Company Name: GreenPoint Financial Corp.
Public Availability Date: 02-09-1996
INQUIRY LETTER
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, N.Y. 10019-6150
TELEPHONE(212) 403-1000
December 26, 1995
VIA FEDERAL EXPRESS
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GreenPoint Financial Corp. -- Omission of
Stockholder Proposal
Ladies and Gentlemen:
On behalf of GreenPoint Financial Corp., a Delaware corporation (the "Company"),
and pursuant to Rule 14a-8(d) promulgated under the Securities Exchange Act of
1934, as amended, we hereby request confirmation that the staff of the Office of
Chief Counsel (the "Staff") of the Division of Corporation Finance of the
Securities and Exchange Commission (the "Commission") will not recommend any
enforcement action if, in reliance on certain provisions of Rule 14a-8(c), the
Company omits the proposal (the "Proposal") submitted to the company by Ms.
Christine Athans from the Company's proxy statement and form of proxy (the
"Proxy Materials") for its 1996 Annual Meeting of Stockholders scheduled to be
held on May 10, 1996.
In accordance with Rule 14a-8(d), we enclose herewith five additional copies of
this letter, which sets forth the reasons why the Company deems the omission of
the Proposal from the Proxy Materials to be proper, and six copies of the
Proposal, including the account statement of BNY Brokerage Inc. that accompanied
the Proposal. Pursuant to Rule 14a-8(d), a copy of this letter is being sent
concurrently to Ms. Athans.
The Proposal reads in its entirety: "The stockholders recommend that, in order
to enhance share value, the Board of Directors sell the Company for cash and/or
securities valued at no less than forty-five dollars per share."
This letter begins with a discussion of the underlying facts and policies
relevant to the Staff's analysis of the Proposal. This factual discussion will
clearly demonstrate that the charter document of the GreenPoint Bank, the
Company's operating subsidiary and a New York State chartered stock savings bank
(the "Bank"), expressly prohibits a sale of the Bank and, indirectly, the
Company, for a period of three years from January 28, 1994, the date on which
the Bank converted from mutual to stock form (the "Conversion"), and that this
prohibition was adopted pursuant to express regulatory authority intended to
enable demutualized thrifts, such as the Bank, to avoid forced sales prior to
their having an opportunity to deploy the funds received in conversion. This
factual discussion will also demonstrate that the prospectus relating to the
issuance and sale of the Common Stock of the Company at the time of the
Conversion fully disclosed that the Bank is operating under this prohibition.
In light of this factual background, this letter then elaborates the various
bases upon which the Company may properly omit the Proposal from the Proxy
Materials under Rule 14a-8(c).
I. Facts and Policies Relevant to the Proposal.
A. The Conversion and Applicable Regulatory Framework.
On May 13, 1993, the Board of Trustees of the Bank (the "Board of Trustees")
adopted a plan of conversion (the "Plan of Conversion") pursuant to which the
Bank would convert from a New York State chartered mutual savings bank to a New
York State chartered stock savings bank. In describing the reasons for the
Conversion in the prospectus, dated November 4, 1993, relating to the Common
Stock of the Company issued in the Conversion (the "Prospectus"), the Company
stated, "The Conversion will be important to the future growth and performance
of the Bank by providing a larger capital base on which the Bank may operate,
enhanced future access to capital markets, enhanced ability to diversify into
other financial services related activities, and enhanced ability to render
services to the public." Prospectus at page 94. The Prospectus made clear that
the Conversion was designed to enable the Bank to expand its business and the
services it provided to the customers and the communities it serves. The
Prospectus also made clear that there would not be a sale of the Company or the
Bank for a period of at least three years following the Conversion.
Primarily in response to the need for thrifts to raise capital in order to
increase operating efficiency and viability, many states, including New York,
had by 1993 adopted specific regulations governing conversions. Section 86.1 of
the General Regulations of the Banking Board of the State of New York (the "New
York Regulations"), provides the following general rationale for the regulatory
framework that applied to the Conversion:
The Banking Board has found it essential that thrift institutions have the
opportunity to strengthen their capital positions so that they may continue to
serve the depositary and credit needs of their communities while recovering from
the serious losses which have beset their industry in the recent past.
