December 22, 2003


Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549-0609

    Re: Security Holder Director Nominations, File No. S7-19-03

Dear Mr. Katz:

This comment letter is submitted on behalf of Intel Corporation, a Delaware corporation subject to the SEC's proxy regulations under the Securities Exchange Act of 1934 ("1934 Act"). Intel is taking this opportunity to provide its views on the SEC's proposal to require companies to include shareholder nominees for director in company proxy materials under certain circumstances (the "Proposed Regulations").

Intel believes that the Proposed Regulations would not meet the stated objectives of the SEC nor generally result in better corporate governance at U.S. public issuers. We note three substantial problems in this regard: (1) the proposal exceeds the SEC's authority to regulate disclosures in the proxy process, and instead results in the substantive regulation of corporate governance in a manner reserved to the states; (2) the procedures which resulted in the Proposed Regulations did not adequately consider the alternatives to, and economic impact of, the Proposed Regulations as required by the Administrative Procedure Act and other relevant law; and (3) the detail in the Proposed Regulations would result in counterproductive changes in corporate governance practices, at substantial expense to issuers and their shareholders, while failing to achieve the SEC's expressed objectives.

Intel believes that the Proposed Regulations do not accurately reflect the actual practices of most institutional investors with regards to engagement with issuers and voting at shareholder meetings, and the Proposed Regulations also fail to acknowledge the existence and effect of the ever-increasing power of proxy voting advisers and managers in the proxy process. Intel believes that the Proposed Regulations, if adopted, will be routinely used at thousands of issuers on an annual basis; director election contests will soon become the norm in the United States; special interest groups will increase their leverage to the general detriment of shareholders as a whole; and corporate expenses related to shareholder meetings will materially increase as a result of the above. Any regulation of this nature should be drafted in a limited fashion so that it only affects companies whose shareholders actually and objectively lack adequate access to an effective proxy process. The Proposed Regulations will, instead, likely affect thousands of companies on account of the ease by which the several "triggers" will be purposefully used by special interest groups.

We believe adoption of the Proposed Regulations is particularly unnecessary and inappropriate at this time, given the major corporate governance reforms recently by Congress, the SEC, NASDAQ and NYSE. These other major legislative and regulatory changes should be given time to be put into effect, and assessed as to effectiveness, before considering more regulatory changes of the magnitude of the Proposed Regulations

The remainder of this letter provides additional detail with regard to our views as to certain of these matters

The SEC's authority to adopt the Proposed Regulations. The Proposed Regulations would result in material changes in corporate governance at U.S. public issuers, but the SEC lacks the authority under Section 14(a) of the 1934 Act and the miscellaneous other statutory provisions cited in the proposing release to promulgate such regulations. The SEC maintains that its rulemaking authority is "sweeping" but such authority is not unlimited, and the invocation of "underlying purposes" cannot be used to override those limits. The Supreme Court noted in Chiarella v. United States that "The 1934 Act cannot be read `more broadly than its language and the statutory scheme permit".

Section 14(a) of the 1934 Act expressly limits the SEC's rulemaking authority to regulating the disclosures made, and the procedures followed, in connection with proxy solicitations. The distinction between disclosure requirements and the direct regulation of corporate governance was highlighted by the District of Columbia Circuit in the well-known case of Business Roundtable v. SEC. The D.C. Circuit explained that the means by which Congress authorized the SEC to advance "corporate suffrage, oversight of the proxy solicitation process, limits the scope of the SEC's regulations to disclosure and related procedures.

We also want to note that the SEC's procedures to date may violate the Administrative Procedure Act ("APA") and other relevant constraints with respect to the SEC's rulemaking responsibilities, including the 1934 Act and Executive Order 12,866.1 The 1934 Act requires that SEC rulemakings consider whether the agency's proposed actions will promote efficiency, competition, and capital formation, and whether they will improperly burden competition and this requires a thorough and substantive analysis of the economic and competitive consequences of a proposed rule prior to its adoption.2 Similarly, Executive Order 12,866 provides that when a federal agency engages in a rulemaking, it must first determine whether rules are necessary by: identifying the problem that it intends to address; demonstrating the significance of that problem; demonstrating the failure of private or public institutions to address the problem; and adopting rules only where there exists a "compelling public need, such as material failures of private markets to protect or improve the health and public safety of the public, the environment, or the well-being of the American people." If an agency determines that rules are necessary, it then must assess available alternatives to regulation, including the alternatives of (a) not regulating, and (b) providing information to the public that allows it to make choices among options. If an agency determines that direct regulation is preferable to other approaches, it must: assess both the costs and benefits of the proposed regulation, "proposing or adopting a regulation only upon a reasoned determination that the benefits of the intended program justify its costs"; base its decisions on the best data available; design its regulations in the most cost-effective manner possible; and, where possible, "specify performance objectives, rather than . . . the behavior or manner of compliance that regulated entities must adopt."

