.F.R. § 225.31(d).
– 3 –
affiliates would not trigger any of the rebuttable presumptions of control under Regulation Y
with respect to any bank holding company or bank (other than __________). __________would
only be deemed to control a bank holding company or bank if the Board were to find that
__________ and its affiliates exercise a controlling influence over the policies or management of
the bank holding company or bank.
For purposes of the CIBC Act, __________ is presumed by the Board’s
regulations to control a bank holding company or state member bank if “immediately after the
transaction . . . [it] will own, control, or hold with power to vote 10 percent or more of any class
of voting securities of the institution” and the institution has registered securities or no other
person owns or controls a greater percentage of the same class of voting securities.7 As noted
above, __________ proposes at times to acquire in excess of 10 percent of the shares of a bank
holding company or state member bank through the Funds and the Accounts, without regard to
whether any such institution has registered securities or whether __________ and its affiliates
are the largest shareholder in the institution.
__________ seeks to rebut the regulatory presumption of control for purposes of
the CIBC Act and to establish to the Board that __________ does not exercise a controlling
influence over a bank holding company or bank for purposes of the BHC Act. In particular,
__________ has proposed that __________, its subsidiaries, the Funds, and the Accounts
collectively not acquire more than 15 percent of any class of voting securities of a bank holding
company or bank; and that none of __________, any subsidiary of __________, any Fund or any
Account individually acquire more than 10 percent of any class of voting securities of a bank
holding company or bank. In addition, __________ has committed that it will use its best efforts
to enter into arrangements with bank holding companies and banks to vote __________-related
shareholdings in excess of ten percent (“excess shares”)’ in the same proportion as all other
shares are voted, and, in the event that __________ is unable to enter into such arrangements,
__________ will not vote any excess shares. Moreover, __________ has committed that,
whenever the Funds and the Accounts own or control, in the aggregate, more than 10 percent of
any class of voting securities of a bank holding company or bank, the Funds, the Accounts,
__________ and any subsidiary of __________ will not individually or collectively:
1) take any action to control the bank holding company or bank;
7 12 C.F.R. § 225.41(c).
– 4 –
2) have any director, officer, or employee interlocks with the bank holding
company or bank;
3) except in the context of a tender offer or in certain other transactions,
dispose of voting shares of the bank holding company or bank (i) to any person
seeking control over the institution or (ii) in block transactions exceeding 5
percent of any class of voting shares of the institution; or
4) threaten to dispose of voting shares in any manner as a condition of
specific action or non-action by the bank holding company or bank.8
In addition to considering these commitments, Board staff has considered the
nature of __________ and its proposed investments. __________ and its affiliates operate and
provide investment advice to a family of investment funds and fiduciary accounts, and the
proposed acquisitions would not be proprietary investments by __________. Rather, they would
be investments made by the Funds and on behalf of the beneficial owners of the Accounts. The
Funds and the Accounts are not operating companies, and __________ and its affiliates do not
lend to the mutual funds that they advise or the portfolio companies of the mutual funds.
Moreover, the acquisitions are made for investment purposes with the expectation of resale and
are not made for the purpose of exercising a controlling influence over the management or
policies of a bank holding company or bank.
In view of the commitments made by __________ and the fact that the
acquisitions described in this letter would be made through the Funds and the Accounts and not
on behalf of __________, Board staff would not recommend that the Board find that the
acquisitions would cause __________ to control a bank holding company or bank for purposes
of the BHC Act. Similarly, staff would not recommend that the Board find that the acquisitions
described in this letter would cause __________ to control a bank holding company or state
member bank for purposes of the CIB Act.9
8 For a complete list of the commitments that __________ has made to the Board, see the
Appendix:
9 These general rules also would apply to investments in __________ by __________, its
subsidiaries, the Funds, and the Accounts. Staff understands that __________ holds certain __________
shares in a fiduciary capacity and does not have the sole authority to vote such shares. Under
section 2(a)(5) of the BHC Act and sections 225.12(a) and 225.42(a)(4) of Regulation Y, these shares
held as a fiduciary are not included in calculating __________’s aggregate holdings of __________ shares
for purposes of determining whether notice to the Board is required under the BHC Act or the CIBC Act.
See 12 U.S.C. § 1841(a)(5); 12 C.F.R. §§ 225.12(a) and 225.42(a)(4).
