Client Publication June 2003 Reduced Tax Rates for Dividends and Capital Gains On May 28, 2003, President George W. Bush signed into law, as part of the widely publicized Jobs and Growth Tax Relief Reconciliation Act of 2003 (the Act ), preferential income tax rates applicable to most corporate dividends received by, and net long term capital gains recognized by, United States individuals, trusts and estates. This legislation is significant in part because the preferential rate (generally 15%) is significantly lower than the highest marginal rate generally applicable to ordinary income (35% pursuant to other provisions of the Act). 1 This client publication summarizes the new statutory provisions and provides some of our initial observations regarding their potential implications for noncorporate investors, corporate finance, capital markets, and mergers and acquisitions. Although the portions of the Act summarized below are relatively not complex, their economic consequences are far-reaching. As a result of the legislation, many noncorporate investors will have a greater preference for investments that generate qualifying dividends compared to investments that produce other types of ordinary income (e.g. interest). Corporations will likely respond to this preference by reevaluating and possibly modifying their own capital structures. We also believe that the legislation may make some financial products relatively more attractive to such investors (e.g. preferred stock mutual funds) and may also spawn new types of financial products intended to cater to the changes in both investor preferences and corporate financing objectives. We also expect changes, among both the financial industry and the federal government, in approaching and analyzing certain corporate and crossborder transactions in which the previous disparity in tax rates between dividends and capital gains on stock was relevant. 1 Throughout almost the entire history of federal income tax law, long term capital gains have been taxed at various degrees of preference to dividends and other ordinary income. One exception is the period from 1988 through 1990, when long term capital gains were taxed at the same rates as ordinary income (including dividends). General Rules Reduction of rates, effective dates, and sunset. Generally, both qualified dividend income ( QDI ) and net long term capital gains ( net capital gains ) 2 recognized by individuals, trusts and estates that are United States persons will be taxed at a rate of 15% (5% in the case of individuals who are in tax rate brackets below 25%). 3 The operative statutory provision (new section 1(h)(11) of the Internal Revenue Code of 1986, as amended (the Code )) 4 applies the reduced tax rate to QDI by expanding the definition of net capital gain to include QDI. QDI, however, will not be treated as capital gain for purposes other than the application of the preferential rate. 5 The new reduced rates will apply to QDI received at any time during 2003 and to net capital gains taken into account only on or after May 6, 2003. However, dividends received by a regulated investment company (a RIC) or a real estate investment trust (a REIT) before 2003 and distributed to its shareholders will not be eligible for the reduced rate. 6 Under a sunset provision, the reduced rates are set to expire in 2009, at which point the old rates applicable to net capital gains and dividends would apply (subject of course to any future statutory amendment). 2 3 4 5 6 Gain generally will be treated as long-term if the relevant asset is held for more than one year. Short-term capital gains will be taxed at higher rates generally applicable to ordinary income. The 5% rate is scheduled to reduce to 0% in 2008, and will apply to individuals who otherwise are taxed at a rate below 25% (i.e. who are in the 10% or 15% rate brackets). These rates also will apply for purposes of the alternative minimum tax (the AMT ). Unless otherwise indicated, all section references are to the Code. For example, a non-united States person who does not conduct business in the United States and who receives a dividend from a domestic corporation will continue to be subject to withholding tax at a rate of 30%, subject to reduction pursuant to an applicable income tax treaty. Also, QDI will not offset a net capital loss. In the case of RICs and REITs, other special rules apply and are discussed below.
