Company Name: Dayton Hudson Corp.
Public Availability Date: March 25, 1999Document Sections: LETTER OF INQUIRY 1
APPENDIX
LETTER OF INQUIRY 2
LETTER OF INQUIRY 3
APPENDIX
STAFF REPLY LETTER [LETTER OF INQUIRY 1]
January 20, 1999 Federal Express Securities and Exchange Commission Division of Corporation Finance Office of Chief Counsel Judiciary Plaza 450 Fifth Street N.W. Washington, D.C. 20549 Re: Shareholder Proposal Submitted by Amalgamated Bank of New York LongView Collective Investment Fund Ladies and Gentlemen: Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), we hereby give notice on behalf of Dayton Hudson
Corporation, a Minnesota corporation (the "Company"), of its intention to omit
from the proxy statement and form of proxy for the Company's 1999 Annual Meeting
of Shareholders (together, the "Proxy Materials") the proposal submitted by
Amalgamated Bank of New York LongView Fund ("Amalgamated") by letter to the
Company from Cornish F. Hitchcock, counsel to Amalgamated. Pursuant to Rule 14a-8(j) under the Exchange Act, enclosed are six additional
copies of this letter, which includes: 1. A copy of the letter received by the Company from Amalgamated, dated December
14, 1998 (the "Amalgamated Letter"), attached hereto as Exhibit A, which
includes Amalgamated's proposal and a statement supporting the proposal that
Amalgamated desires to present at the 1999 Annual Meeting of Shareholders of the
Company scheduled to be held on May 19, 1999 (the "Proposal"); and 2. This statement of the Company, which contains the Company's reasons why the
Proposal should be omitted from the Company's Proxy Materials, including a
supporting opinion of counsel, attached hereto as Exhibit B. The Company plans to file definitive copies of its proxy statement and form of
proxy on April 12, 1999. Pursuant to Rule 14a-8(j) under the Exchange Act, this
notice has been filed with the Securities and Exchange Commission (the
"Commission") on or before January 22, 1999. With respect to the Proposal, the Company and Amalgamated have entered into
discussions in order to reach an amicable resolution of their differences
concerning the Company's adoption and maintenance of "Rights Plans." If the
parties can reach an amicable resolution prior to the time of a decision by
staff of the Division of Corporation Finance (the "Staff"), the Company
undertakes to advise the Commission promptly of such resolution. I. The Amalgamated Proposal. The Proposal reads in its entirety as follows: RESOLVED, that pursuant to section 6.03 of the By-Laws and section 302A.181 of
the Minnesota Business Corporation Act, the shareholders of Dayton Hudson
Corporation hereby amend the Bylaws to add Article 7, which shall take effect
upon approval by holders of a majority of the shares present and entitled to
vote, represented in person or by proxy, at the meeting of stockholders at which
such resolution is proposed: "RIGHTS AGREEMENTS "Section 7.01. Shareholder Approval. "The corporation shall not adopt any shareholder rights agreement or similar
plan, commonly known as a "poison pill," which is designed to impede, or has the
effect of impeding, the acquisition of a block of stock exceeding a specified
threshold and/or merger or other transaction between a significant stockholder
and the corporation, unless such plan has previously been approved by holders of
a majority of the outstanding shares at a shareholder meeting. The corporation
shall redeem or terminate any agreement in effect when this Article is adopted.
Notwithstanding any other By-Law provision, this Article may not be amended,
modified or repealed, except by holders of a majority of outstanding shares."
II. Basis for Exclusion of the Proposal Under Rule 14a-8. The Company has concluded that the Proposal properly may be omitted from its
Proxy Materials pursuant to Rules 14a-8(i)(1) and (2) under the Exchange Act.
Rules 14a-8(i)(1) and (2). 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." Rule 14a-8(i)(2) permits the
omission of a shareholder proposal if, by implementing the proposal, the
registrant would be required to violate any state, federal or foreign law to
which it is subject. The Company is firmly of the view, and has received an opinion from its
Minnesota counsel Faegre & Benson LLP (attached hereto as Exhibit B) to the
effect that, the Proposal is invalid under the Minnesota Business Corporation
Act ("MBCA"). Shareholder-Proposed By-Law Amendments Require a 3% Proponent under the MBCA.