– 5 –
The preceding opinions are based expressly on the facts and circumstances of this
case as they have been described to Board staff, and any change in these facts or circumstances
may result in a different opinion. In particular, the legislative history of CEBA provides that the
bona fide fiduciary exemption is available only with respect to passive investments that do not
result in the acquiring company obtaining control of a bank or savings association for purposes
of the BHC Act or CIBC Act.10 Accordingly, the bona fide fiduciary exemption in
section 4(f)(2)(A)(ii) of the BHC Act would not be available if __________, directly or
indirectly acquires control of a bank or savings association within the meaning of the BHC Act
or CIBC Act.11 In addition, this letter expresses no opinion as to whether a CIBC Act notice
would be required for transactions involving direct investments in national banks or state nonmember
banks.
Sincerely,
10 See 12 C.F.R. §§ 225.2(e), 225.31(d)(2), and 225.4l(c).
11 See House Conf. Rep., supra note 3 (“Interlocking officer, director, or employee relationships
between the . . . investment adviser and its affiliates, and the bank or insured institution in which the
passive investment is made, would not be permitted.”)
– 6 –
APPENDIX
Commitments of __________ to the Board
Investments by the __________12 and Managed Accounts13 in ten percent or more of any
class of voting securities of U.S. bank holding companies and banks (each, a “Bank”) will be
conducted in accordance with the commitments and restrictions listed below.
1. __________ the subsidiaries of __________, the __________, and the Managed
Accounts, in the aggregate,
(a) will not acquire more than fifteen percent of any class or series of voting
securities of any Bank; and
(b) will use best efforts to provide that shares in excess of ten percent of any class or
series of voting securities of a Bank (“excess shares”) will be voted in proportion to the
vote taken on all shares that are not excess shares or, in the event that such efforts to
provide for mirror voting are not successful, will not vote any excess shares.
2. None of __________ any subsidiary of __________, the __________, or the Managed
Accounts will, directly or indirectly individually or in the aggregate:
(a) take any action to cause a Bank or any of its subsidiaries to become a subsidiary
of a __________ or __________ for purposes of the BHC Act;
12 “__________” means investment companies managed by __________ or its affiliates.
13 “Managed Accounts” means (i) offshore investment funds sponsored by __________, a
__________-based investment management firm owned by certain of its employees and by members of
the __________ ; (ii) Canadian investment funds sponsored by __________, a __________-based
investment management firm which is a subsidiary of __________; (iii) the Advisor World Fund,
offshore funds managed by __________ which are offered to non-residents; (iv) other offshore
investment funds for which __________ serves as investment manager; (v) various trust accounts
maintained by __________; and (vi) any other customer account or investment fund if __________ or
any of its subsidiaries exercises sole discretionary voting power over securities in the account or fund.
– 7 –
(b) unless agreed to by the Federal Reserve Board or its staff, and permitted by
applicable law, seek or accept representation on the board of directors of any Bank or its
subsidiaries;
(c) have or seek to have any representative of __________, its subsidiaries, or the
__________ serve as an officer, agent or employee of any Bank or its subsidiaries, or
(d) propose a director or a slate of directors in opposition to any nominee or slate of
nominees proposed by the management or board of directors of any Bank.
3. None of __________, the subsidiaries of __________, the __________ or the Managed
Accounts will dispose of voting securities of a Bank:
(a) to any person if __________ or any of its subsidiaries knows that such person
seeks to change the control of the Bank in any manner; or
(b) to any person whom __________ or its subsidiary knows (i) has made a filing
with the SEC or other federal agency with respect to the ownership of more than five
percent of the Bank’s voting securities or (ii) would be required to do so as a result of the
purchase from __________, its subsidiary, a __________, or a Managed Account; or
(c) in an amount of more than five percent of the Bank’s voting securities in any
single transaction;
provided that notwithstanding paragraphs (a) through (c) above, the __________ and
Managed Accounts may dispose of their stock in a Bank in the following circumstances:
(i) in a cross trade between two or more __________ or Managed Accounts
in compliance with the rules governing such cross trades under the 1940 Act;
(ii) in the case of paragraph (c), above, in a bunched trade effected for two or
more __________ or Managed Accounts in compliance with the rules governing
bunched trades under the 1940 Act;
– 8 –
(iii) in a sale by a __________ or Managed Account to the Bank or one of its
subsidiaries;
(iv) in a tender or exchange offer for voting stock of the Bank; or
(v) in one or more open market transactions effected on a stock exchange or
in the over-the-counter market (which may include a sale to one or more brokerdealers
acting as market makers or otherwise intending to resell the shares sold to
it or them in accordance with its or their normal business practices).