Accordingly . . . the Banking Board has determined to prescribe the terms and
conditions under which mutual savings banks . . . shall be permitted to issue .
. . equity securities . . . in the course of converting from mutual to
stock-form of ownership . . ..
More specifically, consistent with the Banking Board's express concern to enable
thrifts to "strengthen their capital positions" through demutualization, the
Banking Board expressly endorsed the adoption of antitakeover provisions by
converting institutions. Section 86.10 of the New York Regulations provides, "An
organization certificate of a converting thrift may contain provisions, the
effect of which would be to prohibit the acquisition of control of the converted
stock-form thrift institution for a period not exceeding three years from the
effective date of the conversion from mutual to stock form."
Based upon this explicit statutory authorization, the Bank adopted a clear
three-year antitakeover provision as part of its Plan of Conversion. A staggered
board provision at the Bank level prevents a stockholder of the Bank (such as
the Company) from amending this charter provision over the objection of the
board of directors of the Bank. The Proposal recommends a course of action that
is expressly inconsistent with the provisions of the Bank charter as authorized
by New York law.
B. The Bank's Antitakeover Provision.
Section 8 of the Bank's Restated Organization Certificate, a copy of which is
attached as Annex A hereto (the "Organization Certificate"), provides explicitly
that for a period of three years from the date of consummation of the
Conversion, "no person shall directly or indirectly acquire the beneficial
ownership of more than 10 percent of any class of any equity security of the
Bank". A limited exception is provided for the formation of a holding company,
if the formation of such a holding company does not change the respective
beneficial ownership interests of the Bank's stockholders. In the event shares
of the Bank are acquired directly (or indirectly through an acquisition of
shares of the Company) in violation of Section 8, "all shares beneficially owned
by any person in excess of 10% shall be considered `excess shares' and shall not
be counted as shares entitled to vote and shall not be noted by any person".
The definition of "person" in Section 8 of the Organization Certificate would
include any entity seeking to acquire the Company. Pursuant to Section 8 of the
Organization Certificate, a "person" means "an individual, a firm, a group
acting in concert, a corporation, a trust, any unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of the equity securities of the Bank or any
other entity".
Section 11 of the Organization Certificate provides that amendments to the
Organization Certificate may first be proposed by a majority of the whole board
of directors of the Bank, then preliminarily approved by the New York State
Banking Department and thereafter affirmed by the vote of holders of at least 80
percent of the total votes eligible to be case at a legal meeting of
stockholders. Section 12 of the Organization Certificate provides for three-year
staggered terms of the directors of the Bank, and accordingly even a 100%
stockholder of the Bank (such as the Company) cannot force the board of
directors of the Bank to implement an amendment removing the three year
antitakeover protection contained in the Organization Certificate.
Investors who purchased shares of the Common Stock of the Company in the
Conversion and all subsequent stockholders of the Company have been fully
informed about the prohibitions contained in the Bank's Organization
Certificate.
II. The Proposal May be Properly Omitted under Various Provisions of Rule
14a-8(c).
Under Rule 14a-8(c), a registrant may properly omit a proposal and any statement
in support thereof from its proxy statement and form of proxy in various
circumstances enumerated in the subparagraphs of the Rule. The Company believes
that the factual background to the current Proposal provides a clear and
compelling basis for omitting the Proposal under Rule 14a-8(c).
A. Under the Laws of the State of Delaware, the Proposal Is Not a Proper Subject
for Action by Stockholders.
Rule 14a-8(c)(1) provides that a registrant may omit a stockholder proposal "if
the proposal is, under the laws of the registrant's domicile, not a proper
subject for action by security-holders".
Section 141(a) of the General Corporation Law of the State of Delaware (the "DGCL")
provides that the business and affairs of every Delaware corporation shall be
managed by or under the direction of a board of directors, except as may be
otherwise provided in the DGCL or in such corporation's certificates of
incorporation. The Commission has recognized that state corporate laws typically
do not specify the particular powers and duties reserved for boards of
directors. As the Commission noted in Release No. 34-12999 (November 22, 1976)
and reaffirmed in Release No. 34-20091 (August 16, 1983):
It is the Commission's understanding that the laws of most states do not, for
the most part, explicitly indicate those matters which are proper for security
holders to act upon but instead provide only that "the business and affairs of
every corporation organized under this law shall be managed by its board of
directors", or words to that effect. Under such a statute, the board may be
considered to have exclusive discretion in corporate matters, absent a specific
provision to the contrary in the statute itself, or the corporation's articles
or bylaws.