The power of a shareholder to propose a by-law amendment is limited under the
MBCA. Section 302A.181, Subd. 3 of the MBCA requires that a shareholder or
shareholders must hold 3% or more of the voting power of the shares entitled to
vote in order to propose a resolution to adopt, amend or repeal by-laws adopted,
amended or repealed by the board. The Company's By-Laws were adopted by the
Company's Board of Directors. Amalgamated holds less than 3% of the voting power
of the shares entitled to vote on the Proposal. The Proposal, therefore,
violates the express provisions of the MBCA and is not a proper subject for
shareholder action. C. f. PLM International, Inc. (available April 28, 1997)
(failure to meet a statutory condition precedent is a proper basis for exclusion
under Rule 14a-8(i)(2)). Shareholders May Not Prohibit Board Actions Except by Unanimous Consent. Under Section 302A.201 of the MBCA, the "business and affairs of a [Minnesota]
corporation shall be managed by or under the direction of a board, subject to"
two exceptions. First, the holders of the outstanding shares entitled to vote
for directors of a Minnesota corporation "may, by unanimous affirmative vote,
take any action that...[the MBCA] requires or permits the board to take." Minn.
Stat. Section 302A.201, Subd. 2 (emphasis supplied). The second exception allows
shareholders to manage the business and affairs of the corporation if the
shareholders have executed a written shareholder control agreement signed by all
the shareholders and subscribers. Minn. Stat. Section 302A.457, Subd. 2(a). Both
exceptions allow a corporation's shareholders to act in lieu of the Board only
by unanimous shareholder action. Further, the MBCA expressly permits a Minnesota corporation to issue rights to
purchase shares of the corporation "after the terms, provisions, and conditions
of the rights to purchase to be issued...are fixed by the board, subject to any
restrictions in the articles." Minn. Stat. Section 302A.409, Subd. 3 (emphasis
supplied). The same section of the MBCA specifically authorizes rights to
purchase to be issued pursuant to a share rights plan by stating "[n]othwithstanding
any provision of...[the MBCA], a corporation may issue rights to purchase...to
include terms and conditions that prevent the holder of a specified percentage
of the outstanding shares of the corporation, including subsequent transferees
of the holder, from exercising those rights to purchase." Id. These are the same
types of share rights plans that the Proposal would terminate and preclude the
Board of Directors from adopting without majority approval of the shareholders.
Again, pursuant to Section 302A.201, the express authority of a board to issue
rights under Section 302A.409 may be limited or taken over by shareholders only
under Section 302A.457 pursuant to a shareholder control agreement signed by all
shareholders and subscribers or by a unanimous affirmative vote of the holders
of the voting shares. Minn Stat. Section 302A.201, Subd. 2. In sum, a by-law provision, such as the Proposal, which states that it is
effective "upon approval by holders of a majority of the shareholders present
and entitled to vote" would violate the statutory requirements for unanimous
shareholder approval of such actions. Therefore, the Proposal is inconsistent
with Section 302A.201 of the MBCA and may not be adopted pursuant to Section
302A.181. By-Law Provisions Setting Shareholder-Voting Thresholds Are Invalid. The Proposal includes a shareholder voting threshold of "holders of a majority
of the outstanding shares" for certain actions. Such an increased voting
threshold by-law directly violates the MBCA. Section 302A.437 of the MBCA
permits shareholders to "take action, including by-law amendments, by the
affirmative vote of the holders of the greater of (1) a majority of the voting
power of the shares present and entitled to vote on that item of business, or
(2) a majority of the voting power of the minimum number of the shares entitled
to vote that would constitute a quorum for the transaction of business at the
meeting, except where [the MBCA] or the articles require a larger proportion or
number." Minn. Stat. Section 302A.437, Subd. 1 (emphasis supplied). The
Company's Articles do not prescribe any shareholder vote with respect to
amendments to the Company's By-Laws or termination or adoption of share rights
plans. Therefore, the required voting percentages set forth in the Proposal are
invalid under the MBCA. In conclusion, the Proposal is not a proper action by shareholders of a
Minnesota corporation and the implementation of the Proposal would cause the
Company to violate several provisions of the MBCA. An expanded analysis of these
legal conclusions is included in Exhibit B, the Minnesota counsel's opinion. III. Conclusion. Based on the foregoing and upon the full opinion of Minnesota counsel (see
Exhibit B), the Company has concluded that the Proposal may be properly omitted
from the Proxy Materials pursuant to Rules 14a-8(i)(1) and (2) under the
Exchange Act, and therefore intends to omit the Proposal from the Proxy
Materials. Simultaneously with the transmission of this letter to the Commission, the
Company is sending a copy of this letter to Amalgamated pursuant to Rule
14a-8(j) indicating its intent to omit the Proposal from the Proxy Materials.
