Company Name: Nabors Industries Ltd.
Public Availability Date: April 4, 2005
Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
February 11, 2005
By Hand Delivery
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Nabors Industries Ltd.Shareholder Proposal Submitted by ProxyVote Plus
Purportedly on behalf of the United Association S&P 500 Index Fund.
Ladies and Gentlemen:
This letter is to inform you that it is the intention of Nabors Industries Ltd.
(the "Company") to omit from its proxy statement and form of proxy for its 2005
Annual General Meeting of Shareholders (collectively, the "2005 Proxy
Materials") a shareholder resolution and statement in support thereof (together,
the "Proposal") received from ProxyVote Plus ("ProxyVote") purportedly on behalf
of the United Association S&P 500 Index Fund (the "Proponent").
The Proposal and accompanying correspondence from the Proponent are attached
hereto as Exhibit A. References herein to "Rules" refer to rules promulgated
under the Securities Exchange Act of 1934.
The Company respectfully requests that the staff (the "Staff") of the Securities
and Exchange Commission ("SEC" or "Commission") Division of Corporation Finance
not recommend any type of enforcement action to the Commission if the Company
omits the Proposal from its 2005 Proxy Materials for the reasons set forth
below. The Company believes the Proposal may be omitted:
(a) under Rule 14a-8(b) and Rule 14a-8(f)(1), because the Proponent did not
provide the requisite proof of continuous stock ownership in response to the
Company's request for that information.
(b) under Rule 14a-8(i)(4), because the Proposal is in furtherance of a personal
grievance and an interest which is not shared by shareholders at large.
Pursuant to Rule 14a-8(j), enclosed are six copies of this letter and its
attachments. Also in accordance with Rule 14a-8(j), copies of this letter and
its attachments are being mailed on this date to the Proponent, informing them
of the Company's intention to omit the Proposal from the 2005 Proxy Materials.
Pursuant to Rule 14a-8(j), this letter is being submitted not less than 80 days
before the Company files its definitive 2005 Proxy Materials with the
Commission.
BACKGROUND
Because the Proponent is a member of the AFL-CIO and consequently an affiliate
of the Alaska State District Council of Laborers, part of the Laborers'
International Union of North America AFL-CIO (the "Union"), which has a bitter
and ongoing labor dispute with the Company, some background is in order:
In October 2000 the Alaska State District Council of Laborers was certified the
official bargaining representative for certain of the Alaskan field workers of
one of the Company's subsidiaries. Negotiations for a collective bargaining
agreement began shortly thereafter. Since that time, the Union and affiliated
pension fund, the Central Laborers' Pension, Welfare & Annuity Funds ("CLP")
(listed as an affiliate of the Union on Exhibit B) have acted in concert to
pressure the Company and Nabors Industries Inc., a Delaware subsidiary of the
Company and its predecessor for SEC reporting purposes ("Nabors Delaware"), in
furtherance of the Union's collective bargaining demands.
On January 7, 2002, CLP submitted a shareholder resolution on a corporate
governance topic for the Nabors Delaware 2002 annual meeting. In the
correspondence accompanying that proposal, Ms. Linda Priscilla was described by
CLP as its "Corporate Governance Advisor," to whom questions regarding the
resolution should be directed. Ms. Priscilla is also listed as a carbon copy
recipient of the Proponent's Proposal, and now her associate, Richard Metcalf in
his capacity as a representative of the Union is listed as "Corporate Governance
Advisor," making clear the central direction the Union is exercising over the
Proponent and CLP.
Upon receipt of this previous Union-sponsored shareholder resolution, Gene
Isenberg, the Company's Chairman and Chief Executive Officer, took the same
approach he had taken with other shareholders expressing corporate governance
concerns and contacted Ms. Priscilla to discuss the proposal and seek an
alternate means of addressing the Union's concerns. Shortly thereafter, on
January 16, 2002, Mr. Mano Frey, then the Union's chief negotiator, contacted
Nabors Delaware's counsel in Alaska and offered to have a shareholder resolution
submitted by an "unidentified female" in Washington, D.C., withdrawnif the
Union's demands were met.