4. None of __________, the subsidiaries of __________, the __________, or the Managed
Accounts will threaten to dispose of voting shares in any manner as a condition of specific action
or non-action by the Bank.
(5) None of __________, any subsidiary of __________, any __________, or any Managed
Account will individually own, control, or hold with power to vote more than 10 percent of any
class of voting securities of a Bank.
May 25, 2010
Confidential Treatment Requested
VIA ELECTRONIC MAIL
Mr. Kenneth Sayre-Peterson
Acting General Counsel
California Department of Financial Institutions
1810 -13th Street
Sacramento, CA 95811-7118
Re: __________ – Voting of Shares Held by __________
Dear Mr. Sayre-Peterson:
On behalf of our client __________, this letter follows up on your recent telephone
conversation with __________ and supplements __________’s initial filing made in the letter
from __________ to Kenneth Sayre-Peterson dated April 12, 2010 (the “April 12 Letter”)
regarding __________’s aggregate indirect holdings in __________ (“__________”)1.
During the call, you and __________ discussed whether, under the California Financial
Code, __________ shares held in portfolios of various customer accounts and investment funds
in the family of mutual funds (the “__________”) that are managed by __________
(“__________”), a direct wholly-owned subsidiary of __________, should be aggregated for
purposes of ascertaining the percentage of voting shares held by __________. This question
arose in the context of investments by various __________ that, while remaining under 10% of
the voting shares of __________ with respect to the investment by any single __________, in the
aggregate equal approximately 10.048% of the voting shares of __________. As detailed in the
April 12 Letter, if such investments were to be aggregated, __________ would have exceeded
California’s 10% beneficial ownership limit due to the inadvertent exclusion of an individual
__________’s holdings from __________’s compliance monitoring system in connection with a
systems modification.
During the call, you and __________ also discussed that if each of the __________ has
discretion to exercise the voting rights attached to the Fund’s portfolio securities, it would not be
necessary to aggregate shares of __________ held by the __________ for purposes of
determining control under Section 700(b) of the California Financial Code. In order to assist you
in making this determination, you requested that we provide additional information regarding the
voting practices of the __________.
1 __________ controls __________, a California state-chartered member bank headquartered in
Santa Clara, California.
May 25, 2010
Page 2
As described more fully below, the voting power in shares held by the __________
resides with each __________’s Board of Trustees. In practice, __________ administratively
carries out the voting of such shares in accordance with Board-approved proxy voting guidelines
and in a manner consistent with its fiduciary obligation to act in the best interests of fund
shareholders.
I. Background
As of March 15, 2010 __________ had, through investment holdings across 29 different
__________, indirect beneficial ownership of 10.048% of the total __________ common shares
outstanding. The largest holding of any single __________ is only 1,741,010 __________
common shares, or 4.208% of the total __________ common shares outstanding. __________
has regularly asserted in filings submitted with the Securities and Exchange Commission
(“SEC”) on Schedule 13G under the Securities Exchange Act of1934 (the”1934 Act”) that it does
not influence or control the policies or management of __________ and that, to the extent that
beneficial ownership of __________ shares may be attributed to __________, it arises solely in
the context of passive investment activities.2
As noted in the April 12 Letter, each __________ has its own investment policies and
objectives, and investment decisions are made on a fund-by-fund basis. Each __________ is
marketed to investors on the basis of a specified investment strategy that is predicated upon its
acting as a passive investor. Moreover, investments are made with the expectation of holding for
an appreciable return and eventual resale, and neither __________ nor the __________ influence
or control, nor intend to influence or control, the policies or management of any portfolio
company.
As owners of the securities held in their respective portfolios, each of the __________
possesses all the attributes of share ownership, including the right to vote proxies relating to such
securities. However, because the __________, like most registered investment companies, do
not have their own employees, their day-to-day affairs, including the voting of proxies with
respect to their portfolio companies, are carried out by __________. It is important to note,
however, that while __________ has the delegated authority to vote portfolio company proxies,
it does not have the discretion to vote them in its own interest or otherwise in a manner of its
choosing.3 As a fiduciary, __________ is required to vote proxies in the best interests of fund
shareholders.