The Company reserves the right, if the Staff is not in agreement that the
Proposal may be omitted for the reasons stated above, to submit other grounds
for omission under Regulation 14A. Please call Timothy R. Baer at 612/370-6426
if you have any questions regarding this matter or as soon as response is
available. Very truly yours, James T. Hale Senior Vice President, Secretary and General Counsel Enclosures cc: Mr. Cornish F. Hitchcock (certified mail, return receipt requested) Mr. Timothy R. Baer Faegre & Benson [APPENDIX]
SHAREHOLDER RESOLUTION RESOLVED, that pursuant to section 6.03 of the By-Laws and section 302A.181 of
the Minnesota Business Corporation Act, the shareholders of Dayton Hudson
Corporation hereby amend the Bylaws to add Article 7, which shall take effect
upon approval by holders of a majority of the shares present and entitled to
vote, represented in person or by proxy, at the meeting of stockholders at which
such resolution is proposed: "RIGHTS AGREEMENTS "Section 7.01. Shareholder Approval. "The corporation shall not adopt any shareholder rights agreement or similar
plan, commonly known as a "poison pill," which is designed to impede, or has the
effect of impeding, the acquisition of a block of stock exceeding a specified
threshold and/or merger or other transaction between a significant stockholder
and the corporation, unless such plan has previously been approved by holders of
a majority of the outstanding shares at a shareholder meeting. The corporation
shall redeem or terminate any agreement in effect when this Article is adopted.
Notwithstanding any other By-Law provision, this Article may not be amended,
modified or repealed, except by holders of a majority of the outstanding
shares." SUPPORTING STATEMENT In 1986 the Board of Directors issued "rights" under a Rights Agreement. This
type of Agreement, commonly known as a "poison pill," operates as an
anti-takeover device that, in our view, can injure shareholders by reducing
management accountability and adversely affecting shareholder value. In 1992, the Board obtained shareholder approval for an amended Agreement
creating a shareholder referendum if there is an all-cash takeover. If a
referendum is sought by 25% of the voting shares and approved by two-thirds of
the voting shares, the Board must redeem rights issued under the Agreement. The 1992 Agreement was due to expire in 1996, but the Board extended it until
2001. We believe that the time has come to terminate this poison pill and to require
shareholder approval of any new Agreement. It has been seven years since the
last shareholder vote, and the Board is free to extend this Agreement when it
expires in 2001. We view the current Agreement as problematic in two respects:
A "dead hand" provision limits the ability of future Boards to redeem rights
after a takeover offer is made. Subject to a shareholder referendum, future
Boards may not redeem rights once an acquirer has obtained 20% of the common
stock without approval of the "Continuing Directors" consisting of (1) members
of the Board when the 1996 Agreement was extended and (2) Directors who are
later nominated or elected with the approval of Directors in office when the
1996 Agreement was extended. We regard this "dead hand" provision as anti-democratic. Although Dayton Hudson
is a Minnesota corporation, the Delaware Chancery Court recently held that such
a provision violates Delaware law.