The Proposed Regulations do not take into account the counterproductive effects that may result to both corporate governance and U.S. economic activity. Furthermore, 18 months of massive statutory and regulatory action are seemingly disregarded as likely to have no effect on problems which the SEC focuses on in the Proposed Regulations. The extraordinary reforms enacted by Congress (in the Sarbanes-Oxley Act of 2002), the SEC and NASDAQ and NYSE have yet to be fully implemented. In fact, the NASDAQ and NYSE corporate governance listing standards, which will enhance the role and independence of board nominating committees by requiring that nomination decisions be made solely by independent directors and that nominating committee responsibilities be addressed in a formal written charter, among other things, generally will not go into effect until next spring. In addition, the SEC only recently adopted new rules requiring disclosure about nominating committee processes and shareholder-director communications. The SEC should wait for these numerous changes to be fully implemented and their costs and benefits fully realized and appropriately assessed before deciding if additional changes such as the Proposed Regulations are needed.

The "Triggers" in the Proposed Regulations. The Proposed Regulations would be triggered far more often than the SEC suggests in its proposing release. We expect that the triggering events will become goals in themselves, with shareholder proposals and withhold-vote campaigns routinely utilized to place issuers under the Proposed Regulations. We believe that the SEC has not adequately considered the voting processes and influence of proxy advisory services and institutional investors, many of whom rarely engage in the kind of company-by-company issue analysis that the SEC contemplates and who may use the rules as leverage for advancing special-interest causes.

The proposing release appears to envision individual investors making particularized decisions about the "responsiveness" of specific companies to the proxy process, and determining on that basis whether to seek to trigger the election contest procedure at the company at issue. That state of affairs is not our experience: we routinely receive shareholder proposals without any advance discussion from the proponents, and we know for a fact that a very large proportion of our institutional investors vote on proposals based on advisory-service recommendations and models that are not subject to being overridden notwithstanding our desiring to engage with the investors on an individual basis. Many institutional investors vote on thousands of matters submitted every year to shareholders of public companies, and they often do so in one six- to eight-week period in the spring of each year. For most institutional investors, the close examination of the individual matters to be voted on in company proxy materials contemplated by the proposing release is simply impracticable and is not done. Instead, most institutional investors adopt voting guidelines, either independently or by using the guidelines of Institutional Shareholder Services ("ISS") or another proxy advisory service. A November 2003 survey of members of the Business Roundtable and the American Society of Corporate Secretaries (the "November 2003 Survey") found that, on average, 39 percent of a public company's shares are cast by institutional investors (including ERISA plans) that follow ISS proxy voting guidelines.

Institutional investors rely heavily on these proxy voting guidelines, often declining even to discuss the merits of particular proposals with management. These investors typically do not review individual shareholder proposals on a company-by-company basis and do not consider the effectiveness or ineffectiveness of a company's proxy process when casting their vote. In fact, they seldom deviate from ISS or other voting guidelines regardless of a company's position, circumstances, or responsiveness to shareholders. The responses in the November 2003 Survey are strikingly uniform across issuers, including Intel, with regards to this overall state of affairs.

The obvious dynamics of this situation is that investors will not limit their use of election contest shareholder proposals to those companies with a perceived ineffective proxy process. Instead, the Proposed Regulations will be treated as tactical and political tool to be applied to as many issuers as practicable. This broad usage will be facilitated by the triggering events proposed by the SEC

The first proposed trigger. According to the proposing release, the triggering events were included "[i]n order to focus the impact of the proposed security holder nomination procedure on those companies where there are criteria showing that the proxy process may be ineffective." However, the first trigger, majority approval of a shareholder proposal to activate the election contest procedure, would be available to shareholders of all public companies. As a consequence of the use of proxy voting guidelines discussed above, a majority of shares likely will approve election contest shareholder proposals automatically whenever they are presented, regardless of the effectiveness of a company's proxy process.