2 _______ filed with the SEC a Schedule 13G dated February 12, 2010 concerning its indirect
beneficial ownership of __________ shares pursuant to Rule 13d-I(b) under the 1934 Act.
3 Accordingly, on its Schedule 13G report of beneficial ownership filed with the SEC with respect
to __________ (see infra, note 2), __________ expressly disclaims that it has the power to vote or direct
the vote of shares of __________ owned by the __________, because this power resides with the Boards
of Trustees of the __________ and __________ carries out the voting under the written guidelines
adopted by the Trustees. __________ reports that it has “beneficial ownership” for purposes of Schedule
13G of shares held by the __________only because __________ has investment power over these shares
as a discretionary investment adviser to the __________.
May 25, 2010
Page 3
To ensure that investment advisers vote portfolio company proxies in the interest of
mutual fund shareholders and other clients, the SEC has established a regulatory framework
within which such voting must occur. Rules 206(4)-6 under the Investment Advisers Act of
1940 requires, among other things, that an adviser adopt proxy voting policies reasonably
designed to ensure that the adviser votes proxies in the best interests of its clients, including
policies that address material conflicts of interest. Because a mutual fund is the owner of its
portfolio securities, the fund’s board of trustees, acting on the fund’s behalf, has the right and
obligation to vote proxies relating to the fund’s portfolio securities. This responsibility is
typically delegated to the fund’s adviser, subject to oversight by the board of trustees.
The Trustees of the __________, the majority of whom are independent of __________,
have adopted a detailed set of formal written guidelines (the “Voting Guidelines”) to govern the
exercise of voting rights attached to the __________ ‘ portfolio securities, and have delegated to
__________, as investment adviser to the __________, the authority to carry out this function in
accordance with the Voting Guidelines. __________ is required to vote portfolio company
shares owned by the __________ in accordance with the Voting Guidelines. The Voting
Guidelines are predicated on the basic principle that the __________’ portfolio holdings are
acquired and held for passive investment purposes, not for the purpose of exercising control over
the operations or management of a portfolio company. At the same time, the Voting Guidelines
seek to vindicate the interests of the __________ as investors by, for example, protecting the
voting rights of common stockholders. A copy of the Voting Guidelines is attached as Exhibit
A.4
On issues with the potential to have a direct and significant impact on the value of a
__________’s investment in a company–for example, a merger or sale of the company or a
contested director election–determinations on how shares should be voted are made on a fundby-
fund basis. The Voting Guidelines expressly provide that such non-routine matters will be
evaluated with input from the relevant research analysts and the portfolio managers of the several
__________ that hold the shares. Such fund-by-fund evaluations could result, and from time to
time have resulted, in the various __________ casting their votes differently on the proposal,
based on the portfolio managers’ differing assessments of the proposal in light of the
__________’ different investment objectives and strategies. On routine issues, the Voting
Guidelines generally result in the shares of a particular company held by the several __________
being voted the same way. However, the Voting Guidelines are not designed to achieve
uniformity in voting with a view to exerting a controlling influence over portfolio companies, but
rather to complement the investment decision-making approach by evaluating proxy proposals
based on their economic merit and their likelihood to enhance investment returns for the
shareholders of the __________.
4 The Voting Guidelines are publicly disclosed in each __________’s registration statement
contained on the SEC website and are available on __________’s website at __________.
May 25, 2010
Page 4
II. Discussion
As noted in the April 12 Letter, for purposes of the California Financial Code, a person
controls a bank if it possesses, directly or indirectly, the power to (i) vote 25% or more of any
class of the voting securities issued by the bank, or (ii) direct or cause the direction of the
management and policies of a bank, whether through the ownership of voting securities, by
contract or otherwise5. In addition, there is also a rebuttable presumption of control if an
acquiring person, directly or indirectly, owns, controls, holds with power to vote, or holds
proxies representing, 10% or more (but less than 25%) of any of the then outstanding voting
securities issued by a bank.6
Pursuant to the California Financial Code, any person, whether
acting directly or indirectly, must file an application with the California Department of Financial
Institutions (the”DFI”) before acquiring control of a bank.7
As explained in Part I above, although __________ administratively carries out the
voting of the __________ ‘ shares, the legal right to vote the shares belongs to each __________.
