Company Name: Verizon Communications Inc.
Public Availability Date: February 16, 2006
Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2005
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington D.C. 20549
Re: Verizon Communications Inc. 2006 Annual Meeting Shareholder Proposal of
Chris Rossi
Ladies and Gentlemen:
This letter is submitted on behalf of Verizon Communications Inc., a Delaware
corporation ("Verizon"), pursuant to Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended. Verizon received a shareholder proposal and supporting
statement (the "Proposal") on November 3, 2005, from Chris Rossi (the
"Proponent") for inclusion in the proxy materials to be distributed by Verizon
in connection with its 2006 annual meeting of shareholders (the "2006 proxy
materials"). A copy of the Proposal and the accompanying cover letter, dated
October 5, 2005, is attached as Exhibit A. The cover letter states that Mr. John
Chevedden is representing Mr. Rossi with respect to shareholder matters,
including the Proposal, and is Mr. Rossi's proxy for all purposes in connection
with the Proposal. For the reasons stated below, Verizon intends to omit the
Proposal from its 2006 Proxy materials.
Pursuant to Rule 14a-8(j)(2), enclosed are six copies of this letter and the
attachments to this letter. A copy of this letter is also being sent to the
Proponent and Mr. Chevedden as notice of Verizon's intent to omit the Proposal
from Verizon's 2006 Proxy materials.
I. Introduction.
On November 3, 2005, Verizon received a letter from the Proponent containing the
following proposal:
RESOLVED: Shareholders request that our Board adopt a rule that our Board will
redeem any future or current poison pill unless such poison pill is submitted to
a shareholder vote, as a separate ballot item, as soon as may be practicable.
Verizon believes that the Proposal may be properly omitted from its 2006 proxy
materials under Rule 14a-8(i)(10) because the Company has already substantially
implemented the Proposal, as discussed below.
Verizon respectfully requests the concurrence of the Staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") that it will not recommend enforcement action against Verizon if
Verizon omits the Proposal in its entirety from its 2006 proxy materials.
II. The Proposal May be Omitted Under Rule 14a-8(i)(10) Because Verizon Has
Substantially Implemented the Proposal.
Rule 14a-8(i)(10) permits a company to exclude a shareholder proposal if the
company has already substantially implemented the proposal. In 2004, Verizon
adopted the following policy statement with respect to any future adoption of a
shareholders rights plan (the "Verizon Policy"):
Verizon Communications does not currently have a shareholder rights plan, or
"poison pill," and the Board currently has no plans to adopt such a plan.
However, if the Board is presented with a set of facts and circumstances which
lead it to conclude that adopting a rights plan would be in the best interests
of shareholders, it will seek prior shareholder approval unless the Board,
exercising its fiduciary duties, determines that such submission would not be in
the best interests of shareholders under the circumstances. If any rights plan
is adopted without prior shareholder approval, it will be presented to
shareholders within one year or expire within one year without being renewed or
replaced. Any plan adopted by the Board will also contain a "sunset" provision,
providing that shareholders will have the opportunity to ratify or reject the
plan every three years following the date of initial shareholder approval.
The Verizon Policy substantially implements the Proposal. The "substantially
implemented" standard reflects the Staff's interpretation of the predecessor
rule (allowing omission of a proposal that was "moot") that a proposal need not
be "fully effected" by the company to meet the mootness test so long as it was
"substantially implemented." See SEC Release No. 34-20091 (August 16, 1983).
Staff no-action letters have established that a company need not comply with
every detail of a proposal in order to exclude it under Rule 14a-8(i)(10).
Differences between a company's actions and a proposal are permitted so long as
a company's actions satisfactorily address the proposal's underlying concerns.
See Masco Corporation (March 29, 1999) (permitting exclusion because the company
adopted a version of the proposal with slight modification and a clarification
as to one of its terms). Proposals have been considered "substantially
implemented" where the company has implemented part but not all of a
multi-faceted proposal. See Columbia/HCA Healthcare Corp. (February 18, 1998)
(permitting exclusion of proposal after company took steps to partially
implement three of four actions requested by the proposal),
The Verizon Proposal satisfies the Proposal's underlying concern that any
shareholder rights plan be explicitly approved by shareholders. Whereas the
Proposal asks that any future shareholder rights plan be redeemed unless
explicitly approved by the shareholders, the Verizon Policy goes a step further
and requires shareholder approval prior to adoption of a shareholder rights
plan, except in the limited case that, in the exercise of its fiduciary duties,
the Board determines adoption of such a plan to be in the best interests of
shareholders under the circumstances. In that event, the Verizon Policy requires
that any such plan either be presented to the shareholders within one year or
expire within one year.