The SEC must expect that proxy advisory services will revise their proxy voting guidelines to support election contest shareholder proposals at all companies, and the consequence would be that a proposed "narrow measure" affecting a small portion of companies would become a continuous, expensive event at most U.S. public companies.

The second proposed trigger. The second trigger in the Proposed Regulations is a company's receipt of more than 35 percent "withhold" votes for a director nominee. Once withhold votes are made a trigger for the election contest procedure, they will be cast with far greater frequency than in the past, and for reasons that may be unrelated to the proxy process or to the individual director nominee. We anticipate that several institutional investors and advisory services would treat withhold votes with a new significance that would prompt them and other shareholders to cast them specifically for the purpose of triggering the election contest procedure.

The third possible trigger. The proposing release indicates that the SEC is considering a possible third trigger, based on a company's failure to implement a majority-vote shareholder proposal submitted by a shareholder or group of shareholders holding more than 1 percent of the company's voting securities for one year. Adopting such a trigger would be premised on the erroneous assumption that failure to implement a majority-vote shareholder proposal is indicative of an ineffective proxy process. A board's determination not to implement a majority-vote shareholder proposal often has nothing to do with the effectiveness (or ineffectiveness) of the company's proxy process. Under state law, a company's board has a fiduciary duty to make its own determination as to whether implementation of a shareholder proposal is in the company's best interests; automatic compliance with the results of a shareholder vote would violate the board's fiduciary obligations. If the third trigger were adopted, however, directors would feel significant pressure to implement a majority-vote shareholder proposal, regardless of their independent judgment of the company's best interests.

Other possible triggers. The Proposed Regulations list other possible triggers, including poor economic performance, market delisting, SEC sanctions, criminal indictment, restatement of earnings and election of a shareholder nominee as a member of the company's board. These events, however, do not even arguably relate to the effectiveness of a company's proxy process and, as a result, could not reasonably achieve the SEC's stated objective.

Economic impact of the Proposed Regulations. The 1934 Act, the Paperwork Reduction Act, and Regulatory Flexibility Act each require that the SEC undertake a thorough and accurate analysis of the costs the Proposed Regulations would impose on regulated entities and the economy as a whole. In this case, however, the SEC's estimates of the rules' costs and burdens are inadequate and unreliable on their face, and vastly understate the proposal's far-reaching effects.

In the proposing release, the SEC estimates a total annual incremental burden expenditure of 14 hours of company personnel time (at an estimated total cost of $1,200) and 10 hours of outside professional time (at an estimated total cost of $3,000) for each "affected" company. We consider these estimates to be totally arbitrary and understated in nature; further, their being so unrealistically low has the effect of inappropriately purporting to satisfy the SEC's burden as to analysis of economic impact. There is no realistic scenario in which 24 hours' work and $4,200 in expenses will cover the time and expenses of the board, executive officers, in-house counsel and other company personnel, and outside lawyers, consultants, and other professionals whose involvement would become necessary once the rules' requirements were triggered:

  • a new disclosure requirement that the company notify shareholders that it has received an election contest shareholder proposal by a more than 1-percent shareholder, including the burdens and costs associated with Rule 14a-8 shareholder proposal process such as shareholder preparation of the proposal, the company's consideration, in consultation with counsel, of whether the proposal meets the procedural and substantive requirements of Rule 14a-8, the company's discussion with the proponent regarding the proposal in the hopes of obtaining a withdrawal, counsel's preparation of a request to the SEC for permission to exclude the proposal ("no-action request"), and the company's preparation of a statement of opposition if the proposal is included in the proxy materials;

  • the company's costs to disclose the shareholder vote regarding an election contest shareholder proposal, to announce that it would be subject to the shareholder nomination procedure, and to announce any change in the date of its annual meeting;

  • shareholders' preparation of notices to the company of their intent to require the company to include shareholder nominees in the company's proxy materials; shareholders' preparation and filing of Schedule 13G and related certifications; shareholders' preparation of statements of support for their candidate or candidates and/or opposition to the company's nominees; the company's preparation and review of the information to be included in the proxy materials; the company's preparation and review of its statement in support of its nominees and in opposition to the shareholder nominees; the company's preparation of any notice as to why any shareholder nominee is not eligible for the proxy materials; and

  • costs related to election contests, including, among other things, executive and director time and distraction from performance of their regular duties, other company personnel time and distraction from normal duties, legal fees, and the expenses of professional proxy solicitors.