When Nabors Delaware declined to capitulate to such tactics, its counsel
received a copy of a press release issued by the Union, announcing CLP's intent
to scrutinize and possibly object to Nabors Delaware's proposed merger with the
Company. The cover sheet was from Mr. Frey, and had handwritten on it "Here we
go!" indicating the commencement of the Union's strategy of using
Union-affiliated pension fund shareholder activism as leverage against the
Company. A copy of this fax coversheet and press release are attached as Exhibit
C.
A few days after the 2002 Union-sponsored shareholder resolution was
overwhelmingly rejected by shareholders, the Union's parent organization, the
AFL-CIO, filed a complaint in federal court, seeking an injunction to prevent
Nabors Delaware's proposed merger with a subsidiary of the Company. The court
denied injunctive relief, and the complaint was ultimately dismissed.
Further evidence of the Union's exercise of control over its affiliated pension
funds is provided by a fax letter received by Nabors Delaware dated October 29,
2002, (attached hereto as Exhibit D) which makes a series of spurious
allegations regarding the Company's relations with the Union, and lists among
the carbon copy recipients Ms. Priscillain her capacity as an agent of the
Union.
More recently, in 2004 the Union has continued its prolonged campaign of attacks
upon the Company and its Chairman. In May 2004 a Union representative, Mr. Henry
Baker, contacted the Boy Scouts of America to inquire whether Gene Isenberg was
a member of its fundraising committee. When Mr. Isenberg's office returned his
call they discovered that Mr. Baker was misrepresenting himself as a an employee
of the Company, and answering his telephone with "Henry Baker, Nabors Drilling."
See affidavit of Ms. Deborah Quick, attached hereto as Exhibit E. Mr. Isenberg
followed up with a call to demand the Union stop its deceptions. Soon thereafter
the Union distributed flyers to representatives of the Boy Scouts of America,
attacking the Boy Scouts, a cause supported by the Company and its Chairman, and
falsely accusing the Company of avoiding paying taxes during a time of war, not
supporting the military, and "avoiding responsibilities as an American." The
flyers urged the Boy Scouts to remove Gene Isenberg from its fund raising board,
and purported to be distributed by a group called "Americans for
Responsibility," but listed the Union's telephone number at the bottom. A copy
of this flyer is attached as Exhibit F.
Later that same month, the Union (again under the guise of "Americans for
Responsibility") distributed flyers at the American Stock Exchange (on which the
Company is listed) repeating the same calumnies, falsely claiming that U.S.
soldiers were going without body armor because the Company did not pay more
taxes, and urging the American Stock Exchange to remove Mr. Isenberg from its
board of directors. This flyer was also faxed directly to Gene Isenberg from the
Laborers' Eastern Region Organizing Fund, signed only "LIUNA." Again the Union's
phone number was at the bottom of the flyer. A copy of this flyer is attached as
Exhibit G.
At the Company's annual meeting of shareholders in June 2004 the Union continued
its attempts to traduce the Company and its Chairman by distributing flyers
slanderously stating that "You may be a traitor if you own stock in Nabors or
are affiliated with Gene `Anti American' Isenberg." Again the flyers were
distributed "Americans for Responsibility," but listed the Union's telephone
number at the bottom. A copy of the flyers is attached as Exhibit H. At that
same meeting, another member of the AFL-CIO and affiliate of the Proponent
sponsored a shareholder proposal requesting the Company to reincorporate inside
the United States. That proposal was voted down by 88% of the Company's
shareholders.
The Union continued its vendetta in July 2004 when the Union placed a billboard
advertisement close to the Company's Houston offices which read "Gene
"Anti-American" Isenberg+Nabors Drilling=U.S. Tax $$$ Lost to Bermuda." The sign
had a toll-free number (the same number appearing on the "Americans for
Responsibility" flyers and read further that it was "Paid for by the Laborers'
International Union of North America." A photo of the billboard is attached as
Exhibit I.
In August 2004 the Union's tactics became more threatening, as they circulated a
"Wanted Poster" with Gene Isenberg's picture and phone number at an investor
conference in Colorado, again accusing him and the Company of "anti-American"
activities, not supporting the military and avoiding responsibilities as an
American. A copy of the poster is attached as Exhibit J. At that same investor
conference, the Union picketed the conference center, displaying signs reading
"Shame on Nabors and Gene Isenberg" and parking a giant inflatable rat with Gene
Isenberg's name on it on the street in front of the conference center. A photo
of the rat is attached as Exhibit K.