Each of the __________ is managed in accordance with its own investment objectives and
cannot be deemed to be acting in concert with other __________. None of the __________
individually owns or controls, nor will any __________ individually own or control, 10% or
more of any class of voting securities of __________. While __________ has the technical
authority to vote __________ portfolio company proxies, in doing so it is guided by its fiduciary
obligation to act in the best interests of fund shareholders and by the Board-approved Voting
Guidelines. __________ therefore does not “control” the shares in the sense that it would if it
could vote them in its interest or at its discretion.
On the basis of the foregoing facts and circumstances, we request your determination that
the shares of __________ held by the __________ should not be aggregated for purposes of
determining control under Section 700(b) of the California Financial Code. We also request
your determination that because each of the __________ holds less than 10% of the voting
shares of __________, neither __________ nor any of the __________ should be presumed to
have acquired control of __________ pursuant to the California Financial Code, and therefore,
neither __________ nor the __________ should be required to file a control application with the
DFI pursuant to the California Financial Code. If you disagree with the above requests, we seek
in the alternative your concurrence with the rebuttal of control request set forth in the April 12
Letter.
__________ respectfully requests on behalf of itself and its affiliates confidential
treatment for this letter in accordance with the terms of the April 12 Letter.
5 Cal.Fin.Code § 700(b).
6 Id.
7 Cal.Fin.Code § 701.
May 25, 2010
Page 5
We appreciate your assistance and advice in this matter. Please do not hesitate to contact
me, or my colleague __________ at __________, if you have any questions about this letter or
about our request for confidential treatment.
Sincerely,
EXHIBIT A
CONFIDENTIAL TREATMENT REQUESTED
__________’ PROXY VOTING GUIDELINES (“GUIDELINES”)
March 2010
I. General Principles
A. Voting of shares will be conducted in a manner consistent with the best interests of __________
shareholders as follows: (i) securities of a portfolio company will generally be voted in a manner
consistent with the Guidelines; and (ii) voting will be done without regard to any other
__________ companies’ relationship, business or otherwise, with that portfolio company.
B. __________ votes proxies. In the event an Investment Proxy Research employee has a personal
conflict with a portfolio company or an employee or director of a portfolio company, that
employee will withdraw from making any proxy voting decisions with respect to that portfolio
company. A conflict of interest arises when there are factors that may prompt one to question
whether a __________ employee is acting solely on the best interests of __________ and its
customers. Employees are expected to avoid situations that could present even the appearance of
a conflict between their interests and the interests of __________ and its customers.
C. Except as set forth herein, __________ will generally vote in favor of routine management
proposals.
D. Non-routine proposals will generally be voted in accordance with the Guidelines.
E. Non-routine proposals not covered by the Guidelines or involving other special circumstances
will be evaluated on a case-by-case basis with input from the appropriate __________ analyst or
portfolio manager, as applicable, subject to review by an attorney within __________’s General
Counsel’ s office and a member of senior management within __________ Investment Proxy
Research. A significant pattern of such proposals or other special circumstances will be referred
to the appropriate __________ Board Committee or its designee.
F. __________ will vote on shareholder proposals not specifically addressed by the Guidelines
based on an evaluation of a proposal’s likelihood to enhance the economic returns or profitability
of the portfolio company or to maximize shareholder value. Where information is not readily
available to analyze the economic impact of the proposal, __________ will generally abstain.
G. Many __________ invest in voting securities issued by companies that are domiciled outside the
United States and are not listed on a U.S. securities exchange. Corporate governance standards,
legal or regulatory requirements and disclosure practices in foreign countries can differ from
those in the United States. When voting proxies relating to non U.S. securities, __________ will
generally evaluate proposals in the context of the Guidelines, but __________ may, where
applicable and feasible, take into consideration differing laws and regulations in the relevant
foreign market in determining how to vote shares.
A-2
H. In certain non-U.S. jurisdictions, shareholders voting shares of a portfolio company may be
restricted from trading the shares for a period of time around the shareholder meeting date.
Because such trading restrictions can hinder portfolio management and could result in a loss of
liquidity for a fund, __________ will generally not vote proxies in circumstances where such
restrictions apply. In addition, certain non-U.S. jurisdictions require voting shareholders to
disclose current share ownership on a fund-by-fund basis. When such disclosure requirements
apply, __________ will generally not vote proxies in order to safeguard fund holdings
information.
I. Where a management-sponsored proposal is inconsistent with the Guidelines, __________ may
receive a company’s commitment to modify the proposal or its practice to conform to the
Guidelines, and __________ will generally support management based on this commitment. If a
company subsequently does not abide by its commitment, __________ will generally withhold
authority for the election of directors at the next election.