2 The Act also accelerated reductions in rates applicable to an individual s ordinary income, other than QDI. These rate reductions (from 38.6% to 35%, in the case of the highest bracket) became applicable for the years 2003 through 2010. Subject to additional legislation, however, the maximum tax rate applicable to such income is scheduled to rise to 39.6% in 2011. The new tax rates and their effective dates under the Act are summarized in the following table: Calendar year Maximum ordinary income tax rate Maximum rate on net capital gains 7 Maximum rate on qualified dividend income 8 2002 38.6% 20% 38.6% 2003 9 to 2008 35% 15% 15% 2009 35% 20% 35% 2010 35% 20% 35% 2011 39.6% 20% 39.6% Qualified dividend income. QDI generally includes dividends 10 received from domestic corporations and qualified foreign corporations ( QFCs ) (as such term is defined below). Notwithstanding some legislative proposals that were considered prior to enactment of the Act, it is not necessary that QDI (even if received from a qualified foreign corporation) be derived from earnings and profits that have been subject to corporate-level United States income tax. QDI, however, will not include the following: any dividend on stock that is held by the taxpayer for 60 days or less during the 120-day pe- 7 8 9 Capital gains realized by taxpayers in the 10% and 15% brackets will be taxed at a rate of 5% in the years 2003 through 2007, and at a rate of 0% in the year 2008. In 2009, the capital gains tax rate for taxpayers in both of these brackets returns to 10%. As with capital gains, dividends received by taxpayers in the 10% and 15% brackets will be taxed at a rate of 5% in the years 2003 through 2007, and at a rate of 0% in the year 2008. In 2009, these taxpayers (like those in the higher brackets) will once again be taxed on dividends at the ordinary income rates of their respective brackets. For the year 2003, the new 15% rate applies to (i) capital gains taken into account only on or after May 6 and (ii) qualified dividend income received at any point during the year. 10 The Act does not alter the definition of a dividend, which is generally a distribution by a corporation of cash or other property out of its current or accumulated earnings and profits. In certain circumstances, a distribution of stock or a redemption could be treated as a dividend. riod beginning on the date that is 60 days before the date on which such stock becomes exdividend with respect to such dividend, 11 any dividend on stock to the extent that the taxpayer is under an obligation (e.g. pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, 12 any amount that the taxpayer elects to take into account as investment income under section 163(d)(4)(B) for purposes of figuring its deduction for investment interest, any dividend from a corporation that is (in either its current or preceding taxable year) exempt from tax under sections 501 or 521 (i.e., a tax-exempt corporation or farmers cooperative), any amount allowed as a deduction under section 591 (relating to dividends paid by mutual savings banks), or any dividend described in section 404(k) (i.e. a dividend paid on certain employer securities in a retirement plan). For purposes of the holding-period exception described above, a stockholder s holding period will 11 The minimum holding period requirement under new section 1(h)(11)(B)(iii)(I) is 15 days longer than a similar requirement that would apply to a corporation seeking a dividends-received deduction in respect of stock. See section 246(c)(1). In the case of preferred dividends attributable to one or more periods aggregating in excess of 366 days, it is possible (while not entirely clear) that section 246(c)(2) would apply so as to extend the minimum holding period to over 90 days. New section 1(h)(11)(B)(iii)(I) cross-references section 246(c), but expressly substitutes in section 246(c)(1) 60 days for 45 days each place it appears. Section 246(c)(2), however, invokes the rule in section 246(c)(1)(A) but substitutes 90 days for 45 days each place it appears. Pending any future clarification from the government, taxpayers who receive such preferred dividends should be aware of the potential application of the 90-day rule in section 246(c)(2). 12 A substitute dividend payment received in a stock lending and short sale transaction also will not qualify for the preferential rates. In this regard, however, the drafters expect that individual taxpayers who receive payments in lieu of dividends from these transactions may treat the payments as dividend income to the extent that the payments are reported to them as dividend income on their Forms 1099-DIV received for calendar year 2003, unless they know or have reason to know that the payments are in fact payments in lieu of dividends rather than actual dividends. H.R. REP. NO. 108-126, at 43 (2003) (Conference Agreement). In addition to this language, the legislative history states that Treasury is expected to issue guidance soon on information reporting with respect to substitute dividend payments, and that the IRS will exercise its discretion to relax the application of information reporting rules under sections 6042 and 6045 to brokers and dealers who engage in such transactions on behalf of their customers in the normal course of business but attempt in good faith to comply with such rules. Id.