Now in 2005 the Union is again using an affiliated fund which it controls to
further its private collective bargaining agenda under the guise of shareholder
activism. This year another shareholder resolution has been submitted by a
different affiliate of the Union (the Massachusetts Laborers' Pension Fund) in a
transparent attempt to disguise its control over Union-affiliated funds. As
noted in Exhibit B, both CLP and the Massachusetts Laborer's Pension Fund are
listed on the Union's website as affiliated funds. Moreover, there is in fact a
history of this Proponent acting as tool of the Union, see, e.g. Merrill Lynch &
Co., Inc. (avail. Jan. 18, 1995), where hours after the Union was requested to
provide evidence of ownership in support of a proposal it had submitted, this
Proponent submitted an identically worded proposal in an unsuccessful attempt to
circumvent the ownership requirements.
In light of the AFL-CIO's past legal action against the Company and the
concurrent harassment undertaken by the Proponent's other AFL-CIO affiliates,
the Company views the instant shareholder proposal as another means by which the
Union and its AFL-CIO affiliates are engaging in shareholder activism designed
to further the interests of the Union. This Proposal by the Union's affiliate is
only the latest attempt to pursue the Union's longstanding and vitriolic
personal grievance against the Company and Gene Isenberg.
ANALYSIS AND BASES FOR EXCLUSION
(a) The Proposal is excludable under Rule 14a-8(b) and Rule 14a-8(f)(1), because
the Proponent did not provide the requisite proof of continuous stock ownership
in response to the Company's request for that information.
In accordance with Rule 14a-8(b) and Rule 14a-8(f)(1), the Company may exclude
the Proposal because the Proponent failed to correct defects in the Proposal
within 14 days after receipt of notice from the Company. Rule 14a-8(b)(2)
provides that to be eligible to submit a proposal, a shareholder, if not the
registered holder of a company's shares, must prove its eligibility to submit a
shareholder proposal to the company.
ProxyVote submitted the Proposal, claiming to act on behalf of the Proponent, in
a letter to the Company dated January 4, 2005 (See Exhibit A). The January 4
letter included pages 1, 4 and 5, but was missing pages 2 and 3, of a Proxy
Voting Services Agreement (the "Agreement") between ProxyVote and yet another
third party, the Advisors Inner Circle Fund (the "Advisors Fund") as purported
evidence of ProxyVote's authority to submit a shareholder proposal on behalf of
the Proponent.
The Company has an obligation to protect the integrity of its public filings,
and it has no other practical means to verify the authenticity of an agency
agreement or other arrangementparticularly in cases like the present one, where
there is an additional entity (the Advisors Fund) separating the purported agent
(ProxyVote) from the actual shareholder (the Proponent). The excerpts from the
Agreement provided by ProxyVote are not sufficient to this end, and the Company
properly and timely requested further information. Without having the benefit of
the entire Agreement, including without limitation the "Proxy Voting Guidelines"
referenced therein, the Company is not in a position to know with reasonable
certainty what authority ProxyVote has to act on the Proponent's behalf.
Moreover, while the portions of the Agreement provided to the Company might give
ProxyVote authority on behalf of the Advisors Fund, this does not provide
evidence of the authority of the Advisors Fund to enter into an agreement on
behalf of the Proponent. Specifically, the relationship between the Advisors
Fund, the party to the Agreement, and the Proponent, the party on whose behalf
ProxyVote submitted the shareholder proposal, is unclear from the Agreement; the
Agreement states that the Advisors Fund executed the Agreement "on behalf of its
series" the Proponent. The Company is not in a position to know, without further
information, what relationship the Advisors Fund has to the Proponent, and what
authority the Advisors Fund has to act on behalf of the Proponent.
Accordingly, in a letter dated January 17, 2005 (a copy of the letter and proof
of receipt by ProxyVote are attached hereto as Exhibit L) which was delivered to
ProxyVote within the required 14 day period, the Company requested ProxyVote to
supply the entire Agreement and provide information regarding the relationship
between the Advisors Fund and the Proponent. Because the Agreement was more than
a year old, the Company also requested evidence that it was still in effect. The
Company's January 17 letter provided detail regarding how ProxyVote could remedy
the eligibility defects, included a copy of Rule 14a-8 to assist ProxyVote in
understanding the requirements, and stated that ProxyVote's response must be
postmarked, or transmitted electronically, no later than 14 days from the date
that ProxyVote received the Company's notification in accordance with Rule
14a-8(f)(1). To date, the Company has received no response from ProxyVote or the
Proponent supplying the Company with the information requested regarding the
Agreement, the relationship between the ProxyVote and the Proponent, and the
relationship between the Advisors Fund and the Proponent as requested by the
Company and required by Rule 14a-8(b).