Many issuers will appropriately consider election contest shareholder proposals as contested events. To prevent shareholders from triggering the process whereby shareholders may nominate directors in company proxy materials, companies will expend additional resources to review, challenge and attempt to defeat election contest shareholder proposals. Because more shareholder proposals would be submitted under the Proposed Regulations, companies also would challenge more shareholder proposals at the SEC in an attempt to obtain permission to exclude them. A company challenging even one shareholder proposal as a result of the Proposed Regulations (which all "affected" companies likely would do) would exceed the release's total annual burden estimate.

The SEC's burden estimates fail to account adequately for increased printing and mailing expenses that would result from the Proposed Regulations. We expect that all companies that are "affected" by the rules would be likely to experience increased printing and mailing expenses from distributing more materials (in frequency and/or size) to shareholders as a consequence of increased shareholder proposals and the inclusion of shareholder candidates in company proxy materials.

Further, the SEC's burden estimates fail to account for the fact that the Proposed Regulations have the potential to turn every director election into an election contest. Although the proposing release concedes the "high costs associated with undertaking an election contest," it incorrectly assumes that resources that would be expended by companies for election contests under the rules would merely offset current election contest expenditures. But, because the Proposed Regulations are designed to enable shareholders to nominate directors in company proxy materials, there would by definition be more instances where shareholder nominees are actually included in a company's proxy materials, giving rise to more election contests than currently exist.

Revisions to the Proposed Regulations. If the SEC determines to proceed with this rulemaking, substantial changes in the Proposed Regulations are appropriate in order to better meet the SEC's limited objective of targeting companies where the proxy process has been ineffective, and to make the rules more workable for both shareholders and issuers.

Comments on Trigger events. Triggering events should be calculated based on the total number of a company's outstanding shares, not the number of shares voted on a particular matter. A trigger based on the number of shares voted, rather than the total number of shares outstanding, would not reflect the effectiveness (or ineffectiveness) of the proxy process in the view of all of the company's shareholders. Further, as noted below, the intersection of this regulation as proposed with cut-backs in the NYSE 10-day rule would mean the further effective disenfranchisement of retail (non-institutional) investors.

There should not be a trigger based on a majority vote by shareholders to activate the election contest procedure. This trigger would be available to shareholders of all public companies, not only those with an ineffective proxy process, and thus would not meet the SEC's stated objective. If the SEC nevertheless moves forward with a trigger based on approval of an election contest shareholder proposal, the SEC should require the proponents of such proposals to satisfy an ownership threshold of at least 25 percent for two years. This threshold would be more effective than the proposed 1-percent, one-year threshold in establishing substantial shareholder interest, and accordingly would be a more reliable indicator that the cost and disruption of a contested director election is warranted. The SEC should also place limits on the frequency of triggering events so that companies do not have to deal with election contest shareholder proposals as an annual occurrence. Under Rule 14a-8, a shareholder proposal addressing the same subject matter as a proposal previously included in the company's proxy materials may be omitted if the previous proposal did not receive a certain minimum level of shareholder support, and a similar type of rule should apply to election contest shareholder proposals.

We also believe that the withhold-vote trigger should be revised. The fact that 35% of shareholders have withheld votes from a particular director does not establish that the company as a whole is non-responsive. The SEC should at a minimum revise the rules to trigger the election contest procedure only where a director nominee receives more than a specified percentage of withhold votes and the board subsequently determines to re-nominate that director. Further, we believe that the proposed 35-percent standard is too low to demonstrate that a company's proxy process has been ineffective. A director who receives 35 percent withhold votes may be very well-regarded by the other 65 percent of shareholders who supported his or her candidacy. To better meet its objective of targeting companies with an ineffective proxy process, the SEC should raise the threshold for withhold votes to at least 50 percent of shares outstanding.

