Sent electronically to: email@example.com
September 20, 2000
Jonathan G. Katz, Esq.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Katz:
Greenway Partners, L.P., an investment partnership, opposes the New York Stock Exchange's proposal for an extension of the current rule which allows the dilution of existing shareholder value through the adoption of certain stock option plans without a shareholder vote. We believe it particularly audacious for the NYSE to request a three-year extension of the rule.
As we all know, the current rule is set to expire on September 30, 2000, and had that sunset date because of its flaws. The best one can say about the current rule is that it is not as bad as the NYSE's original proposal. As noted in SEC Release 34-41479 (June 4, 1999) (the "Release") approving the current rule, a majority of the comment letters expressed concern over the lack of a dilution test. In response to those letters, the NYSE agreed to the appropriateness of a dilution test, indicated it should be in a position to propose a dilution test in advance of the year 2000 proxy season, and for that reason proposed the September 30, 2000 sunset date for the current rule.
The Release concluded: "The Commission is approving the rule change on a pilot basis until September 30, 2000 in order to give the NYSE time to develop a dilution test....[T]he Exchange has established the Dilution Task Force to study the dilution issue and has stated that it currently expects to propose a dilution test to replace the revised `broadly-based' test by the year 2000 proxy season....[T]he Commission believes that, until such time as a dilution standard is developed, the proposal is a reasonable effort to clarify which Plans are `broadly-based' and therefore exempt from shareholder approval."
So, it would appear that back in June 1999, there was a clear indication of the need for a dilution based standard for approving option plans without a shareholder vote, but some time was afforded for the NYSE to formulate the proper standard. How much time is appropriate? That question--which faces us again today--was also addressed back in the June 1999 Release when the sixteen month period to September 30, 2000 was being called into question by some as too long. The Release states:
"The pilot period also should provide the NYSE with the necessary time to formulate a dilution standard. We note that one commenter suggested a one-year pilot and another commenter was critical of the proposed sixteen-month sunset provision, suggesting that it would unduly delay the adoption of a dilution standard.
"The Commission believes, however, that it is appropriate to approve the proposed rule so that it is effective until September 30, 2000....The NYSE represents that it intends to consider adopting a dilution standard to be in place prior to the next proxy season in the year 2000. Because the Commission recognizes that matters involving shareholder voting rights are extremely important and involve a wide variety of interested parties, the Commission believes that adoption of the proposed rule change until September 30, 2000 will ensure that the NYSE is given adequate time to consider and implement an alternative to the proposal."
As is clear from the Release, the current rule was approved with the express understanding that a dilution standard would be in place for the 2000 proxy season. For the NYSE to now say it needs until the 2004 proxy season to adopt a dilution standard smacks of an unacceptable game of `bait and switch'. A NYSE sponsored task force formulated a dilution standard back in October 1999. What is taking so long for the NYSE to propose a final dilution based rule? Given the `extreme importance of shareholder voting rights' as noted by the Commission in the Release, we believe it inappropriate for the failure of the NYSE to reach agreement with the Nasdaq/Amex on a common dilution-based standard to hold up implementation of a revised NYSE rule.
We urge the Commission not to allow the NYSE to tack an additional 36 months onto the 16-month life of this flawed rule. We agree with the Council of Institutional Investors, among others, who favor a one-month extension. In light of the sixteen months that has come before, that is sufficient time to allow the NYSE to adopt a dilution based standard with or without the concurrence of the Nasdaq/Amex. Allow the sun to set on the rule and require the NYSE to adopt a dilution-based standard before the 2001 proxy season.
Very truly yours,
Gary K. Duberstein