The pre-conditions for a referendum are restrictive. Shareholders may vote
only on all-cash offers, and a high level of support is required to trigger a
vote. [LETTER OF INQUIRY 2]
February 5, 1999 Office of the Chief Counsel Division of Corporation Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 BY HAND Re: Shareholder proposal of Amalgamated Bank of New York Long View Collective Investment Fund to Dayton Hudson 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 James T. Hale of Dayton
Hudson Corporation dated 20 January 1999. That letter advises you of Dayton
Hudson's intent to omit a shareholder resolution submitted by the Fund from the
proxy materials that Dayton Hudson plans to circulate prior to its 1999 annual
meeting. For the reasons set out below, we submit that the Fund's resolution may
not be omitted and respectfully ask you to advise Dayton Hudson that the
Division does not concur in the Company's assessment. Factual Background and The Fund's Proposal. In 1986 the Dayton Hudson board of directors adopted a "shareholder rights plan"
or "poison pill" without first obtaining the approval of Dayton Hudson
shareholders. Several years later, the plan was amended to allow 25 percent of
the voting shares to request a shareholder referendum on whether to redeem the
plan in the event of an all-cash takeover bid; the shareholders approved this
plan, as amended, in 1992. In 1996, shortly before the plan expired, the board
extended it until 2001, but with no prior shareholder vote. The current plan
contains a "dead hand" provision that limits the ability of future boards to
redeem rights, vesting power in the hands of directors who were on the board at
the time of the 1996 extension or who were subsequently nominated or elected
with the approval of the 1996 directors. In December 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 Dayton Hudson'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. Dayton Hudson 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." Dayton Hudson is a Minnesota
corporation, and the Company bears the burden of proving that these exclusions
apply. See Rule 14a-8(g). As we now explain, Dayton Hudson has not sustained its
burden as to either exclusion, which we discuss together, given the overlap
between the arguments. Analysis. Because Dayton Hudson challenges the authority of shareholders to propose a
bylaw amendment, it may be useful to begin with a statute that the Company's
letter ignores, namely, section 302A.181 of the Minnesota Business Corporation
Act ("MBCA"), subdivision 2, which states that: Unless reserved by the articles to the shareholders, the power to adopt, amend
or repeal the bylaws is vested in the board. The power to the board is subject
to the power of the shareholders, exercisable in the manner provided in
subdivision 3, to adopt, amend or repeal bylaws adopted, amended, or repealed by
the board. The Minnesota legislature has thus stated with admirable clarity that
shareholders may amend a company's bylaws and that the board's power in this
area "is subject to the power of the shareholders" as exercised pursuant to
subdivision 3 of MBCA section 302A.181. Dayton Hudson's first argument for
omission is that the Fund is not eligible under subdivision 3, and thus we
answer that point next, followed by responses to the Company's remaining
objections. The Fund Has Met the Eligibility Criteria of MBCA § 302A.181, subd. 3. Dayton Hudson argues that the first sentence of subdivision 3 requires
proponents of a bylaw amendment to own three percent of the outstanding stock.
In its letter proposing the bylaw, the Fund stated that it beneficially owns
124,200 shares of common stock (a claim the Company has not challenged), which
is less then three percent of the outstanding stock. The problem with the Company's argument is that it does not deal with the second
sentence of subdivision 3, which states: The provisions of this subdivision regarding shareholder-proposed amendments
shall not apply to a corporation registering or reporting under the federal
securities laws, to the extent that the provisions are in conflict with the
federal securities laws or rules promulgated thereunder in which case, the
federal securities laws or rules promulgated thereunder shall govern. The Fund plainly qualifies under this provision, given that the Fund's holdings
satisfy Rule 14a-8(b)(1), which permits the filing of proposals by a shareholder
who has held $2000 worth of stock for at least a year. Dayton Hudson has no
answer to this point. The letter from its counsel acknowledges in a footnote the
quoted sentence from subdivision 3, but professes to be "unaware of any
provision in Rule 14a-8" at odds with the three percent rule. Because Rule
14a-8(b)(1) clearly trumps the three percent rule, the Company's reliance on
MBCA section 302A.181, subd. 3 is unavailing. The Board's Authority to Manage the Corporation. Dayton Hudson's second argument centers on subdivision 1 of section 302A.201 of
the MBCA. That provision states: "The business and affairs of a corporation
shall be managed by or under the direction of a board," subject to two
exceptions that allow the shareholders, by unanimous vote, to "bypass" the board
and to manage the company as if they were directors, with the attendant
liabilities shifted from directors to shareholders. MBCA sections 302.201A,
subd. 2, and 302A.457. These provisions, the Company argues, mean that
