United States Securities and Exchange Commission
Washington, D.C. 20549
NOTICE OF EXEMPT SOLICITATION
Pursuant to Rule 14a-103
United States Securities and Exchange Commission
Washington, D.C. 20549
NOTICE OF EXEMPT SOLICITATION
Pursuant to Rule 14a-103
Name of the Registrant: McDonald’s Corporation
Name of persons relying on exemption: The Shareholder Commons, Inc.
Address of persons relying on exemption: PO Box 1268, Northampton, Massachusetts 01061
Written materials are submitted pursuant to Rule 14a-6(g) (1) promulgated under the Securities Exchange Act of 1934. Submission is not required of this filer under the terms of the Rule but is made voluntarily in the interest of public disclosure and consideration of these important issues.
Balancing Public Health and Financial Returns: A Rebuttal to the McDonald’s Board
The Shareholder Commons urges (“TSC”) you to vote “FOR” Item 6 on the proxy (the “Proposal”), a shareholder proposal requesting that McDonald’s Corporation (“McDonald’s” or the “Company”) comply with World Health Organization (“WHO”) guidelines on antimicrobial use in food-producing animals.
TSC is a non-profit organization that addresses social and environmental issues from the perspective of shareholders who diversify their investments to optimize risk and return. More specifically, TSC addresses the conflict that often emerges between a company’s interest in maximizing its cash flows over the long term and its shareholders’ interests in optimizing overall market returns.
We support Item 6 because, despite the existence of programs that address antibiotic use, the Company’s decisions do not account for the risks antibiotics in its supply chains pose to public health or the cost it imposes on its diversified shareholders by failing to do so.
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| A. | The Proposal |
McDonald’s is the single largest beef purchaser in the United States and one of the largest in the world; its policies thus have tremendous influence on the market as a whole. The Proposal requests that the Company comply with expert guidelines on antimicrobial use in meat supply chains, with the aim of protecting an essential component of modern medicine that supports a thriving economy:
RESOLVED, shareholders ask that the board of directors institute a policy that the Company (“McDonald’s”) comply with World Health Organization (“WHO”) Guidelines on Use of Medically Important Antimicrobials in Food-Producing Animals (“WHO Guidelines”)1 throughout McDonald’s supply chains.
McDonald’s opposes the proposal on false grounds:
| 1. | McDonald’s says the Proposal is “unnecessary.” This is false. Antimicrobial resistance (“AMR”) is increasing at an alarming clip, creating expanding economic and diversified portfolio damage, and the Company’s policies and performance do not sufficiently mitigate the risk to its diversified shareholders. |
| 2. | McDonald’s says the Proposal is “duplicative.” This is false. The Company does not follow the WHO Guidelines. |
| 3. | McDonald’s says the Proposal “would not provide meaningful benefit to shareholders.” This is false. The vast majority of investors are everyday savers such as Texas teachers, Detroit fire fighters, and other working people who count on their diversified portfolios to keep them from running out of money before they die. For them, the single greatest determinant of portfolio value is broad economic health, and AMR is poised to cost the economy $100 trillion by 2050. |
| B. | Overuse of Antibiotics in Animal Husbandry Creates AMR, a Grave Threat to Human Life, Economic Prosperity, and Diversified Portfolios |
AMR occurs when microbes (i.e., bacteria, parasites, viruses, and fungi) change over time and no longer respond to medicines such as antibiotics, causing standard disease treatments to become ineffective. This, in turn, increases the risk of disease spread, severe illness, and death. The process occurs naturally, but misuse of antimicrobials in animals and humans is accelerating it. Without urgent action, we are heading for a post-antibiotic era in which common infections and minor injuries can once again kill. As AMR experts recently warned, “virtually no aspect of modern medicine is possible without access to antimicrobials that work.”2
Routine antibiotics use for both therapeutic and non-therapeutic purposes has enabled livestock operators to mitigate some of the grim effects of over-crowding, poor ventilation, unnatural feed, and animals’ close contact with their own excreta that characterize intensive animal farming operations and contribute to greater disease incidence among animals. A growing body of evidence demonstrates that antimicrobial-resistant bacteria arising from intensive animal farming operations are transferring to human populations.3
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1 https://apps.who.int/iris/bitstream/handle/10665/258970/9789241550130-eng.pdf
2 “Removing the Blindfold on Antimicrobial Resistance,” Open Access Government (blog), March 16, 2022, https://www.openaccessgovernment.org/removing-blindfold-antimicrobial-resistance/131783/.