3 be tolled for any period in which the stockholder has diminished his risk of loss in respect of the stock by, for example, entering into a hedging or derivative transaction. There are specified exceptions, however, in the case of certain qualified covered calls written in respect of stock and also certain types of put options (and other short positions) in respect of stock indexes. 13 Qualified foreign corporations. QFCs, whose dividends will be eligible for the preferential reduced rate (subject to the exceptions outlined above), include the following foreign corporations: a corporation incorporated in a possession of the United States, a corporation eligible for benefits of a comprehensive United States income tax treaty that includes an exchange of information program, 14 and a corporation if the stock with respect to which the dividend is paid is readily tradable on an established securities market in the United States. 15 However, QFCs will not include any foreign corporation that is (in either its current or preceding taxable year in which the dividend was paid) a passive foreign investment company (a PFIC), a foreign personal holding company (a FPHC), or a foreign investment company (a FIC). Accordingly, a dividend will not be eligible for the preferential rates if it is paid by a foreign corporation that is (i) a PFIC, FPHC, or FIC, (ii) privately owned and organized in a country that has not entered into a qualifying United States income tax treaty (e.g. Bermuda), or (iii) privately owned and organized in a country that has entered into a qualifying treaty, but has failed to qualify for benefits thereof (e.g. because of application of the limitation-onbenefits article of such treaty). The legislative history of the Act provides some useful guidance regarding the treaty-based category of QFCs discussed above. In the legislative history, the conferees have stated that they do not believe the United States-Barbados income tax treaty will qualify for this purpose. 16 Also, while Treasury is expected to issue guidance on specific treaties, pending such guidance, any comprehensive United States income tax treaty (other than the Barbados treaty) will be deemed satisfactory provided that it has an exchange of information program. 17 The conferees also intend that a foreign corporation will be deemed eligible for benefits of such a treaty for purposes of this provision if it would qualify for such benefits with respect to substantially all of its income in the taxable year in which the dividend is paid. 18 For purposes of the readily tradable stock category discussed above, the precise meaning of the requirement that stock with respect to which the dividend is paid be readily tradable on an established securities market in the United States is unclear. The substantially identical phrase has been used in other Code provisions and in several final and proposed Treasury regulation sections, 19 and similar concepts regarding public trading stock or securities have been applied in other contexts. 20 We expect official guidance will be issued in the near future regarding the interpretation of this phrase for purposes of determining whether publicly traded stock issued by a foreign corporation (that cannot avail itself of a qualifying United States tax treaty) may give rise to QDI. We expect that such guidance may consider, in determining whether stock is readily tradable, the extent to which it is quoted by brokers or dealers or is part of an offering of stock that is in fact traded on an established securities market. 21 Under such guidance, an established securities market most likely would include a national securities exchange that is registered under section 6 of the Securities and Exchange Act of 1934 (e.g. the NYSE). 16 The reasoning was that such treaty may operate to provide benefits that are intended for the purpose of mitigating or eliminating double taxation to corporations that are not at risk of double taxation. Id. at 42. 17 Id. 18 Id. 13 See section 246(c)(4) (flush language); Treas. Reg. 1.246-5. 14 Both the Act and its legislative history refer to an exchange of information program rather than an exchange of information article or other treaty provision. This wording could be construed to suggest a requirement for an official information exchange arrangement between the United States and the relevant treaty country. Hopefully it will be clarified in forthcoming Treasury guidance. 15 The legislative history indicates that in the case of American Depository Receipts (ADRs) backed by such stock, the trading requirement will be met if the ADRs are so tradable. H.R. REP. NO. 108-126, at 42 n.41 (2003) (Conference Agreement). 19 See, e.g., sections 280G(b)(5)(A), 1042(c)(1)(A), Treas. Reg. 1.453-3(d)(2), 1.752-2(g)(3), (h)(4), 1.1042-1T; Prop. Treas. Reg. 5f.163-1(b)(2)(i), 1.280G-1. 20 See, e.g., section 897(c)(3) ( regularly traded on an established securities market ), 1092(d)(1) ( personal property of a type which is actively traded ), 1273(b)(3) ( traded on an established securities market ), 7704(b) ( traded on an established securities market and readily tradable on a secondary market (or the substantial equivalent thereof) ), and corresponding Treasury regulations. 21 For example, these factors are taken into account in Treas. Reg. 1.453-3(d)(3).
