Company Name: Georgia-Pacific Corp.
Public Availability Date: March 25, 1999
Document Sections:
LETTER OF INQUIRY 1
APPENDIX
LETTER OF INQUIRY 2
LETTER OF INQUIRY 3
LETTER OF INQUIRY 4
LETTER OF INQUIRY 5
STAFF REPLY LETTER
[LETTER OF INQUIRY 1]
January 22, 1999
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Georgia-Pacific CorporationOmission of
Shareholder Proposal of Amalgamated Bank of
New York LongView Collective Investment Fund
under SEC Rule 14a-8
Ladies and Gentlemen:
Georgia-Pacific Corporation (the "Company") has received from Amalgamated Bank
of New York LongView Collective Investment Fund (the "Proponent") a proposal to
amend the Company's Bylaws to prohibit the Company from adopting or maintaining
any "rights plan, share purchase plan or similar agreement, commonly known as a
`poison pill'" without the prior approval of "the holders of a majority of the
outstanding shares of stock" at a general or special meeting of shareholders,
and to require the Company to redeem or cause to expire any such plan or
agreement in effect on the date of adoption of the bylaw (the "Proposal").
On behalf of the Company and in accordance with Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are writing
to advise you of the Company's intention to exclude the Proposal from its proxy
statement for its 1999 Annual Meeting of Shareholders to be held May 4, 1999.
Pursuant to the provisions of Rule 14a-8(j), by copy of this letter, the Company
has notified the Proponent of its intention to omit the Proposal from the
Company's 1999 proxy materials. Also pursuant to Rule 14a-8(j), enclosed are six
copies of this letter and the exhibits hereto which include the Proposal and
supporting statement, and a supporting opinion of the Company's Georgia counsel.
The Company believes that the Proposal may be omitted from its 1999 proxy
materials pursuant to Rule 14a-8(i)(1) because the Proposal is not a proper
subject for shareholder action under the Georgia Business Corporation Code (the
"Code").
Discussion
Rule 14a-8(i)(1) provides that a registrant may omit a proposal "if the proposal
is not a proper subject for action by shareholders under the laws of the
jurisdiction of the company's organization." The Company is organized under the
laws of the State of Georgia. The Company has received an opinion from special
counsel in Georgia, which is attached hereto as Exhibit A, stating that the
proposed bylaw amendment (the "Proposed Bylaw"), if it were to be adopted by the
shareholders of the Company, would be invalid under the Code as an impermissible
limitation on the statutory and fiduciary duties required of boards of directors
in Georgia. Unlike similar statutes in many other states that the Staff has
considered in this context, the Georgia statute, by its terms, vests these
duties in the Board of Directors "in its sole discretion." See Code Section
14-2-624(c).
Code Section 14-2-801 provides that each corporation organized under the Code
must have a Board of Directors and establishes that the Board of Directors, not
the shareholders, are empowered to make the business decisions of the
corporation, subject to lawful restrictions. Similarly, Code Section 14-2-206,
concerning bylaws, provides that the bylaws of a Georgia corporation "may
contain any provision for managing the business and regulating the affairs of
the corporation that is not inconsistent with law or the articles of
incorporation." (emphasis added). These sections make clear that other sections
contained in the Code as well as provisions contained in the articles of
incorporation are intended to limit the ability of shareholders to enact bylaws
restricting the authority of the board of directors of a Georgia corporation.
In the context of shareholder rights plans, the Code specifically authorizes
directors of Georgia corporations to adopt plans pursuant to which rights with
respect to shares may be issued and to determine the terms and conditions of
such plans. Code Section 14-2-624(a) provides:
"A corporation may issue rights, options, or warrants with respect to the shares
of the corporation whether or not in connection with the issuance and sale of
any of its shares or other securities. The board of directors shall determine
the terms upon which the rights, options, or warrants are issued, their form and
content, the consideration for which they are to be issued, and the terms and
conditions relating to their exercise, including the time or times, the
conditions precedent, and the prices at which and the holders by whom the
rights, options, or warrants may be exercised."
Code Section 14-2-624 also makes clear that the authority granted to the
directors of a Georgia corporation with respect to a shareholder rights plan may
not be limited by a shareholder approved bylaw. Code Section 14-2-624(c) states,
in relevant part, that "[n]othing contained in Code Section 14-2-601 [relating
to the corporation's authorized shares] shall be deemed to limit the board of
directors' authority to determine, in its sole discretion, the terms and
conditions of the rights, options, or warrants issuable pursuant to this Code
section." (emphasis added). The Official Comment to Code Section 14-2-624(c)
further explains that "the discretion granted to the board of directors to issue
rights ... and set their terms under subsection (a) is intended to be limited
only by the directors' fiduciary obligations to the corporation." (emphasis
added).1
This interplay among the aforementioned sections of the Code was confirmed by
the United States District Court for the Northern District of Georgia (the
"District Court") in Invacare Corporation v. Healthdyne Technologies, Inc., 968
F. Supp 1578 (N.D. Ga. 1997) (the "Invacare Case"). In the Invacare Case, the
District Court addressed the validity of a shareholder-proposed bylaw amendment
affecting a shareholder rights plan. Applying Georgia law, the District Court in
the Invacare Case determined that a proposed bylaw amendment that would
eliminate a specific feature contained in Healthdyne Technologies, Inc.'s
shareholder rights plan was invalid as a matter of law.