Qualifications to nominate director candidates. We believe that the proposed 5% ownership threshold should be raised and the proposed holding period extended in order to justify the cost and disruption that the election contest procedure would engender. In addition, a nominating shareholder's ability to nominate candidates in successive years should be linked to the success of the shareholder's candidates in previous elections.

When a board of directors nominates a slate of director candidates, it must act in a manner it believes to be in the best interests of the company and all of its shareholders. Accordingly, a board that receives a shareholder nominee through the election contest procedure would be required to consider whether the board's own nominees would better manage the business and affairs of the company and better satisfy applicable expertise standards. If so, the board's fiduciary duties would require it to act to counter the shareholder nominee. This is likely to result in substantial costs, borne by the company and all of its shareholders. Because it would not be difficult for shareholders to band together to nominate director candidates, and because contested director elections would result in significant costs for all shareholders, we believe that it would be more appropriate to limit the election contest procedure to shareholders or groups of shareholders holding at least 25 percent of a company's voting securities. This threshold would better demonstrate that a significant portion of shareholders are willing to bear the costs of a contested election.

Further, we believe that the proposed one-year holding period alone is insufficient and should be extended through the service of any elected election contest nominee. Nominating shareholders should be required to represent their intent to continue to satisfy the requisite ownership threshold for the duration of their nominees' service on the board. Requiring nominating shareholders to maintain a significant stake in the company would address to some extent the problem of special-interest or single-issue directors, since a nominating shareholder who is required to maintain a significant financial stake in the company after such the nominee is elected can be expected to be marginally less likely to nominate a candidate who will pursue a special-interest agenda at the expense of the company's long-term interests.

We also believe that a shareholder's right to nominate director candidates in successive years should be linked to the success of the shareholder's candidates in previous elections. In other words, a shareholder whose nominee fails to receive at least 50 percent of the votes outstanding in an election in one year should not be permitted to submit nominees through company proxy materials in the remaining year of the election contest procedure, as that shareholder has not demonstrated sufficient support to elect its candidates to the board. It therefore would be inappropriate to require the company to again expend the significant resources necessary to evaluate that shareholder's nominees and undertake an election contest in future elections.

Eligibility of nominees. We believe that the board of directors should have a role in evaluating the independence, eligibility and qualifications of election contest nominees; to do otherwise would undercut all of the various regulations recently enacted to strengthen the role of boards and independent nominating committees with regards to board candidacy. Nominees should pass muster under both the objective and subjective tests of the relevant exchange (e.g., requiring a board determination that the nominee has no material relationship that would impair independence). Beyond that requirement, the SEC should require election contest nominees to meet the same issuer-specific qualification standards applicable to all director nominees, as determined by the board and its nominating committee. To assist the board in evaluating an election contest nominee's qualifications, the SEC should require such nominees, or the nominating shareholders, to provide additional information (such as information regarding financial expertise) to the board upon request.

Notice requirements. Issuer disclosure in a periodic report is predictable in time, place and form and, as a result, can be easily located and identified by interested shareholders. This notice obligation need not be extended to require a report on Form 8-K or other public notice. If notice of a triggering event were required in a Form 8-K or another public notice, shareholders would need to monitor those outlets regularly to determine whether a trigger had occurred, rather than simply reviewing periodic filings on a quarterly basis. In addition, public companies already must file periodic reports; an alternative notice mechanism would result in an additional filing obligation for subject companies, without a corresponding additional benefit to shareholders.

With regards to notice from shareholders to the issuer, we recommend that rather than imposing an 80-day deadline for notice of election contest nominees at all companies, the SEC instead defer to companies' advance-notice bylaw provisions, which must comply with state law. For those companies without advance-notice bylaw provisions, the SEC could provide a 120-day default deadline.