shareholders may not prohibit board action except by unanimous consent. The short answer to this point is that the section 302A.201 operates on the
assumption that shareholders do have the power to propose and vote on certain
actions, even if it means overriding the preferences of the board. That is what
the Fund is arguing too, which is why Section 302A.201 does not support the
notion that it would be illegal for shareholders to vote on the Fund's
proposal.1 None of the other authorities cited by Dayton Hudson support its position that
the proposal may be excluded. The letter from the Company's counsel cites MBCA
section 302A.409, subd. 3, which deals with rights generally and states that the
"terms, provisions, and conditions of rights" that a company issues "are fixed
by the board." From this statute Dayton Hudson extracts the principle that the
board has total control over rights plans. In fact, the statute speaks of how
"[a] corporation may issue rights to purchase after the terms, provisions, and
conditions of the rights ... are fixed by the board...." The power here thus
rests with the corporation, not the board, and Minnesota law empowers
shareholdersno less than the boardto adopt bylaws embodying the policies that
will guide the board in this area. Dayton Hudson erroneously equates "the board"
with "the corporation." The Oklahoma Supreme Court recently held as much in International Brotherhood of
Teamsters v. Fleming Companies, No. 90,185 (26 January 1999)(www.oscn.net),
which rejected Fleming's invitation to construe the analogous provision of
Oklahoma law as vesting exclusive power over rights in the board, when the
statute vested it in "the corporation." Id., 16. The court agreed with Fleming
that "a corporation may create and issue rights and options within the grant of
authority given it in [the comparable Oklahoma law], it does not automatically
translate that the board of directors of that corporation has in itself the same
breadth of authority." Id., 17. Fleming is relevant for another reason, in that the Oklahoma Supreme Court
upheld the power of shareholders to propose a similar bylaw amendment
notwithstanding arguments very similar to those advanced by Dayton Hudson here.
Minnesota's statutory structure has a number of similarities to the Oklahoma
statutes in Fleming, in that the Oklahoma court was asked to harmonize statutes
that empowered (a) the board to manage the affairs of the company, (b) "the
corporation" to adopt and issue rights, and (c) the shareholders to propose
bylaw amendments with a decision allowing shareholders. After a careful analysis
of the relevant authorities, the Oklahoma Supreme Court concluded that nothing
in Oklahoma law prevents Fleming shareholders from voting on a similar bylaw
affecting that company's poison pill. Dayton Hudson's letter was submitted shortly before Fleming was decided, and the
Company relies instead on Quickturn Design Systems, Inc. v. Shapiro, No. 16588
(Del. 31 December 1998). Quickturn struck down a "no hand" provision of the
target company's rights plan that was hastily adopted by the board in the face
of a hostile takeover bid. The "no hand" amendment provided that no newly
elected board could redeem existing rights for six months after taking office,
if the purpose or effect of the redemption was to facilitate a transaction with
a person who proposed, nominated, or financially supported the election of the
new directors. Slip op. at 17. Quickturn did not address the legal authority of shareholders to adopt bylaws
relating to rights plans, which is one reason why the case has little relevance
here. Quickturn focused instead on the authority of the board to adopt a
takeover defense in the teeth of a hostile bid, and under Delaware case law, the
conflicts of interest in that situation raise special concerns. It was in that
context that the Quickturn court made various statementswhich Dayton Hudson
features in its papersabout the board's crucial role in managing the affairs of
the company and how the board's adoption of "no hand" provision was an improper
action by the board, because it impermissibly limited the obligations of future
directors. Citing its prior cases about limits on a board's ability to adopt
protective measures, the Delaware Supreme Court held that "no defensive measure
can be sustained which would require a new board of directors to breach its
fiduciary duty." Slip op. at 31. No such situation is presented here. The
ability of shareholders to adopt a bylaw that limits the availability of a
poison pill defense simply does not involve the concerns that are present when
an incumbent board adopts a defensive measure to enhance the board's ability to
fend off a takeover bid that may be in the interest of shareholders, if not
incumbent board members. For all of these reasons, Quickturn does not support Dayton Hudson's argument
for excluding the Fund's position here. At a minimum, the Company candidly
admits that it cannot cite any Minnesota case law in support of its position,
and that factor too makes it impossible for Dayton Hudson 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). The Proposed Thresholds for Action under this Bylaw. Dayton Hudson finally argues against the bylaw is flawed because it would
require approval of a majority of the outstanding shares in order to (1) adopt a
shareholder rights agreement and (2) amend, modify or repeal the proposed bylaw.