Citing Code Section 14-2-624(c), the District Court noted that the Code gives
the directors of Georgia corporations the sole discretion to determine the terms
and conditions of any plan pursuant to which rights with respect to shares may
be issued. Invacare at 1582. The District Court determined that Invacare's bylaw
proposal would infringe upon the board's discretion by requiring the incumbent
Healthdyne board to remove the specified provision of the plan. In particular,
the District Court stated that:
"Invacare's argument overlooks the plain language of 624(c), which gives the
board of directors sole discretion. As the comment to this Code Section makes
clear, however, this discretion is only limited by the directors' fiduciary
obligations to the corporation. . . . The court finds that the proposed bylaw is
contrary to 624(c) as well as inimical to the corporate structure contemplated
by the Georgia Business Corporation Code, which separates the rights and duties
of directors from those of the shareholders." Id. (emphasis added).
The Commission's Staff has previously addressed the question of whether or not
Code Section 14-2-624 permits shareholders to adopt a bylaw that would require
the board of directors of a Georgia corporation to redeem a shareholder rights
plan. See Eagle Bancshares, Inc. (available May 12, 1994). In its request, Eagle
Bancshares argued that a shareholder proposal to "remove" Eagle Bancshares'
shareholder rights agreement, if adopted, would violate Code Section 14-2-624
and other relevant provisions of Georgia law. In the Eagle Bancshares no-action
letter, the Commission noted that "[t]here appears to be some basis for [the]
view that the proposal is not a proper subject for action by security holders
under state law."
Since the date of the Eagle Bancshares no-action letter, the District Court in
the Invacare Case has confirmed that Code Section 14-2-624 grants the board of
directors of a Georgia corporation sole discretion to determine the terms and
conditions of a shareholder rights plan, and that such discretion is limited
only by the directors' fiduciary obligations to the corporation. We respectfully
submit that the Invacare Case forecloses further argument about the application
of Code Section 14-2-624(c) to the Proposal, and, accordingly, that the Proposal
is excludable as contrary to Georgia law.
***
The Company had planned to file and mail its proxy materials (by third class
bulk rate) on or shortly after March 23, 1999, which is 60 days from the date of
this letter. It is respectfully requested that the Staff exercise its discretion
under Rule 14a-8(j) to permit this notice of intent to omit to be filed within
less than 80 days of the proposed filing date. The Proponent has recently
withdrawn three virtually identical proposals in the face of the subject
companies' opposition pursuant to Rule 14a-8(i)(1). Consolidated Natural Gas
Company (available Dec. 29, 1998), Mallinckrodt, Inc. (available Sept. 2, 1998)
and SuperValu, Inc. (available April 15, 1998). Consequently, the Proponent has
had ample opportunity to put forth arguments against exclusion under Rule 14a-8
and is in no way unfairly disadvantaged or prejudiced by a delayed notice. See
Xerox Corporation (available March 25, 1993).
In the event the Staff does not waive the 80-day requirement, due to the
importance of these issues to the Company we are prepared to delay filing of our
proxy statement until expiration of the 80-day period and to mail proxy
materials (by first class mail and at additional cost) on or shortly after April
12, 1999 (22 days prior to the annual meeting date). Accordingly, regardless of
whether the Staff grants relief from the 80-day requirement, the Company
respectfully requests a determination based on the issues discussed above.
Conclusion
Based upon the foregoing and upon the full opinion of special counsel (see
Exhibit A), the Company believes the Proposal may be omitted from its 1999 proxy
materials for the reasons stated. The Company respectfully requests that the
Division concur with our view. Please feel free to contact me with any questions
or if you require any additional information.
Sincerely,
Kenneth F. Khoury
Attachment
cc: Cornish F. Hitchcock, Esq.
1100 17th Street, N.W., 10th Floor
Washington, D.C. 20036-4601
-----FOOTNOTES-----
1 The Official Comment to Code Section 14-2-801 notes that the language of
subsection (b) of Code Section 14-2-801, which refers to the ability of
shareholders to limit the authority of the board of directors of a Georgia
corporation through bylaws, must be read in conjunction with Code. Section
14-2-731(c). Code Section 14-2-731(c) permits the shareholders of corporations
that are not publicly traded to restrict the discretion or powers of the board
of directors in the management of the business of the corporation only if all of
the shareholders approve the restrictions, whether accomplished by articles
amendment, by-laws or shareholder agreement. Georgia law does not however,
permit any such restriction on the powers of the board of a publicly traded
corporation. Invacare at 1582.
[APPENDIX]
SHAREHOLDER PROPOSAL
RESOLVED: That the shareholders of Georgia-Pacific Corporation
("Georgia-Pacific" or the "Company") request the Board of Directors to redeem
the shareholder rights previously issued unless such issuance is approved by the
affirmative vote of shareholders, to be held as soon as may be practicable.