II. Definitions (as used in this document)
A. Anti-Takeover Provision – includes fair price amendments; classified boards; “blank check”
preferred stock; Golden Parachutes; supermajority provisions; Poison Pills; restricting the right to
call special meetings; and any other provision that eliminates or limits shareholder rights.
B. Golden Parachute – Employment contracts, agreements, or policies that include an excise tax
gross-up provision; single trigger for cash incentives; or may result in a lump sum payment of
cash and acceleration of equity that may total more than three times annual compensation (salary
and bonus) in the event of a termination following a change in control.
C. Greenmail – payment of a premium to repurchase shares from a shareholder seeking to take over a
company through a proxy contest or other means.
D. Sunset Provision – a condition in a charter or plan that specifies an expiration date.
E. Permitted Bid Feature – a provision suspending the application of a Poison Pill, by shareholder
referendum, in the event a potential acquirer announces a bona fide offer for all outstanding
shares.
F. Poison Pill – a strategy employed by a potential take-over / target company to make its stock less
attractive to an acquirer. Poison Pills are generally designed to dilute the acquirer’s ownership and
value in the event of a take-over.
G. Large-Capitalization Company – a company included in the Russell 1000® Index.
H. Small Capitalization Company – a company not included in the Russell 1000® Index that is not a
Micro-Capitalization Company.
I. Micro-Capitalization Company – a company with market capitalization under US $300 million.
J. Evergreen Provision – a feature which provides for an automatic increase in the shares available
for grant under an equity award plan on a regular basis.
A-3
III. Directors
A. Incumbent Directors
__________ will generally vote in favor of incumbent and nominee directors except where one or
more such directors clearly appear to have failed to exercise reasonable judgment. __________
will also generally withhold authority for the election of all directors or directors on responsible
committees if:
1. An Anti-Takeover Provision was introduced, an Anti-Takeover Provision was extended, or a
new Anti-Takeover Provision was adopted upon the expiration of an existing Anti-Takeover
Provision, without shareholder approval except as set forth below.
With respect to Poison Pills, however, __________ will consider not withholding authority
on the election of directors if all of the following conditions are met when a Poison Pill is
introduced, extended, or adopted:
a. The Poison Pill includes a Sunset Provision of less than five years;
b. The Poison Pill includes a Permitted Bid Feature;
c. The Poison Pill is linked to a business strategy that will result in greater value for the
shareholders; and
d. Shareholder approval is required to reinstate the Poison Pill upon expiration.
__________ will also consider not withholding authority on the election of directors
when one or more of the conditions above are not met if a board is willing to strongly
consider seeking shareholder ratification of, or adding above conditions noted a. and b. to
an existing Poison Pill. In such a case, if the company does not take appropriate action
prior to the next annual shareholder meeting, __________ will withhold authority on the
election of directors.
2. The company refuses, upon request by __________, to amend the Poison Pill to allow
__________ to hold an aggregate position of up to 20% of a company’s total voting securities
and of any class of voting securities.
3. Within the last year and without shareholder approval, a company’s board of directors or
compensation committee has repriced outstanding options, exchanged outstanding options for
equity, or tendered cash for outstanding options.
4. The company failed to act in the best interests of shareholders when approving executive
compensation, taking into account such factors as: (i) whether the company used an
independent compensation committee; (ii) whether the compensation committee engaged
independent compensation consultants; (iii) whether the company has admitted to or settled a
regulatory proceeding relating to options backdating; (iv) whether the compensation
committee has lapsed or waived equity vesting restrictions; and (v) whether the company has
adopted or extended a Golden Parachute without shareholder approval.
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5. To gain __________’s support on a proposal, the company made a commitment to modify a
proposal or practice to conform to the Guidelines and the company has failed to act on that
commitment.
6. The director attended fewer than 75% of the aggregate number of meetings of the board or its
committees on which the director served during the company’s prior fiscal year, absent
extenuating circumstances.
7. The board is not composed of a majority of independent directors.
B. Indemnification
__________ will generally vote in favor of charter and by-law amendments expanding the
indemnification of directors and/or limiting their liability for breaches of care unless __________
is otherwise dissatisfied with the performance of management or the proposal is accompanied by
Anti-Takeover Provisions.