3 FAIRR, “Feeding Resistance: Antimicrobial Stewardship in the Animal Health Industry,” July 2021, https://www.fairr.org/research/animal-pharma/#report.
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This threat to public health is likely to materially reduce the intrinsic value of the global economy, which will in turn affect investment portfolios. While some models of AMR project GDP loss of 3.8 percent in 30 years, these models are likely to underestimate impacts significantly.4 Some worst-case assessments set AMR costs around $100 trillion by 2050, and those estimates also rely on incomplete data and limited scope. Another possible indicator of AMR’s economic costs is the COVID-19 pandemic, which cost an estimated 10 percent of global GDP in 2021. Experts warn that the next pandemic may well involve a drug-resistant pathogen.5
These losses will have a significant negative effect on the return of diversified portfolios held by McDonald’s investors over the long term.6 A healthy economy is a far greater value driver for diversified portfolios than the profits of any one company within those portfolios. Indeed, a number of studies have shown that systematic factors explain 75-94 percent of average portfolio return.7
| 1. | Investors know AMR is a growing, systemic threat |
Leading investors are increasingly recognizing the threat AMR poses. The relatively new Investor Action on AMR initiative aims to “leverage investor influence to combat drug-resistant superbugs,” noting the grave economic losses associated with AMR.8 Investor partners include Amundi Asset Management (one of the co-filers of this Proposal), Northern Trust, Federated Hermes, Aviva, and Sumitomo Mitsui Trust Group. One investor partner, Legal & General Investment Management (another co-filer of this Proposal), has staked out a position on its own website as to why investors should care about AMR, saying:
Not taking action could cost investors dearly, as demonstrated by the current [COVID-19] pandemic. According to the United Nations, the global economy is expected to contract by 4.3% in 2020 due to the impact of COVID-19. AMR is an already-known health risk as well as a material business risk. We believe that the next pandemic could very well be caused by a drug-resistant pathogen. We need to engage on the issue now, not tomorrow.9
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4 The Shareholder Commons, “Antimicrobial Resistance & the Engagement Gap: Why Investors Must Do More than Move the Needle, and How They Can,” September 2022, https://theshareholdercommons.com/amr-climate-change-case-studies/#amr.
5 Henry B. Skinner, “We’re Already Ignoring the next Pandemic,” Harvard Public Health Magazine, June 7, 2022, https://harvardpublichealth.org/were-already-ignoring-the-next-pandemic/.
6 Richard Mattison et el., Universal Ownership: Why environmental externalities matter to institutional investors, UNEP Finance Initiative and PRI (2011), available at https://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf.
7 Moving Beyond Modern Portfolio Theory: Investing that Matters by Jon Lukomnik and James Hawley, Routledge, April 30, 2021.
8 https://amrinvestoraction.org/about
9 https://www.lgimblog.com/categories/esg-and-long-term-themes/anti-microbial-resistance-why-should-investors-care/ (emphasis added)
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| C. | McDonald’s decisions on antibiotics use are insufficient to mitigate AMR risk and do not account for economic impact |
McDonald’s policies, which it says are “informed by” the WHO Guidelines—a semantic world away from compliance—are not sufficient to mitigate the risk its diversified shareholders face to their portfolios from AMR proliferation.
| 1. | McDonald’s suggests it is already implementing policies that align with the WHO Guidelines, without acknowledging that it continues to fail in that endeavor |
McDonald’s indicates in its Opposition Statement that its “antibiotic use policies do not permit the routine use of medically important antibiotics for the purpose of growth promotion or the habitual use of antibiotics for disease prevention,” although the Company says in a footnote that this proscription does not apply to its pork supply chains.