SUPPORTING STATEMENT
In July 1989 the Board of Directors decided, without stockholder approval, to
issue certain rights under a shareholder rights plan. In December 1997, the
Board, again without obtaining shareholder approval, extended that plan for ten
years. In our view, the existence of such rights, commonly known as a "poison
pill," can operate as an anti-takeover device that injures stockholders by
reducing management accountability and adversely affecting stockholder value.
Although management and the Board of Directors should have appropriate tools to
ensure that all stockholders benefit from any proposal to acquire the
Corporation, we do not believe that the future possibility of a takeover
justifies the unilateral imposition or renewal of such a poison pill. Instead,
we believe that the stockholders should have the right to vote on the necessity
of such a powerful tool, which could be used to entrench existing management.
The negative effects of poison pills on the trading value of companies' stock
have been the subject of extensive research. A 1986 study (covering 245
companies adopting poison pills between 1983 and July 1986) was prepared by the
SEC's Office of the Chief Economist on the effect of poison pills on the wealth
of target stockholders. It states that "empirical tests, taken together, show
that poison pills are harmful to target stockholders, on net." A 1992 study by
Professor John Pound of Harvard's Corporate Research Project and Lilli A. Gordon
of the Gordon Group found a correlation between high corporate performance and
the absence of poison pills.
With the 1989 plan set to expire later this year, we propose this By-law
amendment, which would require stockholder approval of such rights plans.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
[LETTER OF INQUIRY 2]
22 February 1999
BY HAND
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Shareholder proposal of Amalgamated Bank of New York LongView
Collective Investment Fund to Georgia-Pacific Corporation
Dear Counsel:
On behalf of the Amalgamated Bank of New York LongView Collective Investment
Fund (the "Fund"), I am responding to the letter from Kenneth F. Khoury of
Georgia-Pacific Corporation (the "Company") dated 22 January 1999. That letter
advises you of Georgia-Pacific's intent to omit a shareholder resolution
submitted by the Fund from the proxy materials that Georgia-Pacific plans to
circulate prior to its 1999 annual meeting.
The Fund has advised the Company that it is amending its proposal to make it
precatory, instead of a bylaw change. A copy of the new text is attached for the
Division's benefit, and this substitution, in our view, renders the request for
no-action relief moot. Should the Division nonetheless elect to address
Georgia-Pacific's objections on the merits, we submit that the Company's request
should be denied.
Factual Background and The Fund's Proposal.
In 1989 the Georgia-Pacific board of directors adopted a "shareholder rights
plan" or "poison pill" without first obtaining the approval of Georgia-Pacific
shareholders. In December 1997, the board, again without obtaining shareholder
approval, voted to extend the plan for an additional period of years.
In November 1998, the Fund proposed an amendment to the Company's bylaws, to be
voted upon by the shareholders in connection with the 1999 meeting. This bylaw,
a copy of which is attached to Georgia-Pacific's letter, states that the Company
shall not adopt or maintain any rights agreement unless such an agreement has
been adopted at a shareholder meeting by a majority of the Company's outstanding
shares. The bylaw would also have the Company redeem or cause to expire any
rights agreement in effect at the time this bylaw should be adopted. Finally,
the bylaw would require a vote of the shareholders to amend, modify or repeal
this new bylaw.
Georgia-Pacific opposes allowing its shareholders to vote on this proposed
bylaw, citing Rule 14a-8(i)(1), which allows the exclusion of a proposal that
"is not a proper subject for action by shareholders under the laws of the
jurisdiction of the company's organization," and Rule 14a-8(i)(2), which permits
exclusion of a proposal that "would, if implemented, cause the company to
violate any state, federal, or foreign law to which it is subject."
Georgia-Pacific is a Georgia corporation, and the Company bears the burden of
proving that these exclusions apply. See Rule 14a-8(g). As we now explain,
Georgia-Pacific has not sustained its burden as to either exclusion, which we
discuss together, given the overlap between the arguments.
Analysis.
1. At the outset, we note that no-action relief should be denied because
Georgia-Pacific has failed to comply with the 80-day requirement set forth in
Rule 14a-8(j). The Company received the Fund's proposal on 20 November 1998, yet
the Companywithout explanationdelayed responding until 22 January 1999, 60
days before the anticipated mailing date. The Company offers no explanation for
its failure to comply with this long-standing requirement.
The Company asserts that the Fund is not prejudiced by this delay, asserting
that the Fund withdrew three similar proposals "in the face of the subject
companies' opposition pursuant to Rule 14a-8(i). This statement is inaccurate.
The Fund withdrew two of those proposals because it successfully negotiated a
resolution of the matter with two companies in a manner that led to the
company's poison pill either expiring (SuperValu) or being redeemed or put
before the shareholders for a vote (Mallinckrodt). The third (Consolidated
Natural Gas) was withdrawn because of technical objections having nothing to do
with Rule 14a-8(i). At no point does the Company acknowledge the prejudice that
its unexplained delay causes to the Division in its effort to process no-action
requests in a timely fashion during the "peak" season that the Division is
considering many requests for no-action relief from companies that have complied
with the timing requirements of Rule 14a-8. For this reason alone, the request
for relief should be denied.