The contents of the required nominating shareholder's notice to the company should be expanded to provide additional information regarding charitable, personal and other material relationships not covered by the objective independence standards. Furthermore, the SEC should require nominating shareholders to certify that their notice to the company does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made not misleading. The SEC also should require nominating shareholders and nominees to inform the company immediately of any change in the status or relevant relationships of the nominating shareholder or the nominee that would render such nominee ineligible for inclusion in the company's proxy materials or service on the company's board. Currently, the Proposed Regulations provide no mechanism for ensuring continued compliance with shareholder and nominee eligibility criteria.

We do not believe that issuers should be required to disclose information in proxy materials about rejected election contest nominees, as this disclosure would not be meaningful to shareholders and could cause confusion by providing information concerning a nominee who is not standing for election. Requiring this disclosure for numerous rejected nominees (as companies may receive nominees from more than one shareholder) would cause even greater confusion. Moreover, notice to the nominating shareholder in the proxy materials would be unnecessary, as the Proposed Regulations already require the company to notify the nominating shareholder separately that it has rejected that shareholder's nominee. If a company determines that an election contest nomination has been submitted properly, then the company would be required under the Proposed Regulations to advise the nominating shareholder of the required form and timing of the proxy disclosure that the shareholder may submit. This is inconsistent with the SEC's intent that the nominating shareholder has full legal responsibility for the shareholder's proxy submission. If a company must guide each nominating shareholder in proper proxy procedures, then some measure of responsibility for the shareholder's compliance with the proxy rules is shifted to the company.

Voting for the Board's slate as a group. The Proposed Regulations would overrule long-standing practice by prohibiting a company from providing its shareholders the option of voting for the company's nominees as a group. In the proposing release, the SEC suggests that grouping a company's nominees, as permitted under current SEC rules, "may make it easier to vote for all of the company's nominees than to vote for the security holder nominees in addition to some of the company nominees." We disagree with that conclusion. Providing shareholders with the opportunity to vote for a company's nominees as a group would not make it more difficult for shareholders to vote for election contest nominees. Boards and nominating committees put considerable effort into selecting the company's slate of nominees, taking into account the expertise, experience and independence of the board as a whole, in accordance with their fiduciary duties. Shareholders should be permitted to rely on this process and vote for the company's nominees as a group if they so desire.

The proxy solicitation process. The overall proxy distribution and solicitation process is a multi-level system of inter-related parts which involves issuers, directors, shareholders, proxy solicitors, proxy voting services and others. The system has evolved over time and contains numerous anomalies, obsolescent practices and practices which serve to compensate for shortcomings in other portions of the system. The Proposed Regulations must be considered as part of an overall review of the SEC and exchange rules relating to this system, and in particular with regards to the allowable methods of communication with the beneficial owners of shares held in "nominee" or "street" name (meaning those shares held of record in the names of brokers, banks, or other intermediaries). Dealing with the Proposed Regulations in seeming isolation from the rest of the system runs the risk of unanticipated material expense, breakdown and frustration of the state and national policies which support and encourage voting by shareholders.

The SEC's existing shareholder communication rules make it difficult and expensive for issuers to communicate with the beneficial owners of their securities held in street name. Issuers may only communicate with the beneficial owners of these shares by going through the third-party brokers and banks ("nominees") that are registered as the owners of the securities. In turn, many of these brokers and banks contract with other layers of third-party agents, including ADP Brokerage Services Group ("ADP"), to perform shareholder communication and proxy services.

Historically, only nominees or their agents have been able to directly contact the beneficial owners of securities held in street name. In 1986 new rules required nominees and their agents to provide companies with lists of "non-objecting beneficial owners" (or "NOBOs") who did not object to having their names and addresses supplied to companies. Objecting beneficial owners (or "OBOs") still only may be contacted directly by nominees or their agents. Even companies' ability to communicate with NOBOs is limited. Under current rules, only nominees (not the company) have voting authority for the beneficial owners of the securities held in street name. Accordingly, only nominees or their agents may mail proxy voting materials to these owners; companies may only use NOBO lists to mail their annual reports and for supplemental materials. In addition to being difficult, the process of communicating with the beneficial owners of shares held in street name is very costly. Not only must a company go through nominees and agents to disseminate its proxy materials; it also must pay fees to those nominees and agents for assembling lists of NOBOs.