Moreover, a November 2022 investigation by the Bureau of Investigative Journalism and the Guardian10 found that McDonald’s supplier Cargill sources meat from U.S. farms that use “highest priority critically important antibiotics” (HPCIAs), which are so essential to human medicine that the WHO Guidelines suggest their use in livestock farming should be stopped. HPCIAs are often the last line or one of limited treatments available for serious bacterial infections in humans. The investigation found cattle suppliers to Cargill were using at least five HPCIAs.
Further still, Tyson Foods, one of McDonald’s major suppliers, does not comport with the WHO Guidelines. We filed a similar proposal at Tyson earlier this year, and the company opposed it. Tyson describes certain actions it has taken involving efforts to reduce antibiotic use, but it provides no accounting of the antibiotics in its supply chain. Tyson reports that 97 percent of its chickens in 2020 were raised without the use of “shared-class” antibiotics, which are used in both animal and human medicine. That’s it. Tyson provides no details whatsoever on the nature of the antibiotics used in its chickens, nor on antibiotics used in its beef and pork supply chains, which together accounted for nearly half of Tyson’s 2022 sales.
Additionally, Tyson says, “Any flocks treated with antibiotics are segregated and sold through a different sales channel and not under the Tyson retail brand label.” In this respect, then, Tyson’s “no antibiotics ever” certification may be more of an exercise in market segmentation than vital resource stewardship. With no comprehensive reporting from Tyson on antibiotics use, neither shareholders nor customers have any way of knowing.
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10 Ben Stockton and Andrew Wasley, “McDonald’s and Walmart Beef Suppliers Criticised for ‘Reckless’ Antibiotics Use,” The Guardian, November 21, 2022, sec. Environment, https://www.theguardian.com/global/2022/nov/21/mcdonalds-and-walmart-beef-suppliers-put-public-health-at-risk-with-reckless-antibiotics-use.
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Further still, while Tyson’s dramatic reduction in antibiotic use in its chicken supply chains is commendable, that progress does little to reduce antibiotic use in meat production overall, as only 3 percent of medically important antibiotics approved for use in food-producing animals in 2021 were for chickens.11 A combined 83 percent went to cattle and swine, about which Tyson provides no reporting and for which, apart from antibiotic-free specialty labels, it has no reduction targets.
Some observers question the significance of Tyson’s “no antibiotics ever” claims. Between 2015 and 2020, U.S. companies—including Tyson—sold tens of thousands of chicken products contaminated with campylobacter and salmonella, more than half of which were contaminated with antibiotic-resistant strains.12
With one of its primary suppliers so far away from compliance with the WHO Guidelines, McDonald’s itself cannot be aligned, despite its assertions to the contrary.
| 2. | McDonald’s fails not only to require optimal antibiotics use, but also to meet its own commitments, which may exacerbate AMR that creates a drag on diversified portfolios |
McDonald’s failed to meet its own 2018 commitment13 to set antibiotic use reduction targets for its beef supply chains by the end of 2020. If anything, McDonald’s seemed to be weakening its antibiotics use commitments in its subsequent statements.14 The Company finally promulgated reduction targets at the end of 2022,15 although Lena Brook, director of food campaigns at the Natural Resources Defense Council, said, “McDonald’s chose optics over substance with its new beef policy update.”16 In its Opposition Statement, McDonald’s says non-committally of this policy that “[o]verall reduction remains an intended outcome.”
McDonald’s points to its global chicken antibiotics policy, which aims to eliminate the use of the Highest Priority Critically Important Antibiotics (“HPCIAs”) by 2027 for its chicken supply chain. However, those promises also remain targets, and McDonald’s has demonstrated that it does not consistently hold itself to such commitments. Moreover, 41 percent of “medically important”17 antibiotics sold to U.S. livestock operations go to cattle, compared to just 3 percent to chicken.18
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11 Summary Report on Antimicrobials Sold or Distributed for Use in Food-Producing Animals, U.S. Food and Drug Administration (December 2022), available at https://www.fda.gov/media/163739/download.