4 Special Rules Extraordinary dividends. If an individual receives, with respect to any stock, QDI from an extraordinary dividend within the meaning of section 1059(c) (generally a dividend that is at least 10% (or 5% in the case of preferred stock) of the taxpayer s adjusted tax basis in such stock), then any loss recognized on a future sale or other disposition of such stock will be treated as long-term capital loss to the extent of such dividends. Foreign tax credit calculation. A United States taxpayer may be allowed a tax credit for foreign taxes paid on QDI. Section 904 generally limits the amount of the foreign tax credit based on the proportion of such taxpayer s foreign source taxable income to its entire taxable income. Under the new law, the amount of the foreign tax credit allowed against United States income tax imposed on QDI will be decreased proportionately with the reduced United States income tax on such QDI. RICs and REITs. QDI received by a RIC or REIT generally will continue to be treated as such when distributed to the shareholders of the RIC or REIT. As under prior law, a distribution of capital gains recognized by a RIC or REIT will be treated as a capital gain dividend, i.e. it will not be QDI. The amount of a RIC s distribution that is considered to be QDI may not exceed the amount so designated by the RIC in a written notice to its shareholders mailed within 60 days after the close of its taxable year. If less than 95% of a RIC s (or a REIT s) gross income (as specially computed) 22 consists of QDI, then (i) the entity must designate the amount of its dividend distributions that are QDI and (ii) the aggregate amount so designated may not exceed the aggregate QDI received by the entity for the taxable year. In the case of a REIT, the amount of QDI deemed received during any taxable year will essentially be its own net after-tax taxable income, i.e. specifically, the sum of (i) its REIT taxable income for the preceding taxable year over the corporate tax imposed on such income, and (ii) the excess of any income subject to tax by reason of Treasury regulations under section 337(d) (e.g. recognition of builtin gain on assets realized when the REIT was converted from a subchapter C corporation) over the corporate tax imposed on such income. Section 306 stock. In general, gain that is recognized from the sale or other (non-redemption) disposition of section 306 stock (e.g. preferred stock received as a stock dividend) is treated as ordinary 22 Income from sales or other dispositions of stock or securities is included in gross income only to the extent of the excess of net short-term capital gain over net long-term capital loss. income. Pursuant to the Act, such recharacterized income will be treated as a corporate dividend for purposes of determining whether it will qualify as QDI (and also for other purposes that Treasury may specify in the future). Repeal of collapsible corporation rules and other conforming changes. Section 341 was originally enacted to address collapsible corporations, which generally are corporations formed or availed of principally to acquire dealer property with the objective of having their shareholders realize income as capital gains from selling or exchanging their stock in such corporations. Section 341 (along with cross-references to it in the Code) has been repealed by the Act, which is consistent with the elimination of the disparity in rates between dividends and capital gains. Observations Revisiting capital structure (debt vs. equity). Everything else being equal, investors who are United States individuals, trusts and estates will prefer investments that produce QDI in comparison to other income-producing investments. To illustrate this point, consider the following simple example involving two domestic corporations with individual shareholders: Corporation A pays $100 of dividends on preferred stock, and such dividends are QDI. Corporation B, on the other hand, pays $100 of interest on its outstanding indebtedness. It is easy to see that an individual (or trust or estate) who is normally taxed at the highest marginal rate (currently 35%) will prefer to receive the dividends, which would result in $15 of tax, rather than the interest, which would result in $35 of tax. However, corporations, in determining their own capital structures, will take into account their own tax (and non-tax) 23 objectives that may be somewhat at odds with those of their own stock and debt investors. In the above example, if Corporation B s interest expense is deductible against its current income, the interest payment will generate a $35 tax benefit (assuming Corporation B is taxed at the highest marginal rate applicable to corporations). On the other hand, Corporation A will not realize a direct tax benefit from paying the dividend, though, as discussed below, it is not necessary that the dividend be paid out of earnings that have been subject to corporate tax. Accordingly, we would expect, very generally, that a domestic corporation with taxable income 23 There are of course significant economic and other non-tax considerations, such as pricing, ratings, capitalization, and applicable regulatory requirements, that will be taken into account in devising a corporation s capital structure and, in particular, choosing between debt and equity.