In a number of recent no-action rulings, the Staff permitted the omission of a
proposal similar in substance to the Proposal, where the company adopted a
policy that was deemed to "substantially implement" the proposal. In each
instance, the policy specified that the company's board of directors would
submit any shareholder rights plan to a shareholder vote unless the board of
directors, in exercising its fiduciary duties, determined that such submission
would not be in the best interests of the shareholders under the circumstances.
See Fortune Brands Inc. (January 10, 2005), Morgan Stanley (February 2, 2005),
ConAgra Foods, Inc. (July 1, 2004), Mattel, Inc. (March 24, 2004), 3M Company
(February 17, 2004), Allstate Corporation (January 28, 2004) and Hewlett-Packard
Company (December 24, 2003).
III. Conclusion
Verizon believes that the Proposal may properly be omitted from its 2006 proxy
materials because it has already adopted a policy that substantially implements
the Proposal. Verizon respectfully requests the concurrence of the Staff that it
will not recommend enforcement action against Verizon if Verizon omits the
Proposal in its entirety from its 2006 Proxy materials.
Kindly acknowledge receipt of this letter by stamping and returning the extra
enclosed copy of this letter in the enclosed self-addressed, stamped envelope.
If you have any questions with respect to this matter, please telephone me at
(908) 559-5636.
Very truly yours,
/s/
Mary Louise Weber
Assistant General Counsel
Enclosures
cc: Chris Rossi
John Chevedden
[APPENDIX1]
EXHIBIT "A"
P.O. Box 249
Boonville, CA 95415
Mr. Ivan G. Seidenberg
Chairman
Verizon Communications Inc. (VZ)
1095 Avenue of the Americas Fl 38
New York NY 10036
Dear Mr. Seidenberg,
This Rule 14a-8 proposal is respectfully submitted for the 2006 annual
shareholder meeting to support the long-term performance of our company. Rule
14a-8 requirements are intended to be met including ownership of the required
stock value until after the date of the applicable shareholder meeting. This
submitted format, with the shareholder-supplied emphasis, is intended to be used
for definitive proxy publication.
This is the proxy for Mr. John Chevedden and/or his designee to act on my behalf
in shareholder matters, including this shareholder proposal for the forthcoming
shareholder meeting before, during and after the forthcoming shareholder
meeting. Please direct all future communication to Mr. John Chevedden at:
PH: 310-371-7872
2215 Nelson Ave., No. 205
Redondo Beach, CA 90278
Your consideration and the consideration of the Board of Directors is
appreciated.
Sincerely,
/s/
cc: Marianne Drost
Corporate Secretary
PH: 212-395-2121
FX: 212-869-3265
FX: 212-921-2971
FX: 212-597-2542
[APPENDIX2]
[October 17, 2005]
3Redeem or Vote Poison Pill
RESOLVED: Shareholders request that our Board adopt a rule that our Board will
redeem any future or current poison pill unless such poison pill is submitted to
a shareholder vote, as a separate ballot item, as soon as may be practicable.
Umis Rossi, P.O. Box 249, Boonville, Calif. 95415 submitted this proposal.
Pills Entrench Current Management
"Poison pills ... prevent shareholders, and the overall market, from exercising
their right to discipline management by turning it out. They entrench the
current management, even when it's doing a poor job. They water down
shareholders' votes and deprive them of a meaningful voice in corporate
affairs."
"Take on the Street" by Arthur Levitt, SEC Chairman, 1993-2001
Progress Begins with One Step
It is important to take one step forward in our corporate governance and adopt
the above RESOLVED statement since our 2005 governance standards were not
impeccable. For instance in 2005 it was reported (and certain concerns are
noted):
The Corporate Library (TCL), an independent investment research firm in
Portland, Maine rated our company:
"D" in Overall Board Effectiveness.
"D" in Board Composition.
"F" in CEO Compensation - CEO target pay of $19 million a year.
Overall Governance Risk Assessment=High
We had no Independent Chairman and not even a Lead Director - Independent
oversight concern.
Cumulative voting was not allowed.
Five of our directors had non-director business with our company -
Independence concern.
Two directors owned zero or 611 shares - Lack of commitment concern.
Our key Audit Committee chairman had 18-years director tenure - Independence
concern.
Additionally:
Three of our directors were rated "problem directors" by The Corporate
Library:
1) Mr. Carrionbecause he chaired the executive compensation committee at Wyeth,
which received a CEO Compensation rating of "F" by The Corporate Library.