2. Because Georgia-Pacific challenges the authority of shareholders to propose a
bylaw amendment, it is useful to begin with a statute that the Company overlooks
in its analysis, namely, Georgia Business Corporation Code ("GBCC") section
14-2-1020, which clearly empowers shareholders to offer binding bylaw
amendments. Instead, the Company relies on a series of Code provisions that do
not establish the proposition that this bylaw amendment may be excluded under
Rules 14a-8(i)(1) and (2).
Thus, the Company cites GBCC section 14-2-801, which contains the standard
provision that the affairs of the corporation are to be managed by the board of
directors. GBCC section 14-2-206 requires that bylaws not be "inconsistent with
law or the articles of incorporation." These provisions are unexceptional and do
not by themselves deprive the shareholders of the right to offer bylaw
amendments, a point that the Oklahoma Supreme Court recently made in
International Brotherhood of Teamsters v. Fleming Companies, No. 90,185 (26
January 1999)(www.oscn.net), which also involved a bylaw proposal involving that
company's poison pill.
The heart of Georgia-Pacific's objection is GBCC section 14-2-624, although a
close examination of that provision demonstrates that it does not justify the
exclusion of the Fund's proposal.
Section 14-2-624(a) states that a "corporation may issue rights, options, or
warrants with respect to the shares of the corporation whether or not in
connection with the issuance and sale of any of its shares or other securities"
(emphasis added). This subsection further empowers the board to "determine the
terms upon which the rights, options, or warrants are issued, their form and
content, the consideration for which they are to be issued, and the terms and
conditions relating to their exercise, including the time or times, the
conditions, precedent, and the prices at which and the holders by whom the
rights, options, or warrants may be exercised."
Section 14-2-624(a) is thus the standard empowerment to a company to issue
rights or warrants and by itself adds nothing to Georgia-Pacific's case. The key
provision upon which Georgia-Pacific relies is subsection (c), which states (in
the sentence the Company highlights) that "Nothing in Code Section 14-2-601
shall be deemed to limit the board of directors' authority to determine, in its
sole discretion, the terms and conditions of the rights, options or warrants
issuable pursuant to this Code section" (emphasis added by Georgia-Pacific). The
following sentence, which Georgia-Pacific virtually ignores, adds that "Such
terms and conditions need not be set forth in the articles of incorporation."
Georgia-Pacific argues that section 14-2-624(c) grants the board of directors
plenary power with respect to shareholder rights plans and overrides the power
of shareholders to propose a bylaw proposal of the sort offered by the Fund
here. This is an unwarranted reading of section 14-2-624(c), as we now
demonstrate.
The Comment accompanying this provision, which is attached to the letter from
Georgia-Pacific's counsel, indicates that this provision was added in 1989 to
clarify the board's right to adopt a poison pill even if a provision for such a
plan is not set out in a company's articles of incorporation, as is required by
GBCC section 14-2-601. The Comment adds that the "language was intended to
permit the approach of courts interpreting Delaware law, including the Delaware
Supreme Court in Moran v. Household International, Inc., 500 A.2d 346 (Del.
1085), which have held that the board of directors is authorized to issue rights
pursuant to shareholder rights plans." The Comment adds that the language is
designed to overrule a decision to the contrary in Westpoint Pepperell, Inc. v.
Farley, Inc. (14 November 1988), "and was intended specifically to permit the
use by Georgia corporations of shareholder rights plans incorporating both
`flip-over' and discriminatory `flip-in' provisions."
GBCC section 14-2-624(c) was thus designed to make the law clear that, even if a
company's charter does not authorize a poison pill, the company may nonetheless
adopt such a plan, "limited only by the directors' fiduciary obligations to the
corporation," as the Comment puts it. Section 14-2-624(c) does not limit the
traditional authority of shareholders to decide that they do not want the
purported protections of a rights plan, nor does it limit the ability of
shareholders to express their disagreement with the board's assessment that a
poison pill is desirable for a company. The cited statutory language to the
effect that a board may adopt a poison pill "in its sole discretion" thus does
not speak to the situation we have here, where the shareholders may wish to
express a different view on the matter.
Georgia-Pacific's argument relies heavily on the lone opinion of Invacare Corp.
v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997), which held
that a bylaw amendment seeking to repeal the "dead hand" feature of a company's
poison pill was invalid because of GBCC section 14-2-624(c). To be sure, the
trial court did accept the notion that the "sole discretion" language in Section
14-2-624(c) empowers the board to act as it did and to adopt the "dead hand"
limitation. While Invacare may superficially appear to help Georgia-Pacific, it
did not conclusively establish that the proposal here is invalid.
First, Invacare is not a definitive resolution by Georgia law, reflecting as it
does a federal court's interpretation of state law. The Supreme Court has
indicated that federal courts sitting in diversity are not entitled to deference
when it comes to ruling on state law issues, see Salve Regina College v.
Russell, 499 U.S. 225 (1991). Whether the Georgia Supreme Court would agree with
the federal judge's approach is an open question under Georgia law.