5 likely will continue to prefer to pay deductible interest on its capital, while a corporation in a tax loss position (because, for example, of a net operating loss carryover) may prefer to pay qualifying dividends on its capital. We believe that many corporations may re-evaluate and perhaps even modify their own capital structures in order to respond to the changed preferences of domestic noncorporate investors. As part of this process, corporations and their tax planners may revisit the age-old question of whether an instrument will be treated as debt or equity for United States federal income tax purposes (e.g. in deciding to structure capital as preferred stock or as subordinated debt). We have a few observations in this regard. First, although most cases and other legal authorities in this context have considered whether a purported debt instrument should be respected as such, there are a few authorities that have analyzed the reverse situation, i.e. whether purported equity, such as preferred stock with debt-like terms and conditions, should be respected as such, for example, in the context of corporate shareholders seeking a dividends received deduction under section 243. 24 Second, foreign corporations that are QFCs may consider issuing so-called hybrid instruments that are treated as equity for United States federal income tax purposes and as indebtedness (that may give rise to deductible interest) for local law purposes. Third, depending on the investor base and other facts, the IRS may have a reduced incentive as a result of the Act to seek to recharacterize purported debt as equity due to offsetting revenue effects. That is (using the above example), if Corporation B s interest payment is recharacterized as a dividend, the IRS s $35 revenue gain from Corporation B s lost deduction generally would be offset by a $20 revenue loss due to the treatment by the investors (assuming they are United States individuals, trusts and estates). Possibility of one level of tax on corporate earnings. An earlier legislative proposal would have required that dividends eligible for the preferential rates be paid out of earnings that have been fully taxed by the United States at the corporate level. 25 Significantly, the Act does not include this requirement. Accordingly, it is possible that corporate earnings received by noncorporate stockholders will be subject to one level of tax, at a rate of only 15%. Under the new law, it may be possible to achieve 24 See, e.g., Rev. Rul. 90-27, 1990-1 C.B. 50 (dutch-auction rate preferred stock was respected as equity). 25 The proposal also would have provided that to the extent a corporation retains (rather than distributes) taxed earnings, stockholders would have an upward adjustment in the tax basis in their stock of the corporation. this result with, for example, a corporation organized in a tax haven, provided that it is neither a PFIC, FPHC or FIC and that its stock is readily tradable on a United States established securities market (assuming the tax haven is not a party to a qualifying United States income tax treaty). Domestic corporate transactions. We anticipate changes, both among tax planners and the IRS, in approaching and analyzing transactions involving domestic corporations with noncorporate United States stockholders. As a result of the Act, the interests of noncorporate stockholders are now more aligned with those of corporate stockholders, who generally are entitled to the dividends received deduction. However, there will continue to be a disparity between these categories of stockholders with respect to capital gains, on which corporate stockholders will continue to be taxed at the higher rates (generally 35%). 26 In light of these altered stockholder preferences, we expect that domestic corporations (with primarily United States stockholders) and their tax planners may reconsider structuring financial transactions, mergers and acquisitions, spin-offs and restructurings so as to extract value as QDI rather as capital gain, although capital gain treatment will continue to be preferable in many cases because it allows for a stockholder s tax basis to offset any amount realized. 27 For example, straightforward dividends may be re-evaluated in lieu of share repurchase programs. Corporations may consider funding significant dividends by leveraging (e.g. recapitalizing) or by selling an unwanted business. In the case of a privately held corporation, one or more significant domestic stockholders (e.g. private equity investors) who are interested in selling their stakes may consider having the corporation pay them a significant dividend prior to the sale. 28 Also, planners may consider structuring 26 And a third category of stockholders, foreign stockholders not engaged in a United States business, generally will prefer capital gains (which in most circumstances will not be taxed in the United States) rather than dividends (which will continue to be subject to a 30% withholding tax, unless a lower treaty rate applies). 27 In this regard, a sizeable body of law that has evolved for the purpose of distinguishing between dividends and capital gain on stock transactions. See, e.g., sections 302, 304, 305 and 306 and related Treasury regulations; Clark v. Commissioner, 489 U.S. 726 (1989) (applying section 302 principles to determine if gain recognized by shareholder in reorganization will be recharacterized as dividend). While the stakes may now be lower as a result of the elimination of the rate disparity, the applicable law will continue to have potential significance, in part because a stockholder s tax basis will offset the amount realized in capital gain transactions but not in dividend transactions. 28 In this context, rules applicable to extraordinary dividends may need to be considered.