In circumstances where proponents have failed to provide a written response
within the 14 day period provided for in Rule 14a-8(f)(1), the SEC has upheld
the exclusion of a proposal from a company's proxy materials. See, e.g.,
Motorola, Inc. (Sept. 28, 2001), Target Corporation (Mar. 12, 2001), and AT&T
Corp. (Dec. 11, 2000) (shareholder did not respond within 14-day period to
company's request for evidence that proponent met minimum ownership requirements
for the required one-year period so SEC allowed company to exclude shareholder
proposal). Because this eligibility deficiency has not been remedied within the
required time period, the Proposal is excludable by the Company pursuant to
Rules 14a-8(b) and 14a-8(f).
(b) The Proposal is excludable under Rule 14a-8(i)(4), because the Proposal is
in furtherance of a personal grievance and an interest which is not shared by
shareholders at large.
As set forth above in the Background section, the Proponent is a member
organization of the AFL-CIO, whose members and affiliates have been pursusing a
long-standing personal grievance against the Company. The Company views this
Proposal as a continuance of the illegitimate negotiating tactics undertaken by
the Union and its AFL-CIO affiliates, and believes the Proponent should not be
permitted to abuse the shareholder proposal process to obtain advantage in
completely unrelated labor dispute. The Commission has taken the position that
even proposals drafted "in broad terms so that they might be of general interest
to all security holders" may nonetheless be omitted from the issuer's proxy
materials if the proposals are "a tactic designed to redress a personal
grievance or further a personal interest." SEC Release No. 34-19135 (October 14,
1982). There is also ample recent precedent to support exclusion of a
shareholder proposal where it is obviously in furtherance of a personal
grievance, even where the topic of the resolution is unrelated to the grievance.
See Service Corporation International (February 28, 1997), Phillips Petroleum
Company (March 12, 2001), and Sara Lee Corporation (August 10, 2001)
(shareholder proposal relating to payments made by the company outside the
normal course of business could be excluded under 14a-8(i)(4) where the
shareholder had an interest in litigation pursued by former employees of the
company).
The Company strongly believes that in this case, where the Union's personal
grievance against the Company and its affiliation with Proponent have been
overwhelmingly documented, Rule 14a-8(i)(4) should be enforced.
CONCLUSION
Our opinion is that the Proposal is excluded from the Company's 2005 Proxy
Materials (a) under Rule 14a-8(b) and Rule 14a-8(f)(1), because the Proponent
did not provide the requisite proof of continuous stock ownership in response to
the Company's request for that information, and (b) under Rule 14a-8(i)(4),
because the Proposal is in furtherance of a personal grievance and an interest
which is not shared by shareholders at large. We respectfully ask the Staff's
concurrence that the Proposal may be excluded from the Company's 2005 Proxy
Materials.
Should you disagree with the conclusions set forth in this letter, we
respectfully request the opportunity to confer with you prior to the
determination of the Staff's final position. We would be happy to provide you
with any additional information and answer any questions that you may have
regarding this subject.
Please do not hesitate to call me at (281) 775-8556, if I can be of any further
assistance in this matter.
Sincerely,
/s/
Bruce M. Taten
Vice President and General Counsel
cc: Mr. Craig Rosenberg
ProxyVote Plus
Two Northfield Plaza
Northfield, IL 60093
Mr. Sean O'Ryan
United Association of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada
901 Massachusetts Avenue NW
Washington, DC 20001
[APPENDIX 1]
January 4, 2005
VIA FACSIMILE: 246-421-9472
Mr. Daniel McLachlin
Secretary
Nabors Industries Ltd.