2) Mr. Shipleybecause he chaired the executive compensation committee at our
company which received a CEO Compensation rating of "F" by TCL.
3) Mr. Staffordbecause he chaired the executive compensation committee at
Honeywell International, which received a CEO Compensation rating of "F" by TCL.
I believe these sub-optimal governance examples reinforce the reason to adopt
the above RESOLVED statement to help improve our corporate governance.
If a poison pill makes our stock difficult to sell - the value of our stock
could suffer.
Notes:
The above format is the format submitted and intended for publication.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2.
This proposal is believed to conform with Staff Legal Bulletin No. 14B (CF),
September 15, 2004 including:
Accordingly, going forward, we believe that it would not be appropriate for
companies to exclude supporting statement language and/or an entire proposal in
reliance on rule 14a-8(i)(3) in the following circumstances:
the company objects to factual assertions because they are not supported;
the company objects to factual assertions that, while not materially false or
misleading, may be disputed or countered;
the company objects to factual assertions because those assertions may be
interpreted by shareholders in a manner that is unfavorable to the company, its
directors, or its officers; and/or
the company objects to statements because they represent the opinion of the
shareholder proponent or a referenced source, but the statements are not
identified specifically as such.
See also: Sun Microsystems, Inc. (July 21, 2005).
Please note that the title of the proposal is part of the argument in favor of
the proposal. In the interest of clarity and to avoid confusion the title of
this and each other ballot item is requested to be consistent throughout the
proxy materials.
Please advise if there is any typographical question.
Stock will be held until after the annual meeting. Verification of stock
ownership will be forwarded.
[INQUIRY LETTER]
December 30, 2005
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington D.C. 20549
Verizon Communications Inc. (VZ)
Shareholder Position on Company No-Action Request Rule 14a-8 Proposal: Poison
Pill
Shareholder: Chris Rossi
Ladies and Gentlemen:
This is an initial response to the Verizon December 28, 2005 no action request.
The rule 14a-8 proposal text states:
"3 Redeem or Vote Poison Pill
"RESOLVED: Shareholders request that our Board adopt a rule that our Board will
redeem any future or current poison pill unless such poison pill is submitted to
a shareholder vote, as a separate ballot item, as soon as may be practicable."
The vague text of the company "Policy" makes it unworkable and unenforceable as
anything other than a blank-check. The company does not define or give examples
of the vague text in its "policy" that would trigger a poison pill without any
shareholder vote whatsoever:
"if the Board is presented with a set of facts [what kind of "facts"?] and
circumstances [what kind of "circumstances"?] which lead it to conclude [what
criteria would this conclusion be based on?] that adopting a rights plan would
be in the best interests [what criteria is used to determine best interests] of
shareholders [how many "shareholders" apparently at least 2 shareholders and
what categories of "shareholders"?].
The policy does not state whether inside directors can vote or whether a onevote
margin is all that is needed. Hence based on the vague text of this policy a
pill can be adopted by a 5-4 vote with the Chairman casting the deciding vote
with an assist from a director with non-director links to the company.
Also the company fails to address "as a separate ballot item" in the rule 14a-8
proposal text:
"a shareholder vote, as a separate ballot item, as soon as may be practicable."
Hence the vote on the pill could arguably be bundled with a vote on another
ballot item which could be much more attractive to shareholders.
Although the proposal asks for a "vote S[caron accent on the letter S] as soon
as may be practicable" the company policy has the limitation of "the opportunity
to ratify or reject the plan every three years." The company argument thus seems
to be that waiting 3-years for a vote is almost the same as a vote "as soon as
may be practicable." Based on the vague policy text, depending on the timing of
a future adoption of a pill and the usual date of the annual meeting it seems it
could take 3-1/2 years before a pill might come to a vote.
The company does not cite any consequences for the board if it substitutes its
own entrenchment or any other reason for "the best interests of shareholders."
The company does not cite any recourse for shareholders if a pill were simply
adopted to protect the board's entrenchment thus a toothless policy.
The poison pill topic possibly poses the highest potential conflict of interest
(of any shareholder proposal topic) in discriminating between "the best interest
of shareholders" and the directors own personal interest in continued longevity
at Verizon and a steady-stream of attractive pay and prerequisites.
The Corporate Library (TCL) http://www.thecorporatelibrary.com/, an independent
investment research firm, has repeatedly stated that companies with policies for
their board to override a shareholder vote on a poison pill have not implemented
this type of proposal.