Second, Invacare came down before the Delaware Chancery Court's recent decision
in Carmody v. Toll Brothers, Inc., C.A. No. 15983 (24 July 1998), which struck
down a "dead hand" provision under Delaware law. See also Quickturn Design
Systems, Inc. v. Shapiro, No. 511 (Del. 31 December 1998). Although these cases
are not binding on Georgia courts, those courts may wish to consider these
contrary rulings in any definitive assessment of the reach of GBCC section
14-2-624.
For these reasons, the Company cannot cite any binding Georgia case law in
support of its position, which makes it impossible for Georgia-Pacific to
sustain its burden on showing why the Fund's proposal may be omitted. PLM
International, Inc. (28 April 1997). In PLM, which also dealt with a poison pill
bylaw, the Division "[n]oted in particular that whether the proposal is an
appropriate matter for shareholder action appears to be an unsettled point in
Delaware law. Accordingly, the Division is unable to conclude that former Rule
14a-8(c)(1) may be relied upon as a basis for excluding that proposal from the
Company's proxy materials." Accord Exxon Corp. (28 February 1992)(Division
"unable to conclude that the applicable state law prohibits" the by-law in
question when no judicial decision squarely supports that result). See also
Technical Communications Corp. (10 June 1998); PG & E Co. (26 January 1998);
International Business Machines Corp. (4 March 1992); Sears, Roebuck & Co. (16
March 1992).
Conclusion
For these reasons, Georgia-Pacific's request for no-action relief should be
denied as moot. Alternatively, the request should be denied because the Company
has failed to sustain its burden under the standards set forth in Rules
14a-8(i)(1) and (2).
Thank you for your consideration of these points. Please let me know if there is
anything further that we can provide.
Very truly yours,
Cornish F. Hitchcock
cc: Kenneth F. Khoury, Esq.
[LETTER OF INQUIRY 3]
February 26, 1999
VIA TELEFAX: 202/942-9525
AND AIRBORNE DELIVERY
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Georgia-Pacific Corporation
Revised Shareholder Proposal of Amalgamated
Bank of New York Long View Collective Investment Fund
Ladies and Gentlemen:
This letter is submitted on behalf of Georgia-Pacific Corporation, a Georgia
corporation (the "Company"), in response to the letter dated February 22, 1999
(the "Revised Proposal") from Cornish F. Hitchcock, attorney for Amalgamated
Bank of New York Long View Collective Investment Fund (the "Proponent"). For the
convenience of the Staff, the Revised Proposal is attached hereto as Exhibit A.
On November 20, 1998, the Proponent submitted a proposal (the "Original
Proposal") to be included in the Company's Proxy Statement for its 1999 annual
meeting of shareholders (the "1999 Proxy Materials") to amend the Company's
bylaws to require the Company to redeem or cause to expire its existing
shareholder rights plan, and to forbid the Company from adopting or maintaining
any such plan without shareholder approval. The Company, in its letter to the
Commission dated January 22, 1999, requested the Commission's concurrence to the
Company's intention to omit the Original Proposal from its 1999 Proxy Materials
(the "No-Action Request"). Capitalized terms used and not defined herein have
the meaning given to them in the No-Action Request.
This letter responds to arguments included in the Proponent's February 22, 1999
letter that (a) the Original Proposal should not be omitted under Rule
14a-8(i)(1) and (2) as violative of Georgia law and (b) the Staff should not
waive the 80-day requirement set forth in Rule 14a-8(j).
The Company also requests the concurrence of the Staff that it will not
recommend enforcement action if the Company omits the Revised Proposal from the
Company's 1999 Proxy Materials pursuant to Rule 14a-8(e) under the Exchange Act.
A. THE ORIGINAL PROPOSAL IS NOT A PROPER SUBJECT FOR SHAREHOLDER ACTION UNDER
GEORGIA LAW DESPITE PROPONENT'S ARGUMENTS TO THE CONTRARY.
Proponent's detailed discussion of various intricacies of Georgia corporation
law does not refute the Company's position, supported by opinion of Georgia
counsel, that the Original Proposal constitutes an invalid restriction on the
powers of the board of directors. The Proponent, like the hostile suitor in the
Invacare case1, relies on numerous provisions in the Code dealing with bylaws in
order to make tortuous and strained arguments similar to those that were
rejected in that case. The Company, on the other hand, has largely its analysis
to those sections of the Code found by the Invacare court to be dispositive. As
the Company has previously explained, Section 14-2-624(c) of the Code grants to
the board of directors the "sole discretion" to determine terms and conditions
of shareholder rights plans. While the Proponent attempts to explain away this
provision, he does not address the Comment to Code Section 14-2-801(b) and its
reference to Code Section 14-2-731(c), which sections were found in the Invacare
case to limit the authority of shareholders to adopt bylaws restricting the
powers of the board.