Neither the Company's Certificate of Incorporation (the "Certificate of
Incorporation") nor its Bylaws limits the authority of the Board of Directors of
the Company (the "Board of Directors") to manage the business and affairs of the
Company. Rather, Article FIFTH, Section A of the Certificate of Incorporation
expressly provides that the business and affairs of the Company shall be managed
by or under the direction of the Board of Directors. The presumption arising out
of the DGCL and the Certificate of Incorporation, therefore, is that the Board
of Directors has "exclusive discretion in corporate matters".
The sale of the Company, whether effected pursuant to a merger or sale of
assets, is a matter that under Delaware law specifically requires initiation by
the Board of Directors. ?? 251 and 271 of the DGCL. This authority is further
restricted, in the case of the Company, by the provisions of the Bank's
Organization Certificate and the related provisions of New York law. Delaware
law recognizes that the Board of Directors is in the best position to evaluate
whether and when, subject to applicable constraints, it is appropriate to
consider the initiate a sale of the Company and, indirectly, the Bank. The
applicable provisions of the DGCL establish a deliberate process whereby a board
of directors first exercises its judgment with respect to the potential sale of
a company, and only after a board has exercised such judgment do the
stockholders approve or disapprove any proposed sale transaction.
The fact that the Proposal is precatory and phrased in terms of a
"recommendation" does not preclude its omission from the Proxy Materials. The
Staff has commented repeatedly that a precatory proposal may not be a proper
subject for stockholder action under the governing state's laws. The note to
Rule 14a-8(c)(1) provides, "Under certain States' laws, a proposal that mandates
certain action by the registrant's board of directors may not be a proper
subject matter for stockholder action, while a proposal recommending or
requesting such action of the board may be proper under such State laws." In
1983, however, the Commission interpreted this note in Release No. 34-20091
(August 19, 1993) "to make it clear that whether the nature of the proposal,
mandatory or precatory, affects it includability is solely a matter of state
law, and to dispel any mistaken impression that the Commission's application of
paragraph (c)(1) is based on the form of the proposal". In clarifying the note
to Rule 14a-8(c)(1), the Commission emphasized that the stockholder proposal
process should not be used to confuse the distinction between the functions of a
board of directors and the functions of stockholders.
B. The Proposal, if Implemented, Would Require the Board of Directors to Violate
its Fiduciary Duties under Delaware Law and Could Cause the Company to Violate
the Terms of the Bank's Organization Certificate and the Provisions of New York
State Law.
Rule 14a-8(c)(2) permits the omission of a stockholder proposal "if the
proposal, if implemented, would require the registrant to violate any State law
or Federal law of the United States." The Proposal, if implemented, would
require the Board of Directors to breach fiduciary duties owed to the Company's
stockholders under Delaware law, and could cause the Company to violate the
terms of the Bank's Organization Certificate and the provisions of New York
State law, and consequently may properly be omitted under Rule 14a-8(c)(2).
(i) Decisions to Sell the Company Rest with the Board of Directors, and are
Subject to the Limitations Set Forth in the Organization Certificate.
Decisions concerning when and whether to conduct a sale of the Company,
including the related decisions concerning the restraints contained under the
Organization Certificate and the related provisions of New York law, are
reserved under Delaware law to the Board of Directors. As stated above, under
Section 141(a) of the DGCL, the Board of Directors is granted the authority, and
is charged with the duty, to manage the Company's and, indirectly, the Bank's
business and affairs. In the discharge of this duty, the Directors are required
to act with due care and in the best interests of the Company and all its
stockholders. See, Smith v. Van Gorkom,
488 A.2d 858 (Del. 1985); Guth v. Loft,
5 A.2d 503 (Del. 1939). The fiduciary duty to manage a corporation includes the
selection of a time frame for achievement of corporate goals, a duty that may
not be delegated to the stockholders. Paramount Communications, Inc. v. Time,
Inc., 571 A.2d 1150, 1154 (Del. 1990) (citing Smith v. Van Gorkom, 488 A.2d at
873). Directors are not obligated to abandon a deliberately conceived corporate
plan for short-term stockholder profit unless there is clearly no basis to
sustain the corporate strategy. Paramount v. Time, 571 A.2d at 1154. We note
that, as the Company's stockholders have been aware since the Conversion, the
Conversion and the deployment of the proceeds received thereby have constituted
the core of the Company's deliberately conceived business plan, and that the New
York State Banking Department has explicitly endorsed the antitakeover
provisions in the Organization Certificate and mandated that the Bank develop a
long-term business plan for deploying the conversion proceeds.