12 Susannah Savage et al., “Superbugs on the Shelves: Diseased Chicken Being Sold across America,” The Bureau of Investigative Journalism in Partnership with Vice News, March 16, 2022, https://www.thebureauinvestigates.com/stories/2022-03-16/superbugs-on-the-shelves-diseased-chicken-being-sold-across-america.
13 https://corporate.mcdonalds.com/corpmcd/our-stories/article/beef_antibiotics.html
14 Steve Roach et al., “Chain Reaction VI: How Top Restaurants Rate on Reducing Antibiotic Use in Their Beef Supply Chains,” Center for Food Safety (July 2021), available at https://www.nrdc.org/sites/default/files/chain-reaction-vi-restaurants-antibiotic-use-2021-report.pdf.
15 https://corporate.mcdonalds.com/corpmcd/our-purpose-and-impact/food-quality-and-sourcing/responsible-antibiotic-use.html
16 Rachel Oatman, “McDonald’s Updates Antibiotics Policy,” MEAT+POULTRY, December 30, 2023, https://www.meatpoultry.com/articles/27807-mcdonalds-updates-antibiotics-policy.
17 Medically important antibiotics are those the World Health Organization deems important to human medicine. This is a much broader category than HPCIAs, which are the sole therapies available to treat serious human infections.
18 See supra n.15.
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Another 42 percent of those “medically important” antibiotics sales go to swine.19 Regarding its antibiotics use policies in its pork supply chain, McDonald’s basically says in its Opposition Statement that it’s working on it. More promises, little tangible progress.
A reasonable explanation for McDonald’s decision not to constrain antibiotics use in its meat supply chains to optimal levels is that the Company approach to AMR does not prioritize economy-wide risk mitigation and instead focuses on the risks to its own business.
| 3. | AMR’s broad economic cost surpasses any risk the issue poses to McDonald’s itself |
AMR poses a systemic, global threat to public health and the economy. When the efficacy and availability of life-saving drugs are compromised, the entire economy suffers. And when the economy suffers, investors lose.
Corporate contributors to this problem are legion. They include overuse and misuse of antimicrobials in animal agriculture, which accounts for some 70 percent of global antimicrobial use by volume.20
The problem is getting worse. After several years of reductions in sales of antibiotics for use in livestock, a U.S. Food & Drug Administration report on 2021 sales showed they had plateaued.21 And between 2015 and 2020, U.S. companies sold tens of thousands of meat products contaminated with campylobacter and salmonella, more than half of which were contaminated with antibiotic-resistant strains.22
Economic impact estimates for AMR are stark, with a 2017 World Bank study projecting costs by the year 2050 of up to 3.8 percent of global GDP, an impact comparable to the 2008 global financial crisis.23 Notably, this is likely a significant underestimate, as it relied on studies at the time that estimated there had been roughly 700,000 annual deaths from AMR since 2014 and predicted those deaths would rise to 10 million by 2050 if no action were taken. A recent study published in 2022 in The Lancet revised AMR-associated deaths significantly upward, determining that between 1.27 million and 4.95 million deaths in 2019 were associated with bacterial AMR.24 It stands to reason, then, that the economic impact by 2050 will be considerably worse than the World Bank projections cited above.
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19 Ibid.
20 Thomas Van Boeckel, et al., “Global trends in antimicrobial use in food animals,” Proceedings of the National
Academy of Sciences (March 19, 2015) 112(18), 5649-5654, available at https://doi.org/10.1073/pnas.1503141112.
21 U.S. Food & Drug Administration Center for Veterinary Medicine, “2021 Summary Report on Antimicrobials Sold or Distributed for Use in Food-Producing Animals,” (December 2022), available at https://www.fda.gov/media/163739/download.