In the Invacare case, Judge Cooper also dealt with the Proponent's argument
based on Code Section 14-2-1020(c). Section 14-2-1020(c) which provides that a
bylaw limiting the authority of the board of directors may only be adopted,
amended or repealed by the shareholders. Like the Proponent, Invacare argued
that Section 1020(c), along with others in the Code, indicated that shareholders
did have the power to restrict the board's authority with respect to shareholder
rights plans. The court rejected that argument, stating
"Invacare's argument ignores the fact that the proposed bylaw is actually an
attempt to control the board of directors and directly interferes with the
board's authority under 624(c) to set the terms and conditions of the rights
agreement. The court finds that the proposed bylaw is contrary to 624(c) as
well as inimical to the corporate structure contemplated by the Georgia Business
Corporation Code, which separates the rights and duties of directors from those
of the shareholders." (emphasis added)
Indeed, all of the arguments Proponent makes were rejected by the court in the
Invacare case. Rather, the court found that Georgia corporate law clearly vests
the authority to establish and determine the terms of a shareholder rights plan
in the directors, and the power of shareholders to limit the board's authority
in this regard, by bylaw or otherwise, does not apply to corporations whose
shares "are listed on a national securities exchange or regularly quoted in the
markets maintained by securities dealers or brokers...." Code Section
14-2-731(c).
Essentially, the Proponent is rearguing the Invacare case to the Staff, in an
attempt to persuade the Staff to take a position in this matter that would be
directly contrary to the determination of the federal District Court on the
Georgia state law issues presented here. The Invacare case, while not a ruling
by the Georgia Supreme Court, is the only case law available which interprets
and applies the Georgia statutes that are at issue here in the context of a
shareholder rights plan. Indeed, regardless of one's view of the competence of
federal district judges applying state law, it would seem appropriate to afford
the Invacare case considerable weight in this instance for at least two reasons.
First, the judge in that case specifically considered and resolved virtually the
same issues presented by the arguments being submitted in this matter. Second,
those issues were resolved by Judge Cooper in the context of a hotly contested
takeover battle, in which the rights plan was the critical issue, following
thorough briefing and argument by well-represented parties who, one can be sure,
left no stone unturned in their analyses and presentations to the judge. The
Proponent has offered no compelling reason for the Staff to substitute its
interpretation for the District Court's on a basic issue of state law.
In addition, it should be noted that the Invacare case was decided after the
decision of the Oklahoma District Court in the Fleming case2, on which Proponent
relies, and the Invacare court was aware of the analysis of Oklahoma law applied
by that court. The Delaware cases cited in Proponent's letter (Carmody v. Toll
Brothers, Inc.3 and Quickturn Design Systems, Inc. v. Shapiro4) do not deal with
the validity of shareholder proposals concerning shareholder rights plans, but
rather are focused on the validity of dead hand or continuing director
provisions under Delaware law. As a result, there is no basis for reading either
of those cases to support an interpretation of Georgia law that is contrary to
the Invacare case.
For these reasons, we submit that the Original Proposal is clearly invalid under
Georgia corporation law and may be omitted from the 1999 Proxy Materials under
Rule 14a-8(i)(1) and (2).
B. THERE IS NO BASIS FOR DENYING THE NO-ACTION REQUEST UNDER RULE 14a-8(j).
Although the Company requested waiver of the 80-day requirement of Rule 14a-8(j)
in order to permit it to mail the 1999 Proxy Materials on or about March 23,
1999, as originally scheduled, the Company is prepared to delay that mailing
until on or shortly after April 12, 1999 if the Staff declines to exercise its
authority to shorten that period. Although this would result in additional cost
and inconvenience to the Company's shareholders, the Company is prepared to take
that step, if necessary, in order to afford the Staff the full 80 days provided
by the rules to review the issues presented in this matter. While the Company
hopes that such a delay will not be necessary, it believes its willingness to
accommodate the timetable set forth in Rule 14a-8(j) renders moot Proponent's
argument for denial of the No-Action Request under that rule.
C. THE REVISED PROPOSAL MAY BE OMITTED IN ITS ENTIRETY FROM THE PROXY MATERIALS
PURSUANT TO RULE 14a-8(e) BECAUSE IT WAS NOT SUBMITTED IN A TIMELY MANNER.
Rule 14a-8(e) provides that a Proponent shall submit a proposal for an annual
meeting of stockholders "not less than 120 calendar days before the date of the
company's proxy statement released to shareholders in connection with the
previous year's annual meeting". The Company's 1998 Proxy Statement indicated
that shareholder proposals to be included in its 1999 Proxy Materials were
required to be submitted by November 25, 1998. Although the Original Proposal
was submitted on a timely basis, the Company's firm view is that the Revised
Proposal may be omitted in its entirety because the latter is materially
different from the Original Proposal and was not submitted until February 22,
1999.
The Original Proposal, if approved by the shareholders, would have automatically
amended the Company's bylaws to prohibit the Company from adopting or
maintaining any rights plan, share purchase plan or similar agreement commonly
known as a "poison pill" without shareholder approval. The Revised Proposal, on
the other hand, only "requests" the Board of Directors to redeem the existing
Rights unless their issuance is approved by the Company's shareholders.