Since the 1980s, street-name holdings have become increasingly prevalent, further restricting companies' ability to communicate with the owners of these shares. Furthermore, the current system does not take advantage of the technological advances that have been made since the 1980s. For example, many issuers now are providing Internet voting for their registered shareholders, a technology that was unavailable in the 1980s. If nominees were able to give omnibus proxies to their customers (i.e., beneficial owners) to permit them to vote their shares directly, beneficial owners of shares held in street name would be able to use the same Internet voting system as registered beneficial owners.

For all of these reasons, it is incumbent on the SEC to re-examine the shareholder communication framework in connection with its consideration of the Proposed Regulations, which (as noted above) are likely to result in a substantial increase in companies' communications with shareholders. Even before the election contest procedure is triggered, companies will have a need to communicate with the beneficial owners of their shares in connection with triggering events. Companies will need to provide shareholders with information regarding election contest shareholder proposals, and will need to support board-nominated candidates in order to avoid tripping the "withhold" votes trigger. If the election contest procedure is triggered and shareholder nominees included in company proxy materials, the board will have a resultant fiduciary duty to support the nominees it believes would best serve the interests of the company and all of its shareholders.

On a related matter, the SEC also needs to consider the role of NYSE Rule 452, which governs the voting of shares held in street name by brokers. NYSE Rule 452 (the so-called "10-day rule") gives brokers discretionary authority to vote proxies for beneficial owners who have not given voting instructions by the tenth day before the meeting at which the votes are to be cast. This authority is limited, however, to voting on routine matters and therefore may exclude the authority to vote in a contested director election or on a shareholder proposal to activate the election contest procedure. If brokers were unable to vote on behalf of non-responding shareholders in election contests or on election contest shareholder proposals, companies would have an even greater need to communicate with their shareholders to solicit votes in support of board-nominated candidates or against election contest shareholder proposals. Moreover, if the 10-day rule were abolished the overall number of votes cast would decrease considerably because votes would not be cast on behalf of beneficial owners of shares held in street name who do not give voting instructions to their brokers. We object to this concept, as it will serve to effectively disenfranchise retail investors who lack the technology available to institutions to easily vote shares.

Disputes. Finally, we believe it is incumbent upon the SEC to establish and maintain procedures to resolve the disputes that almost certainly would arise if the Proposed Regulations are adopted. For example, the rules would require companies to determine, among other things: (1) whether an Election contest shareholder proposal must be included in the proxy materials; (2) whether a triggering event has occurred; and (3) whether a shareholder nominee must be included in the proxy materials, including whether the notice and eligibility requirements have been met. Any one of these complex determinations could result in a dispute between the company and certain shareholders.

In the proposing release, the SEC suggests that companies and shareholders could go to court to resolve these disputes. Waiting for proxy issues to be resolved in court, however, is not practicable for companies, which must mail their proxy materials and hold their annual meetings within a specified time period. Moreover, this "solution" would be extraordinarily disruptive, distracting and costly for companies and shareholders alike.

Accordingly, if the SEC decides to move forward with the complex rules that it has proposed, it also must create a mechanism to timely resolve the disputes that arise under them. We anticipate that this mechanism would resemble the current procedure to resolve disputes arising under Rule 14a-8 (the shareholder proposal rule).


Please feel free to contact the undersigned at 408-765-1215, or Patrice Scatena at 408-765-9771, if you want to discuss any of the above comments.

Very truly yours,

Cary Klafter, Vice President, Legal and Government Affairs and Corporate Secretary Intel Corporation

1 See Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (1993), as amended by Exec. Order No. 13,258, 67 Fed. Reg. 9385 (2002) ("Exec. Order No. 12,866").

Other laws and/or provisions implicated by the Proposed Regulations include the Paperwork Reduction Act of 1995, 44 U.S.C. § 3501 et seq.; the Regulatory Flexibility Act of 1980, 5 U.S.C. § 601 et seq.; Small Business Regulatory Enforcement Act of 1996, P.L. 104-121, Title II, 110 Stat. 857 (1996); Exec. Order No. 13,272, 67 Fed. Reg. 53,461 (2002); and Exec. Order 12,988, 61 Fed. Reg. 4,729 (1996).

2 See H.R. Rep. No. 104-622 (1996), reprinted in 1996 U.S.C.C.A.N. 3877, 3901.