515 West Greens Road, Suite 1200
Houston, TX 77067
Re: Shareholder Proposal
Dear Mr. McLachlin:
ProxyVote Plus has been retained to advise the United Association S&P 500 Index
Fund on corporate governance matters. Enclosed please find the pertinent
provisions of the Agreement between the United Association S&P 500 Index Fund
and ProxyVote Plus demonstrating ProxyVote Plus's authority to represent the
Fund with regard to this proposal. You will see that Section 1 of the Agreement
provides us such authority. On behalf of the United Association S&P 500 Index
Fund, I hereby submit the enclosed shareholder proposal ("Proposal") for
inclusion in the Nabors Industries Ltd. ("Company") proxy statement to be
circulated to Company shareholders in conjunction with the next annual meeting
of shareholders. The Proposal is submitted under Rule 14(a)-8 (Proposals of
Security Holders) of the U.S. Securities and Exchange Commission's proxy
regulations. The Proposal is being submitted in order to promote an enhanced
corporate governance system at the Company.
The Fund is the beneficial owner of Company stock valued in excess of $2,000 in
market value that it has held continuously for more than a year prior to this
date of submission. The Fund intends to hold the shares through the date of the
Company's next annual meeting of shareholders. The record holder of the stock
will provide the appropriate verification of the Fund's benefioial ownership by
separate letter.
If you have any questions or wish to discuss the Proposal, please contact Mr.
Sean O'Ryan, 202-628-5823, United Association of Journeymen and Apprentices of
the Plumbing and Pipe Fitting Industry of the United States and Canada, 901
Massachusetts Avenue, N.W., Washington, D.C. 20001. Copies of correspondence
should be forwarded to Mr. Sean O'Ryan. Thank you.
Sincerely,
Craig Rosenberg
cc: Mr. Sean O'Ryan, United Association
William Zitelli, Esq. UA S&P 500 Fund
[APPENDIX 2]
Performance-Based Options Proposal
Resolved: That the shareholders of Nabors Industries Ltd. (the "Company")
request that the Compensation Committee of the Board of Directors adopt a policy
that a significant portion of future stock option grants to senior executives
shall be performance-based. Performance-based options are defined as follows:
(1) indexed options, in which the exercise price is linked to an industry or
wall-defined peer group Index; (2) premlum-priced stock options, In which the
exercise price is set above the market price on the grant date; or (3)
performance-vesting options, which vest when a performance target is met.
Supporting Statement: As long-term shareholders of the Company, we support
executive compensation policies and practices that provide challenging
performance objectives and serve to motivate executives to enhance long-term
corporate value. We belleve that standard fixed-price stock option grants can
and often do provide levels of compensation well beyond those merited, by
reflecting stock market value increases, not performance superior to the
company's peer group.
Our shareholder proposal advocates performance-based stock options in the form
of Indexed, premium-priced or performance-vesting stock options. With Indexed
options, the option exercise price moves with an appropriate peer group index so
as to provide compensation value only to the extent that the company's stock
price performance is superior to the companies in the peer group utillzed.
Premium-priced options entall the setting of an option exercise price above the
exercise price used for standard fixed-priced options so as to provide value for
stock price performance that exceeds the premium option price.
Performance-vesting options encourage strong corporate performance by
conditioning the vesting of granted options on the achievement of demanding
stock and/or operational performance measures.
Our shareholder proposal requests that the Company's Compensation Committee
utilize one or more varieties of performance-based stock options in constructing
the long-term equity portion of the senior executives' compensation plan. The
use of performance-based options, to the extent they represent a significant
portion of the total options granted to senior executives, will help place a
strong emphasis on rewarding superior corporate performance and the achievement
of demanding performance goals.
Leading investors and market observers, such as Warren Buffet and Alan
Greenspan, have critized the use of fixed-price options on the grounds that they
all to often reward mediocre or poor performance. The Conference Board's
Commission on Public Trust and Private Enterprise In 2002 looked at the issue of
executive compensation and endorsed the use of performance-based options to help
restore public confidence in the markets and U.S. corporations.
At present, the Company does not employ performance-based stock options as
defined in this proposal, so shareholders cannot be assured that only superior
performance is being rewarded. Performance-based options can be an important
component of a compensation plan designed to focus senior management on
accomplishing long-term corporate strategic goals and superior long-term
corporate performance. We urge your support for this important executive
compensation reform.