The Board of Directors of the Company, and its Governance Committee, reviewed
the Original Proposal at their regularly scheduled meetings on January 28 and
29, 1999. During those meetings, the directors' analysis of the Original
Proposal was focused on its mandatory character, and on its invalidity under
Georgia law. The directors were advised by counsel that since the Original
Proposal was clearly invalid under Georgia law, for the reasons set forth in the
No-Action Request and reiterated under Section A of this letter, it could be
omitted from the Company's 1999 Proxy Materials.
The precatory nature of the Revised Proposal presents entirely different issues
for consideration by the Board of Directors. It is not a mandatory proposal, and
since it is non-binding it is not clearly invalid under Georgia law. As such, it
requires an entirely different fiduciary analysis by the directors. However, the
Board of Directors of the Company will not meet again until March 26, 1999,
after the scheduled mailing date for its 1999 Proxy Materials. Allowing the
Proponent to totally revamp its proposal now makes it impossible for the Board
to have an adequate opportunity to deliberate and satisfy its fiduciary
obligations concerning the important issues presented by the Revised Proposal
before the 1999 Proxy Materials are mailed. Since the Revised Proposal, in its
own words "request(s) the Board of Directors to redeem the shareholder rights
previously issued...", simple equity dictates that the Board have an opportunity
to consider its position with respect to the Revised Proposal before the
Company's shareholders have to vote on the matter. These scheduling and timing
problemscoupled with the undisputed fact that Proponent clearly could have
submitted a precatory proposal last Novemberillustrate the good sense of the
Commission's Rule 14a-8(e) requiring adequate advance notice of a proponent's
proposals.
While the Staff has permitted proponents to make changes to bring their
proposals into accord with the requirements of applicable state law (e.g., by
making the proposal precatory, rather than mandatory), it has done so "in
recognition of the fact that most proponents are not sophisticated in matters of
securities law such as Rule 14a-8". (Exchange Act Release No. 12,999 (Nov. 22,
1976). That rational has no application to this Proponent, who is hardly
unsophisticated or unfamiliar with Rule 14a-8. The Proponent's attorney has made
at least 25 shareholder proposals pursuant to Rule 14a-8 in the last four years.
At least three of these proposals were mandatory shareholder rights plan
proposals virtually identical to the Original Proposal. Moreover, the Invacare
case received widespread publicity at the time it was decided and is almost
invariably cited in any academic discussion of shareholder rights plans and
shareholder proposals that have been published since it was decided. See, for
example, the attached list of articles citing the Invacare case. Therefore, the
invalidity of such mandatory proposals under Georgia law was undoubtedly well
known by the Proponent and its attorney. Having knowingly chosen to submit a
mandatory proposal, Proponent should not be allowed to avoid the consequences of
that choice whenas herethe Company's Board is unable to respond. In addition,
the staff's tendency to permit such an amendment to allow a proposal to be
brought into conformance with state law should have no applicability in this
instance since the Proponent continues to argue that the Original Proposal does
in fact comply with state law.
For all the above reasons, it would be prejudicial and unfair to the Company to
permit Proponent to ignore the timeliness requirements of Rule 14a-8(e). The
Revised Proposal, which is fundamentally different from the Original Proposal,
and requires an entirely different analysis from the Company's Board of
Directors, severely disadvantages the Company by depriving it of any opportunity
to adequately analyze, and communicate with its shareholders concerning, the
Revised Proposal.
For the foregoing reasons, as well as the reasons previously stated in the
No-Action Request, the Company seeks the concurrence of the Staff of the
Division of Corporation Finance that the Revised Proposal, together with its
supporting statement, may be properly omitted from the Company's 1999 Proxy
Materials pursuant to Rule 14a-8(e) under the Exchange Act. Pursuant to the
provisions of Rule 14a-8(j), by copy of this letter the Company has notified the
Proponent of its intention to omit the Revised Proposal from the Company's 1999
Proxy Materials. Also pursuant to Rule 14a-8(j), enclosed are six copies of this
letter and the exhibits hereto which include the Revised Proposal and supporting
statement.
Please acknowledge receipt of the enclosed materials by date-stamping the
enclosed receipt copy of this letter and returning it in the enclosed return
envelope. Please feel free to contact me with any questions or if you require
any additional information.
Very truly yours,
Kenneth F. Khoury
#223243
Attachments
cc: Cornish F. Hitchcock, Esq. (w/enclosures)
1100 17th Street, N.W.
10th Floor
Washington, D.C. 20036-4601
-----FOOTNOTES-----
1 Invacare Corp. v. Healthdyne Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga.
1997).
2 International Brotherhood of Teamsters General Fund v. Fleming Cos., 1997 U.S.
Dist. LEXIS 2980 (W.D. Okla. Jan 24, 1997), application granted, mot. granted,
1997 U.S. Dist. LEXIS 2979 (W.D. Okla. Feb. 19, 1997), certifying question to,
1999 Okla. 3 (1999).
3 Carmody v. Toll Bros., 1998 Del Ch. LEXIS 131 (Del. Ch. July 24, 1998).
4 Quicktrun Design Systems, Inc. v. Mentor Graphics Corp.,
721 A.2d 1281 (Del.
1998).