6 acquisitive and divisive corporate transactions (i.e., mergers, acquisitions and spin-offs), to the extent such transactions are taxable to stockholders, in ways so that any boot, income or gain recognized by such stockholders will be QDI or capital gain rather than any other type of income. Cross-border tax planning. The new law may present some planning opportunities in the international context. On the question of choice of entity, for example, compare a QFC with a foreign entity that is treated for United States federal income tax purposes as a partnership. Repatriated earnings of the QFC that are QDI received by noncorporate United States stockholders would be taxed at the preferential rates. On the other hand, United States equity investors in the partnership generally would be taxed at the highest applicable rates in respect of their allocable shares of the partnership s ordinary income, regardless of whether or when it is distributed to them. As discussed above, the QFC need not pay any United States tax in order for the stockholder to avail itself of the benefit. Also, it is possible that the QFC could be subject to zero or relatively low income tax in its own jurisdiction because, for example, (i) it is organized in a tax haven, (ii) its income is sheltered at least in part by significant deductions (e.g. deductible interest on a hybrid instrument such as discussed below), or (iii) it is treated as a passthrough entity by its country of organization (i.e. a reverse hybrid entity). 29 As mentioned above, foreign corporations that qualify as QFCs may consider the potential use of hybrid instruments, which could pay out QDI to noncorporate United States stockholders while possibly generating deductible interest for purposes of its local income taxation. Individual tax planning. In light of the scheduled sunset of the reduced rates, domestic individual taxpayers may want to consider accelerating (perhaps shortly before the sunset) their recognition of otherwise deferred or deferrable income, particularly capital gains and amounts that would be treated as QDI. However, any income acceleration strategy should be evaluated on a case-by-case basis because in many situations, continued deferral of income may be preferable to acceleration. 30 Likewise, tax planners for individuals should be sensitive to the AMT. Although the Act provides a slight increase in the AMT exemption, that relief is limited to the years 2003 and 2004. With the reduction in the long-term capital gains rate to 15%, certain tax-deferral strategies may lose some of their attractiveness. For example, the benefits of charitable remainder trusts may no longer provide sufficient incentives for many individuals who are not primarily motivated by the charitable aspects of such trusts. The Act suggests that some types of investment and savings strategies should be re-evaluated. When leveraging an investment in stock that generates QDI, for example, an investor may choose either (i) to include such income as investment income, thereby potentially increasing the deductible amount of interest under section 163(d), or (ii) to apply the preferential rate to such income, which may be advantageous in a situation where the investor has sufficient investment income from other sources. The attractiveness of an investment in a specific mutual fund will largely depend on the composition of the fund s income. If 5% or more of the fund s income consists of income other than QDI (i.e. interest income, non-qdi, and short-term capital gains), the portion of the fund s dividends that are derived from such income will not be eligible for the preferential rate. Thus, pure domestic equity funds (particularly those concentrated with dividend-paying preferred stocks) may appear more attractive in this regard relative to fixed income, hybrid, and many international equity funds. In addition, distributions received from IRAs (and other tax-deferred accounts) will not be treated as QDI and thus will not be eligible for the preferential rate. * * * Please feel free to contact any of the partners in our Tax Group or Private Clients Group if you have further questions regarding the Act or any other matter discussed in this memorandum, including in the context of a particular transaction. 29 We note that an entity treated as a passthrough in its own country generally would not be able to rely on the applicable income tax treaty and accordingly would need to meet the readily tradable stock requirement in order to qualify as a QFC. Also, planners must be sensitive to the potential application of the subpart F rules. 30 Also, the sunset provisions may be amended.
This memorandum is intended only as a general discussion of these issues. It should not be regarded as legal advice. We would be pleased to provide additional details or advice about specific situations if desired. For more information on the topics covered in this issue, please contact: Roger J. Baneman Tax Group, New York Office (212) 848-4894 rbaneman@shearman.com Don J. Lonczak Tax Group, New York Office (212) 848-4376 dlonczak@shearman.com Bernie J. Pistillo, Jr. Tax Group, London Office (011-44-20) 7655-5040 bpistillo@shearman.com Peter H. Blessing Tax Group, Munich Office (011-49-89) 23888-2115 pblessing@shearman.com Edward J. Park Tax Group, New York Office (212) 848-4481 epark@shearman.com Robert A. Rudnick Tax Group, Washington, D.C. Office (202) 508-8020 rrudnick@shearman.com Laurence E. Crouch Tax Group, Menlo Park Office (650) 838-3718 lcrouch@shearman.com C. Jones Perry, Jr. Private Clients Group, New York Office (212) 848-8854 jperry@shearman.com Michael B. Shulman Tax Group, Washington, D.C. Office (202) 508-8075 mshulman@shearman.com www.shearman.com 2003 SHEARMAN & STERLING LLP 599 Lexington Avenue, New York, NY 10022 Under the regulations of some jurisdictions, this material may constitute advertising. As used herein, Shearman & Sterling refers to Shearman & Sterling LLP, a limited liability partnership organized under the laws of the State of Delaware.