[INQUIRY LETTER]
February 18, 2005
Office of Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Response to Nabors Industries Ltd.'s Request for No-Action Advice Concerning
the United Association S&P 500 Index Fund's Shareholder Proposal
Dear Sir or Madam:
The United Association S&P 500 Index Fund (the "Fund" or the "Proponent") hereby
submits this letter in reply to Nabors Industries Ltd.'s ("Nabors" or "the
Company") Request for No-Action Advice concerning the shareholder proposal
("Proposal") and supporting statement the Fund submitted to the Company for
inclusion in its 2005 proxy materials. The Fund respectfully submits that the
Company has failed to satisfy its burden of persuasion and should not be granted
permission to exclude the Proposal. Pursuant to Rule 14a-8(k), six paper copies
of the Fund's response are hereby included and a copy has been provided to the
Company.
The Company Fails to Satisfy Its Burden of Persuasion that the Proposal May Be
Excluded Under Rule 14a-8(i)(4).
The Company erroneously contends that the Proposal may be omitted under Rule
14a-8(i)(4) because it is submitted in furtherance of a personal grievance and
an interest which is not shared by shareholders at large. This argument rests on
a series of false statements. The Company states:
Because the Proponent is a member of the AFL-CIO and consequently an affiliate
of the Alaska State District Council of Laborers, part of the Laborers'
International Union of North America AFL-CIO (the `Union'), which has a bitter
and ongoing labor dispute with the Company, some background is in order.
The Proponentthe United Association S&P 500 Index Fundis not a member of the
AFL-CIO, not an affiliate of the Alaska State District Council of Laborers, not
part of the Laborers' International Union of North America. Further, the United
Association S&P 500 Index Fund has no "bitter and ongoing labor dispute with the
Company" or a dispute of any kind with the Company.
The Company further claims:
Ms. Priscilla [a Corporate Governance Advisor to the Central Laborers' Pension,
Welfare & Annuity funds] is also listed as a carbon copy recipient of the
Proponent's Proposal, and now her associate, Richard Metcalf in his capacity as
a representative of the Union is listed as `Corporate Governance Advisor,'
making clear the central direction the Union is exercising over the Proponent
and CLP.
The Company incorrectly states that Ms. Priscilla was listed as a carbon copy
recipient of the Proposal and that the Laborers Union is exercising direction
over the Proponent. Ms. Priscilla may have been copied on the proposal submitted
by the Laborers Fund in 2002; she was not copied on the Proposal submitted by
the Proponent. Most important, the Laborers Union exercises no direction over
the United Association S&P 500 Index Fund.
Apparently to advance its Rule 14a-8(i)(4) argument, the Company conflates a
discussion of a shareholder proposal submitted several years ago by the Central
Laborers' Pension, Welfare & Annuity funds with the Proposal at issue here. The
Company appears, either deliberately or inadvertently, to be confusing the
Central Laborers Fund with the United Association S&P 500 Fund. Thus, the
lengthy "background" submitted by the Company is irrelevant and does not support
its request under Rule 14a-8(i)(4).
In fact, the Proponent submitted the Proposal not to advance any personal
grievance, but rather in response to the significant grant of stock options
given to Nabors' Chairman and Chief Executive Officer Eugene Isenberg and to
address the senior executive compensation system at Nabors. The Proposal is a
straight-forward request for the Compensation Committee to adopt a policy that a
significant portion of future stock option grants to senior executives shall be
performance-based. Never does the Company claim that a shareholder proposal
addressing senior executive compensation is not a proper topic for a shareholder
proposal. Indeed, it is well established that shareholder proposals addressing
senior executive compensation are not excludable under Rule 14a-8.
Nabors' most recent proxy statement disclosed that Chairman and Chief Executive
Officer Eugene M. Isenberg is the beneficial owner of 12,286,013 common shares
of stock in the Company, representing 7.72% of the total shares. Mr. Isenberg
was granted 950,000 options during 2003, representing 34.87% of the total
options granted to employees in fiscal year 2003. These 950,000 options were
estimated to be worth $13,599,345. Nabors' proxy statement further discloses
that the value of Mr. Isenberg's unexercised in-the-money options at fiscal year
end was over $150 million.
Mr. Isenberg's compensation has been a focus of much attention for some time.