22 Susannah Savage et al., “Superbugs on the Shelves: Diseased Chicken Being Sold across America,” The Bureau of Investigative Journalism (March 16, 2022), available at https://www.thebureauinvestigates.com/stories/2022-03-16/superbugs-on-the-shelves-diseased-chicken-being-sold-across-america.
23 World Bank, “Drug-Resistant Infections: A Threat to Our Economic Future,” (March 2017), available at
https://documents1.worldbank.org/curated/en/323311493396993758/pdf/final-report.pdf.
24 Christopher JL Murray et al., “Global burden of bacterial antimicrobial resistance in 2019: a systematic analysis,” The Lancet (January 19, 2022), available at https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(21)02724-0/fulltext#%20. (“We estimated that, in 2019, 1.27 million deaths (95% uncertainty interval [UI] 0.911–1.71) were directly attributable to resistance (ie, based on the counterfactual scenario that drug-resistant infections were instead drug susceptible) in the 88 pathogen–drug combinations evaluated in this study. On the basis of a counterfactual scenario of no infection, we estimated that 4.95 million deaths (3.62–6.57) were associated with bacterial AMR globally in 2019 (including those directly attributable to AMR).”)
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| D. | AMR threatens the returns of McDonald’s diversified investors |
| 1. | Investors must diversify to optimize their portfolios |
It is commonly understood that investors are best served by diversifying their portfolios.25 Diversification allows investors to reap the increased returns available from risky securities while greatly reducing that risk.26 This core principle is reflected in federal law, which requires fiduciaries of federally regulated retirement plans to “diversify[] the investments of the plan.”27 Similar principles govern other investment fiduciaries.28
| 2. | The performance of a diversified portfolio largely depends on overall market return |
Diversification is thus required by accepted investment theory and imposed by law on investment fiduciaries. Once a portfolio is diversified, the most important factor determining return will not be how the companies in that portfolio perform relative to other companies (“alpha”), but rather how the market performs as a whole (“beta”). In other words, the financial return to such diversified investors chiefly depends on the performance of the market, not the performance of individual companies. As one work describes this, “[a]ccording to widely accepted research, alpha is about one-tenth as important as beta [and] drives some 91 percent of the average portfolio’s return.”29 As shown in the next section, the social and environmental impacts of individual companies such as McDonald’s can significantly affect beta.
| 3. | Costs companies impose on social and environmental systems heavily influence beta |
Over long time periods, beta is influenced chiefly by the performance of the economy itself, because the value of the investable universe is equal to the portion of the productive economy that the companies in the market represent.30 Over the long run, diversified portfolios rise and fall with GDP or other indicators of the intrinsic value of the economy. As the legendary investor Warren Buffet puts it, GDP is the “best single measure” for broad market valuations.31
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25 See generally, Burton G. Malkiel, A Random Walk Down Wall Street, W. W. Norton & Company (2016).
26 Ibid.
27 29 USC Section 404(a)(1)(C).
28 See Uniform Prudent Investor Act, § 3 (“[a] trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.”)
29 Stephen Davis, Jon Lukomnik, and David Pitt-Watson, What They Do with Your Money, Yale University Press (2016).
30 Principles for Responsible Investment & UNEP Finance Initiative, “Universal Ownership: Why Environmental Externalities Matter to Institutional Investors,” Appendix IV, available at https://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf.
31 Warren Buffett and Carol Loomis, “Warren Buffett on the Stock Market,” Fortune Magazine (December 10, 2001), available at https://archive.fortune.com/magazines/fortune/fortune_archive/2001/12/10/314691/index.htm.
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But the social and environmental costs created by companies pursuing profits can burden the economy. As laid out in section B above, the economic cost estimates associated with AMR are staggering. This drag on GDP directly reduces the return on a diversified portfolio over the long term.32
The acts of individual companies affect whether the economy will bear these costs: if they increase their own bottom line by contributing to AMR, the profits earned for and capital returned to their shareholders may be inconsequential in comparison to the added costs the economy bears. Economists have long recognized that profit-seeking firms will not account for costs they impose on others, and there are many profitable strategies that harm diversified shareholders, society, and the environment.33 Indeed, in 2018, publicly listed companies around the world imposed social and environmental costs on the economy with a value of $2.2 trillion annually—more than 2.5 percent of global GDP.34 This cost was more than 50 percent of the profits those companies reported.