In the sale of control context, directors must act in accordance with their
fundamental duties of care and loyalty. Paramount Communications Inc. v. QVC
Network Inc.,
637 A.2d 34, 43 (Del. 1994) (citing Barkan v. Amsted Indus., Inc.,
567 A.2d 1279, 1986 (Del. 1989)). Part of the discharge of these duties involves
a determination by directors regarding whether a sale of a company is
appropriate. See, Paramount v. Time, 571 A.2d at 1154. If the Directors believe
that the Company's current long-term plan should be maintained and that a sale
at the current time is not sensible, forcing the Directors to endeavor to
achieve such a sale will cause them to breach their fiduciary duties under
Delaware law. A sale of the Company at this time would also be inconsistent with
the long term business plan developed by the Company and the Bank for deploying
the proceeds of the Conversion as required by the New York State Banking
Department, the terms of the Organization Certificate and the disclosures made
to the New York State Banking Department in the Bank's Plan of Conversion and to
investors in the related Prospectus.
(ii) Limitations on the Form of Transaction Are Improper.
Even if the Board of Directors determined to sell the Company, and was able to
lift the restrictions contained in the Organization Certificate consistent with
the amendment provisions of the Organization Certificate, the disclosures
contained in the Plan of Conversion and the Prospectus, and the Company's and
the Bank's respective obligations under Delaware and New York law, the Board of
Directors would be under no duty to conduct the sale by any particular method.
See, Barkan, v. Amsted Industries, Inc.,
567 A.2d 1279, 1286 (Del. 1989).
Rather, "the directors must focus on one primary objective -- to secure the
transaction offering the best value reasonably available for the stockholders --
and they must exercise their fiduciary duties to further that end". Paramount v.
QVC, 637 A.2d at 44 (citing Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.,
506 A.2d 173, 183 (Del. 1986)). In addition, in the context of a proposed
transaction involving a merger, the Delaware Supreme Court has stated that
directors generally have a fiduciary duty to recommend the agreement of merger
in good faith to stockholders, and that any attempt by directors to abdicate
that authority by presenting to stockholders a merger transaction which they do
not believe is the best transaction available to a company would be a breach of
that duty. Smith v. Van Gorkom, 488 A.2d at 888.
The constraints on the manner in which a sale of the Company should be conducted
as set forth in the Proposal thus create an additional basis for omitting the
Proposal.
C. The Proposal Is a False and Misleading Statement Since it Suggests That a
Sale Transaction Is Permissible under the Current Circumstances.
Rule 14a-8(c)(3) permits a stockholder proposal to be omitted "if the proposal
of the supporting statement is contrary to any of the Commission's proxy rules
and regulations, including Rule 14a-9, which prohibits false and misleading
statements in proxy soliciting materials". The Proposal is false and misleading
since it fails to address the antitakeover provisions contained in the Bank's
Organization Certificate and therefore will mislead some stockholders into
believing that a sale of the Company can be effectuated without first removing
these restrictions, which would require, at a minimum, action by the incumbent
board of directors of the Bank and the approval of the New York State Banking
Department. Since the removal of the antitakeover provisions in the Organization
Certificate is expressly contrary to the terms of the Bank's Plan of Conversion
as approved by the New York State Banking Department and the disclosure
contained in the Prospectus, there is no basis for asserting at this time that
such approval could be obtained even if the board of directors of the Bank in
the proper exercise of its fiduciary duties determined that seeking such
approval was in the best interests of the Bank. As required as a condition of
the Conversion, the Bank adopted a long-term business plan for deploying the
proceeds of the Conversion which is expressly contrary to the recommended action
set forth in the Proposal.