For several years Mr. Isenberg has been identified as one of the highest-paid
executives in Houston. In an article entitled "Houston's top execs in energy,"
the Houston Chronicle reported the following on May 29, 2001:
Consider this: Eight out of the 10 highest-paid executives in Houston are in the
oil and gas business....
The top earner was the chairman and CEO of Nabors Industries, Eugene M.
Isenberg. He earned $63.9 million last year, largely because the company doubled
the number of options it awarded him the previous year, said Tammy Hemphill,
director of human capital consulting for Resource Connection.
On July 19, 2004, in an article entitled "Highest-paid executives see
compensation slide," the Houston Chronicle stated:
Nabors Industries Chairman and CEO Eugene Isenberga top four finisher in four
out of the last five yearsranked second with a $15.8 million package.
The Proposal requested that the Compensation Committee of the Board of Directors
adopt a policy that a significant portion of future stock option grants to
senior executives be performance-based. The Supporting Statement to the Proposal
articulates its rationale. It states:
As long-term shareholders of the Company, we support executive compensation
policies and practices that provide challenging performance objectives and serve
to motivate executives to enhance long-term corporate value. We believe that
standard fixed-price stock option grants can and often do provide levels of
compensation well beyond those merited, by reflecting stock market value
increases, not performance superior to the company's peer group.
Our shareholder proposal advocates performance-based stock options in the form
of indexed, premium-priced or performance-vesting stock options. With indexed
options, the option exercise price moves with an appropriate peer group index so
as to provide compensation value only to the extent that the company's stock
price performance is superior to the companies in the peer group utilized.
Premium-priced options entail the setting of an option exercise price above the
exercise price used for standard fixed-priced options so as to provide value for
stock price performance that exceeds the premium option price.
Performancevesting options encourage strong corporate performance by
conditioning the vesting of granted options on the achievement of demanding
stock and/or operational performance measures.
Our shareholder proposal requests that the Company's Compensation Committee
utilize one or more varieties of performance-based stock options in constructing
the long-term equity portion of the senior executives' compensation plan. The
use of performance-based options, to the extent they represent a significant
portion of the total options granted to senior executives, will help place a
strong emphasis on rewarding superior corporate performance and the achievement
of demanding performance goals.
Leading investors and market observers, such as Warren Buffet and Alan
Greenspan, have criticized the use of fixed-price options on the grounds that
they all to often reward mediocre or poor performance. The Conference Board's
Commission on Public Trust and Private Enterprise in 2002 looked at the issue of
executive compensation and endorsed the use of performance-based options to help
restore public confidence in the markets and U.S. corporations.
At present, the Company does not employ performance-based stock options as
defined in this proposal, so shareholders cannot be assured that only superior
performance is being rewarded. Performance-based options can be an important
component of a compensation plan designed to focus senior management on
accomplishing long-term corporate strategic goals and superior long-term
corporate performance. We urge your support for this important executive
compensation reform.
The Fund is a significant institutional investor in Nabors. It holds 12,032
shares. The Fund has submitted approximately 100 shareholder proposals to
companies throughout the United States in the last two years. In doing so the
Fund has sought to improve corporate governance and executive compensation
practices at companies in its portfolio. ProxyVote Plus, on behalf of the Fund,
has engaged in substantive dialogues with dozens of the companies the Fund has
engaged. In fact, approximately 36 shareholder proposals submitted by the Fund
have been withdrawn by the Fund in response to positive discussions with the
companies and their responsiveness to concerns raised by the Fund. Nabors never
sought to engage in such a dialogue.
The Company Fails to Satisfy Its Burden of Persuasion that the Proposal May Be
Excluded Under Rule 14a-8(b) and Rule 14a-8(f)(1).
The Company also argues that the Proposal may be omitted under Rules 14a-8(b)
and 14a-8(f)(1) because "the Proponent failed to correct defects in the Proposal
within 14 days after receipt of notice from the Company." By letter dated
January 4, 2005, ProxyVote Plus submitted the Proposal to the Company. The cover
letter to the Proposal noted that ProxyVote Plus had been retained to advise the
United Association S&P 500 Index Fund on corporate governance matters and that
ProxyVote Plus had the authority to submit the Proposal on behalf of the Fund.