As shown below in Figure 1, McDonald’s choices that contribute to AMR threaten its diversified shareholders’ financial returns, even if those decisions might benefit McDonald’s financially.
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32 See supra n.33.
33 See, e.g., Kaushik Basu, Beyond the Invisible Hand: Groundwork for a New Economics, Princeton University Press (2011), p.10 (explaining the First Fundamental Theorem of Welfare Economics as the strict conditions (including the absence of externalities) under which competition for profit produces optimal social outcomes).
34 Andrew Howard, “SustainEx: Examining the social value of corporate activities,” Schroders (2019), available at https://www.schroders.com/en/sysglobalassets/digital/insights/2019/pdfs/sustainability/sustainex/sustainex-short.pdf.
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Figure 1
McDonald’s disclosures demonstrate that its antibiotics stewardship strategy simply fails to address the public health and economic costs of AMR. Given the Company’s operational focus on enterprise value, shareholders must ask McDonald’s critical questions: Is McDonald’s improving its own financial value by doing less than it should to address AMR? If so, how does that affect its diversified shareholders?
Investors must ask these critical questions because a healthy economy is a far greater value driver of their portfolio value than is the enterprise value of any one company within those portfolios: systematic factors explain 75-94 percent of average portfolio return.35
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35 Jon Lukomnik and James P. Hawley, Moving Beyond Modern Portfolio Theory: Investing that Matters (April 30, 2021) Routledge.
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| E. | Why you should vote “FOR” the Proposal |
Voting “FOR” the Proposal will signal to McDonald’s that shareholders want the Company not to put public health (and thus their diversified portfolios) at risk in order to improve McDonald’s financial performance.
Additionally:
| · | McDonald’s business contributes to AMR, and thus to declining public health, which creates an economy-wide risk that poses a threat to diversified shareholders. |
| · | McDonald’s disclosures show that it is not taking the actions that are required of corporations seeking to be part of the solution to AMR. |
| · | McDonald’s decision-makers—who are heavily compensated in equity—do not share the same broad market risk as McDonald’s diversified shareholders. |
| F. | Conclusion |
Please vote “FOR” Item 6
By voting “FOR” Item 6, shareholders can urge McDonald’s to account directly for its contribution to AMR and the resulting costs to public health and society, which in turn affect the economic health upon which diversified portfolios depend. Compliance with the WHO Guidelines can aid the Board and management in authentically serving the needs of McDonald’s diversified shareholders and in preventing the dangerous implications—to diversified shareholders and others—of a narrow focus on internal financial return.
The Shareholder Commons urges you to vote “FOR” Item 6 on the proxy, the Shareholder Proposal requesting compliance with WHO Guidelines on antimicrobials use at the McDonald’s Corporation Annual Meeting on May 25, 2023.
For questions regarding the McDonald’s Corporation Proposal submitted by HESTA, Amundi Asset Management, LGIM America, et al., please contact Sara E. Murphy of The Shareholder Commons at +1.202.578.0261 or via email at sara@theshareholdercommons.com.
THE FOREGOING INFORMATION MAY BE DISSEMINATED TO SHAREHOLDERS VIA TELEPHONE, U.S. MAIL, E-MAIL, CERTAIN WEBSITES, AND CERTAIN SOCIAL MEDIA VENUES, AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE OR AS A SOLICITATION OF AUTHORITY TO VOTE YOUR PROXY.
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PROXY CARDS WILL NOT BE ACCEPTED BY FILER NOR BY THE SHAREHOLDER COMMONS.
TO VOTE YOUR PROXY, PLEASE FOLLOW THE INSTRUCTIONS ON YOUR PROXY CARD.
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