C. Independent Chairperson
__________ will generally vote against shareholder proposals calling for or recommending the
appointment of a non-executive or independent chairperson. However, __________ will consider
voting for such proposals in limited cases if, based upon particular facts and circumstances,
appointment of a non-executive or independent chairperson appears likely to further the interests
of shareholders and to promote effective oversight of management by the board of directors.
D. Majority Director Elections
__________ will generally vote in favor of proposals calling for directors to be elected by an
affirmative majority of votes cast in a board election, provided that the proposal allows for
plurality voting standard in the case of contested elections (i.e., where there are more nominees
than board seats). __________ may consider voting against such shareholder proposals where a
company’s board has adopted an alternative measure, such as a director resignation policy, that
provides a meaningful alternative to the majority voting standard and appropriately addresses
situations where an incumbent director fails to receive the support of a majority of the votes cast
in an uncontested election.
IV. Compensation
A. Equity award plans (including stock options, restricted stock awards, and other stock awards).
__________ will generally vote against equity award plans or amendments to authorize additional
shares under such plans if:
1. (a) The dilution effect of the shares outstanding and available for issuance pursuant to all
plans, plus any new share requests is greater than 10% for a Large-Capitalization Company,
15% for a Small-Capitalization Company or 20% for a Micro-Capitalization Company; and
(b) there were no circumstances specific to the company or the plans that lead __________ to
conclude that the level of dilution in the plan or the amendments is acceptable.
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2. In the case of stock option plans, (a) the offering price of options is less than 100% of fair
market value on the date of grant, except that the offering price may be as low as 85% of fair
market value if the discount is expressly granted in lieu of salary or cash bonus; (b) the plan’s
terms allow repricing of underwater options; or (c) the board/committee has repriced options
outstanding under the plan in the past two years without shareholder approval.
3. In the case of stock awards, the restriction period is less than three years for nonperformance-
based awards, and less than one year for performance-based awards.
4. The plan includes an Evergreen Provision.
5. The plan provides for the acceleration of vesting of equity awards even though an actual
change in control may not occur.
__________ will consider approving an equity award plan or an amendment to authorize
additional shares under such plan if, without complying with the guidelines immediately above,
the following two conditions are met:
1. The shares are granted by a compensation committee composed entirely of independent
directors; and
2. The shares are limited to 5% (Large-Capitalization Company) and 10% (Small-or Micro-
Capitalization Company) of the shares authorized for grant under the plan.
B. Equity Exchanges and Repricing
__________ will generally vote in favor of a management proposal to exchange, reprice or tender
for cash, outstanding options if the proposed exchange, repricing, or tender offer is consistent
with the interests of shareholders, taking into account such factors as:
1. Whether the proposal excludes senior management and directors;
2. Whether the exchange or repricing proposal is value neutral to shareholders based upon an
acceptable pricing model;
3. The company’s relative performance compared to other companies within the relevant
industry or industries;
4. Economic and other conditions affecting the relevant industry or industries in which the
company competes; and
5. Any other facts or circumstances relevant to determining whether an exchange or repricing
proposal is consistent with the interests of shareholders.
C. Employee Stock Purchase Plans
__________ will generally vote in favor of employee stock purchase plans if the minimum stock
purchase price is equal to or greater than 85% of the stock’s fair market value and the plan
constitutes a reasonable effort to encourage broad based participation in the company’s equity. In
the case of non-U.S. company stock purchase plans, __________ may permit a lower minimum
stock purchase price equal to the prevailing “best practices” in the relevant non-U.S. market,
provided that the minimum stock purchase price must be at least 75% of the stock’s fair market
value.
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D. Employee Stock Ownership Plans (ESOPs)
__________ will generally vote in favor of non-leveraged ESOPs. For leveraged ESOPs,
__________ may examine the company’s state of incorporation, existence of supermajority vote
rules in the charter, number of shares authorized for the ESOP, and number of shares held by
insiders. __________ may also examine where the ESOP shares are purchased and the dilution
effect of the purchase. __________ will generally vote against leveraged ESOPs if all
outstanding loans are due immediately upon change in control.
E. Executive Compensation
__________ will generally vote against management proposals on stock-based compensation
plans or other compensation plans if such proposals are inconsistent with the interests of
shareholders, taking into account such factors as:(i) whether the company has an independent
compensation committee; and (ii) whether the compensation committee has authority to engage
independent compensation consultants.