D. The Proposal Deals With a Matter That Is Beyond the Company's Power to
Effectuate.
Rule 14a-8(c)(6) permits a stockholder proposal to be omitted "if the proposal
deals with a matter that is beyond the registrant's power to effectuate". As
discussed above, the Company cannot pursue a sale consistent with the terms of
the Organization Certificate, the commitments contained in the Bank's business
plan, and the disclosures contained in the Bank's Plan of Conversion and the
related Prospectus, and therefore the Proposal is beyond the Company's power to
effectuate.
Although the Company is currently the sole stockholder of the Bank, the Company
does not have the power to effectuate an amendment to the Organization
Certificate. Section 11 of the Organization Certificate provides that amendments
to the Organization Certificate must first be proposed by a majority of the
whole board of directors of the Bank, then preliminarily approved by the New
York State Banking Department, and thereafter approved by the affirmative vote
of the holders of at least 80 percent of the total votes eligible to be cast by
stockholders of the Bank. The board of directors of the Bank has independent
fiduciary obligations and cannot be compelled to act even at the request of its
sole stockholder. Since the directors of the Bank are elected to three year
staggered terms, the Company cannot force the replacement of more than one third
of the directors of the Bank in any given year and therefore cannot force the
board of directors of the Bank to propose an amendment to the Organization
Certificate.
Furthermore, the board of directors of the Bank must act in a manner consistent
with the representations made to the New York State Banking Department in
connection with its Plan of Conversion and consistent with the business plan
which the board has adopted in connection with the Conversion. This business
plan, which was adopted pursuant to an Order of the New York State Banking
Department mandating that the Bank develop a plan for the short and intermediate
term deployment of the Conversion proceeds, requires the Bank to continue to
pursue its current business strategy of deploying such proceeds. We note in this
regard that the Bank has to date partially deployed the proceeds raised in the
Conversion consistent with its business plan. In a transaction that closed in
July of this year, the Bank acquired the mortgage origination business of
Barclays America Mortgage Corporation, and in a transaction that closed in
September of this year, the Bank acquired the New York branch system of Home
Savings of America, FSB. However, although these two transactions have closed,
the process of integrating them into the Company's existing operations is at an
early stage, with much work remaining.
III. Request.
In conclusion, we believe omission of the Proposal in its entirely is proper
under Rule 14a-8(c). Accordingly, the Company requests a determination that the
Staff will not recommend enforcement action proceedings against the Company if
the Proposal is omitted from the Proxy Materials.
If you have any questions or require any additional information regarding this
matter, please feel free to call Craig M. Wasserman of my firm at (212)
403-1232, the undersigned at (212) 403-1311, or Howard C. Bluver, Senior Vice
President and General Counsel of the Company, at (718) 670-7669. Should the
Staff disagree with the analysis set forth herein, we would appreciate an
opportunity to confer with the Staff prior to issuance of its response.
Please acknowledge receipt of this letter and the enclosed materials by stamping
the enclosed receipt copy of this letter and returning it in the envelope
provided.
Very truly yours,
William T. Anton III
Enclosures
cc: Howard C. Bluver
GreenPoint Financial Corp.
STAFF REPLY LETTER
February 9, 1996
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: GreenPoint Financial Corp. (the "Company")
Incoming letter dated December 26, 1995
The proposal recommends that the board of directors sell the Company for cash
and/or securities valued at no less than forty-five dollars per share.
The Division is unable to concur in your view that the Proposal may be excluded
pursuant to Rules 14a-8(c)(1), (c)(2) or (c)(6). The staff is unable to conclude
that the Company has met its burden of establishing that the Company could not
take steps to effectuate the proposal consistent with legal requirements.
Accordingly, the staff does not believe that the Company may rely either Rule
14a-8(c)(1), (c)(2) or (c)(6) as a basis for omitting the Proposal from its
proxy materials.
The Division is also unable to concur in your view that the Proposal is false
and misleading within the meaning of Rule 14a-9. Accordingly, the staff does not
believe that the Company may rely on Rule 14a-8(c)(3) as a basis for omitting
the Proposal from its proxy materials.
Sincerely,
Andrew A. Gerber
Attorney-Advisor
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