For instance The Corporate Library said, in regard to a 2003 JPMorgan Chase &
Co. (JPM) rule 14a-8 poison pill proposal which won 68% support: "The proposal
asked the company to require shareholder approval of all poison pills. The
company adopted a policy requiring such shareholder approval, but the policy
also states that the board can override the policy and adopt a pill without
shareholder approval if it believes, in the exercise of its fiduciary
obligations, that doing so is in the best interests of the company's
shareholders. In our opinion, this provision undermines the shareholder approval
requirement, and we do not believe that the policy constitutes full
implementation of the proposal."
Source: http://www.boardanalyst.com/companies/shp/proposal.detail.aspx?ResolutionID=1555
The company does not claim The Corporate Library's conclusion that JPMorgan had
not implemented a poison pill policy commensurate with the rule 14a-8 proposal,
was brought to the attention of the staff before the staff made its
determination in any prior no action request similar to Verizon.
Waiting 3-years for a bundled vote is not the same as a vote as a separate
ballot item in less than a year. For the above reasons it is respectfully
requested that concurrence not be granted to the company. It is also
respectfully requested that there be an opportunity to submit additional
material in support of the inclusion of this rule 14a-8 proposal. Also that the
shareholder have the last opportunity to submit material since the company had
the first opportunity.
Sincerely,
John Chevedden
cc:
Chris Rossi
Mary Louis Weber<mary.l.weber@verizon.com>
[INQUIRY LETTER]
January 30, 2006
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Verizon Communications Inc. (VZ)
#2 Shareholder Position on Company No-Action Request Rule 14a-8
Proposal: Poison Pill
Shareholder: Chris Rossi
Ladies and Gentlemen:
Precedents similar to this proposal did not receive Staff concurrence in regard
to rule 14a-8(i)(10):
The Home Depot, Inc. (January 26, 2006)
Borders Group, Inc. (January 26, 2006)
Electronic Data Systems (January 26, 2006)
The proposal to EDS stated:
"3 Redeem or Vote Poison Pill
"RESOLVED, Shareholders request our Board of Directors to redeem any future or
current poison pill, unless such poison pill is approved by the affirmative vote
of holders of a majority of shares present and voting as a separate ballot item,
to be held as soon as may be practicable. If practicable the substance of this
proposal should be included in our charter or bylaws.
"According to this proposal there would be no loophole to allow a claimed
circumstance or a claimed duty to override the scheduling of a shareholder vote
as soon as may be practicable. Since a vote would be as soon as may be
practicable it accordingly could take place within 4-months of the adoption of a
poison pill by our Board. To give our board valuable insight on our views of
their poison pill, a vote would occur even if our board had promptly terminated
their poison pill because our board could turnaround and readopt their poison
pill once terminating it."
Additionally a 2005 precedent similar to this proposal did not receive Staff
concurrence regarding rule 14a-8(i)(10) PG&E Corporation (January 21, 2005) and
its reconsideration in PG&E Corporation (March 25, 2005).
The proposal to PG&E stated:
"Resolved: Shareholders request that our Board adopt a policy that any future
poison pill be redeemed or put to a shareholder vote within 4-months after it is
adopted by our Board. And formalize this policy as corporate governance policy
or bylaw."
And the company responded:
"On June 29, 2004, the Corporation announced that its Board of Directors had
approved a policy regarding future shareholder rights plans. The policy provides
that if the Board adopts a shareholder rights plan in the future, or if the
Board extends the term of a future shareholder rights plan, it will submit such
adoption or extension to a shareholder vote within 12 months of such adoption or
extension (the Policy)."
Thus the PG&E failure to receive concurrence in a similar precedent was
reinforced by the Staff reconsideration.
It is respectfully requested that concurrence not be granted to the company.
It is also respectfully requested that the shareholder have the last opportunity
to submit material since the company had the first opportunity.
Sincerely,
John Chevedden
cc:
Chris Rossi
Mary Louis Weber<mary.l.weber@verizon.com>
[STAFF REPLY LETTER]
February 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Verizon Communications Inc. Incoming letter dated December 28, 2005
The proposal requests the board of directors adopt a rule that the board will
redeem any future or current poison pill unless such pill is submitted to a
shareholder vote as soon as may be practicable.
There appears to be some basis for your view that Verizon may exclude the
proposal under rule 14a-8(i)(10). Accordingly, we will not recommend enforcement
action to the Commission if Verizon omits the proposal from its proxy materials
in reliance on rule 14a-8(i)(10).
Sincerely,
/s/
Mary Beth Breslin
Special Counsel
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