[LETTER OF INQUIRY 4]
March 4, 1999
VIA TELEFAX: (202) 942-9525
Ms. Carol Sherman, Special Counsel
United States Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Mail Stop 4-2
Judiciary Plaza
Washington, D.C. 20544
Dear Ms. Sherman:
Ken Khoury, with whom you have corresponded in connection with a shareholder
proposal regarding Georgia-Pacific Corporation's manufacture and use of
chlorine, asked that I contact you to request assistance on another matter. On
January 22, 1999, we submitted a no-action request letter regarding a
shareholder proposal received from the Amalgamated Bank of New York Long View
Collective Investment Fund to amend Georgia-Pacific's bylaws to prohibit the
adoption or maintenance of a shareholder rights plan without prior shareholder
approval. A copy of the letter (without exhibits) is attached. There has been
several rounds of intervening correspondence by both the proponent and the
company.
As the originally scheduled mail date for our proxy materials is approaching, I
would like very much to speak with the examiner in the Division who is currently
reviewing this matter so that we may plan the proxy mailing accordingly. Mr.
Khoury thought that you might be able to provide me with that person's name and
phone number, as we have had no luck leaving messages with the Division's main
number. Any assistance you could provide would be greatly appreciated.
Sincerely,
W. Edwin Frazier, III
WEF/223747
Attachment
cc: Kenneth F. Khoury (w/out attach)
[LETTER OF INQUIRY 5]
March 5, 1999
VIA FACSIMILE (202) 942-9525
and AIRBORNE EXPRESS
Mr. William Morley
Senior Associate Director
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4-1
Judiciary Plaza
Washington, DC 20544
Dear Mr. Morley:
Thanks for taking the time to talk with me yesterday afternoon following my
conversation with Brian Lane at the Tulane Corporate Law Institute. To briefly
recap our conversation, let me make the following points:
1. On January 22, 1999, we submitted a no-action request that Georgia-Pacific be
allowed to omit from its proxy materials a shareholder proposal received from
Amalgamated Bank of New York LongView Collective Investment Fund that our
shareholders vote on a mandatory by-law proposal which would require redemption
of our existing Shareholder Rights Plan and provide that any future rights plan
be approved by the shareholders. As our no-action letter and accompanying
opinion of Georgia counsel make clear, such a mandatory by-law would be invalid
under Georgia law. I hope that the Staff will concur with this position.
2. Recognizing the informal nature of my conversation with Mr. Lane, we also ask
the Staff (as elaborated in our February 26, 1999 follow-up letter) to not allow
the proponent to now convert its proposal from a mandatory to a precatory
proposal. Such a change is clearly a material amendment. As our letter makes
clear, our Board meeting schedule would make it impossible for the Board to now
consider a precatory proposal, which, if the Staff were to allow it, would
effectively be submitted over three months after our Rule 14a-8(e) cut-off date
of November 25, 1998.
Our anticipated mailing date for proxy materials is March 23, 1999. Therefore,
it would be most helpful if we could have your views within the next 10 to 14
days.
If you have any questions, please call me, Ed Frazier of my staff (404/652-7114)
or Jim Smith of Troutman Sanders LLP (404/885-3111).
Thank you very much for your consideration of these issues.
Sincerely yours,
James F. Kelley
JFK/wef/adt
223800 #223800 vlWilliam Morley
[STAFF REPLY LETTER]
March 25, 1999
Response of the Office of Chief Counsel
Division of Corporation Finance
Re: Georgia-Pacific Corporation
Incoming Letter dated January 22, 1999
The revised proposal requests that the board of directors redeem the shareholder
rights previously issued unless their issuance is approved by shareholders.
We are unable to concur in your view that Georgia-Pacific may omit the revised
proposal under rule 14a-8(e)(2). We note in particular that the proposal, as
originally submitted, would have amended Georgia-Pacific's bylaws to prohibit
the adoption or maintenance of any rights plan without shareholder approval.
There appeared to be some basis for your view, supported by an opinion of
Georgia counsel, that Georgia-Pacific could exclude the proposal, as originally
submitted, under rule 14a-8(i)(1), as an improper subject for shareholder action
under Georgia law. It appeared that this defect could be cured, however, if the
proposal, as originally submitted, were recast as a recommendation or a request
that the board of directors take the steps necessary to implement the proposal.
We note that counsel for the proponent submitted a revised proposal recast as a
request to the board which does not amend Georgia-Pacific's bylaws. Because, in
reaching a determination under rule 14a-8(i)(1), we would have allowed the
proponent an opportunity to revise the proposal in this form, we are unable to
concur in your view that Georgia-Pacific may exclude the revised proposal under
rule 14a-8(e)(2). Accordingly, we do not believe that Georgia-Pacific may omit
the revised proposal from its proxy materials in reliance on rule 14a-8(e)(2).
We note that Georgia-Pacific did not file its statement of objections to
including the proposal in its proxy materials at least 80 calendar days before
the date on which it will file definitive proxy materials as required by rule
14a-8(j). Noting the circumstances, we do not waive the requirement.
Sincerely,
Dennis Bertron
Attorney Advisor
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