F. Bonus Plans and Tax Deductibility Proposals
__________ will generally vote in favor of cash and stock incentive plans that are submitted for
shareholder approval in order to qualify for favorable tax treatment under Section 162(m) of the
Internal Revenue Code, provided that the plan includes well defined and appropriate performance
criteria, and with respect to any cash component, that the maximum award per participant is
clearly stated and is not unreasonable or excessive.
V. Anti-Takeover Provisions
__________ will generally vote against a proposal to adopt or approve the adoption of an Anti-
Takeover Provision unless:
A. The Poison Pill includes the following features:
1. A Sunset Provision of no greater than five years;
2. Linked to a business strategy that is expected to result in greater value for the shareholders;
3. Requires shareholder approval to be reinstated upon expiration or if amended;
4. Contains a Permitted Bid Feature; and
5. Allows the __________ to hold an aggregate position of up to 20% of a company’s total
voting securities and of any class of voting securities.
B. An Anti-Greenmail proposal that does not include other Anti-Takeover Provisions; or
C. It is a fair price amendment that considers a two-year price history or less.
__________ will generally vote in favor of a proposal to eliminate an Anti-Takeover Provision
unless:
D. In the case of proposals to declassify a board of directors, __________ will generally vote against
such a proposal if the issuer’s Articles of Incorporation or applicable statutes include a provision
whereby a majority of directors may be removed at anytime, with or
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without cause, by written consent, or other reasonable procedures, by a majority of shareholders
entitled to vote for the election of directors.
E. In the case of proposals regarding shareholders’ right to call special meetings, __________
generally will vote against each proposal if the threshold required to call a special meeting is less
than 25% of the outstanding stock.
VI. Capital Structure / Incorporation
A. Increase in Common Stock
__________ will generally vote against a provision to increase a company’s common stock if
such increase will result in a total number of authorized shares greater than three times the current
number of outstanding and scheduled to be issued shares, including stock options, except in the
case of real estate investment trusts, where an increase that will result in a total number of
authorized shares up to five times the current number of outstanding and scheduled to be issued
shares is generally acceptable.
B. New Classes of Shares
__________ will generally vote against the introduction of new classes of stock with differential
voting rights.
C. Cumulative Voting Rights
__________ will generally vote against the introduction and in favor of the elimination of
cumulative voting rights.
D. Acquisition or Business Combination Statutes
__________ will generally vote in favor of proposed amendments to a company’s certificate of
incorporation or by-laws that enable the company to opt out of the control shares acquisition or
business combination statutes.
E. Incorporation or Reincorporation in Another State or Country
__________ will generally vote against shareholder proposals calling for, or recommending that,
a portfolio company reincorporate in the United States and vote in favor of management
proposals to reincorporate in a jurisdiction outside the United States if (i) it is lawful under United
States, state and other applicable law for the company to be incorporated under the laws of the
relevant foreign jurisdiction and to conduct its business and (ii) reincorporating or maintaining a
domicile in the United States would likely give rise to adverse tax or other economic
consequences detrimental to the interests of the company and its shareholders. However,
__________ will consider supporting such shareholder proposals and opposing such management
proposals in limited cases if, based upon particular facts and circumstances, reincorporating in or
maintaining a domicile in the relevant foreign jurisdiction gives rise to significant risks or other
potential adverse consequences that appear reasonably likely to be detrimental to the interests of
the company or its shareholders.
VII. Shares of Investment Companies
A. When a __________ invests in an underlying __________ with public shareholders, an exchange
traded fund (ETF), or non-affiliated fund, __________ will vote in the same
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proportion as all other voting shareholders of such underlying fund or class (“echo voting”).
__________ may choose not to vote if “echo voting” is not operationally feasible.
B. Certain __________ may invest in shares of underlying __________, which are held exclusively
by __________or accounts managed by __________ or an affiliate. __________ will generally
vote in favor of proposals recommended by the underlying funds’ Board of Trustees.
VIII. Other
A. Voting Process
__________ will generally vote in favor of proposals to adopt confidential voting and
independent vote tabulation practices.
B. Regulated Industries
Voting of shares in securities of any regulated industry (e.g., U.S. banking) organization shall be
conducted in a manner consistent with conditions that may be specified by the industry’s regulator
(e.g., the Federal Reserve Board) for a determination under applicable law (e.g., federal banking
law) that no __________ or group of __________ has acquired control of such organization.
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