Attached to the letter were all relevant portions of the agreement between
ProxyVote Plus and the Fund, which included the following language:
This Agreement is made effective as of the date it is last executed below
between The Advisors' Inner Circle Fund, a Massachusetts business trust (the
"Trust"), on behalf of its series the United Association S&P 500 Index Fund (the
"Fund"), and ProxyVote Plus, LLC (the "Manager").
WHEREAS, the Fund is intended primarily as an investment vehicle for members of
the United Association of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada (the "UA"), either through
direct investment by UA members or through investment by UA pension funds;
WHEREAS, the Board of Trustees of the Trust has determined that it is
appropriate for the Fund to exercise the proxy voting rights appurtenant to
securities held by the Fund in a manner which are believed to be consistent with
the interests of UA members;
WHEREAS, National City Investment Management Co., which serves as investment
adviser to the Fund, and UA, has each advised the Board of Trustees of the Trust
that it believes that the Manager is an appropriate party to determine the
interest of UA members with respect to matters on which a shareholder vote is
sought and to vote proxies consistent with the interests of UA members;
WHEREAS, the Trust, on behalf of the Fund, desires to appoint the Manager as
agent to assume the responsibilities of investment management consisting of the
right to vote proxies appurtenant to shares of corporate stock held by the Fund
in a manner consistent with the guidelines set forth in the Proxy Voting
Guidelines attached to this Agreement as Exhibit I (the "Guidelines");
NOW THEREFORE, the Trust, on behalf of the Fund, and the Manager do hereby agree
each with the other as follows:
1. Appointment and Authority of Manager. The Trust, on behalf of the Fund,
hereby appoints the Manager as its agent to exercise the proxy voting rights
appurtenant to securities held by the Fund as set forth below. The Manager shall
have full discretionary authority to cast proxy votes or sponsor or withdraw
shareholder proposals as it, without consultation or confirmation, may determine
to be appropriate in accordance with the Manager's fiduciary duty and the
Guidelines. The Manager shall keep all information it gathers about the Trust or
the Fund in the strictest confidence except to the extent that the Trust hereby
authorizes the Manager to disclose whether the Fund is eligible to sponsor
shareholder proposals in conjunction with the Manager's program of coordinated
shareholder activism.
The Company sent a letter dated January 17, 2005, to ProxyVote Plus purporting
to provide notification of certain procedural or eligibility deficiencies.
Specifically, the Company contended that the Fund failed to provide evidence of
ProxyVote Plus's authority to represent the Fund, the relationship between the
Advisors Inner Circle Fund and the United Association S&P 500 Index Fund, and
evidence of ownership.
The January 4th cover letter and supporting materials provided more than
adequate evidence of ProxyVote Plus and the Fund's authority to submit the
Proposal. Thus, no response to the Company's letter was sent. Please find
attached a letter confirming ProxyVote Plus's authority to act on behalf of the
Fund.
In regard to the issue of eligibility, we note that, although the Company omits
this fact from its Request for No-Action Relief, on January 20, 2005, National
City Bank, the record holder for the Fund, sent a letter evidencing the Fund's
ownership. A copy of this letter, including the confirmation that it was
received by the Company, is also attached to this response.
To conclude, the Fund submitted this shareholder proposal to address the
Company's senior executive compensation. The Fund has satisfied the eligibility
requirements. We respectfully submit that the Company has failed to satisfy its
burden of persuasion that the Proposal may be omitted and its request for
no-action relief should be denied.
Sincerely,
/s/
Craig Rosenberg
cc: James Ndiaye, Esq.
Mr. Sean O'Ryan
William Zitelli, Esq.
Bruce Taten, Esq.
[STAFF REPLY LETTER]
April 4, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Nabors Industries Ltd. Incoming letter dated February 11, 2005
The proposal requests that the compensation committee of the board of directors
adopt a policy that a significant portion of future stock option grants to
senior executives be performance-based.
We are unable to concur in your view that Nabors may exclude the proposal under
rules 14a-8(b) and 14a-8(f). Accordingly, we do not believe that Nabors may omit
the proposal from its proxy materials in reliance on rules 14a-8(b) and
14a-8(f).
We are unable to concur in your view that Nabors may exclude the proposal under
rule 14a-8(i)(4). Accordingly, we do not believe that Nabors may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(4).
Sincerely,
/s/
Rebekah J. Toton
Attorney-Advisor
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