The Company relies on Section 302A.437, sub. 1 of the MBCA, which states that
the "shareholders shall take action by the affirmative vote of the holders of
the greater of (1) a majority of the voting power of the shares present and
entitled to vote on that item of business, or (2) a majority of the voting power
of the minimum number of shares entitled to vote that would constitute a quorum
for the transaction of business at the meeting except where [the MBCA] or the
articles require a larger proportion or number." The Company notes that its
Articles do not make any special provision and that the statutory requirements
therefore control. To avoid any dispute over this issue, the Fund hereby advises the Division and
the Company that it is willing to modify the proposal to substitute the words
"by an affirmative vote of the shareholders" for (a) "by holders of a majority
of the outstanding shares at a shareholder meeting" in the first sentence and
(b) "by holders of a majority of the outstanding shares" in the second sentence.
Conclusion. For these reasons, the Fund respectfully asks the Division to deny Dayton Hudson
the requested no-action relief. 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: James T. Hale, Esq. -----FOOTNOTES----- 1 Section 302A.201 deals with situations light years away from what we have
here, and indeed, Dayton Hudson's counsel candidly admits (at pp. 4-5) that they
"are aware of no reported judicial decisions in Minnesota interpreting Section
302A.201 in the context of shareholder efforts to propose a by-law amendment
requiring a board of directors to terminate a share rights plan or limiting the
board's ability to adopt a new rights plan." The "Reporter's Note" in Minnesota
Statutes Annotated dubs this statute a "bypass" provision, in the sense that the
shareholders can bypass the board and run the company as if they were the
directors. There is an implication in the Note that this bypass provision is
more likely to affect small or close corporations. Taken to its logical conclusion, the Company's argument would seem to require
unanimous consent any time the shareholders take an action that the board could
take, an argument that no Minnesota court has adopted and that would conflict
with the statute Dayton Hudson later cites to the effect that bylaw amendments
and other matters need only obtain a majority of the shares present and entitled
to vote. In any event, and as we discuss later in the text, the Company's
concession that no Minnesota court has upheld its reading of section 302A.201
means that the Company has not carried its burden of showing that the (i)(1) and
(i)(2) exclusions control. [LETTER OF INQUIRY 3]
February 16, 1999 Via Federal Express Securities and Exchange Commission Division of Corporate Finance Office of Chief Counsel Judiciary Plaza 450 Fifth Street N.W. Washington, D.C. 20549 Re: Shareholder Proposal Submitted by Amalgamated Bank of New York LongView Collective Investment Fund Ladies and Gentlemen: By my letter dated January 20, 1999, Dayton Hudson Corporation (the "Company")
gave notice of its intention to omit from its 1999 annual proxy materials the
proposal (the "Proposal") of Amalgamated Bank of New York LongView Fund
("Amalgamated") to amend the Company's By-Laws. By letter dated February 5,
1999, Amalgamated's counsel advised you of his reasons for disagreeing with the
following positions of the Company: (1) The Minnesota Business Corporation Act (the "MBCA") does not permit a by-law
amendment to be proposed by shareholders holding an aggregate of less than 3% of
the voting power of the shares entitled to vote on the amendment. (2) Shareholders may not, through a by-law amendment or otherwise, prohibit
actions that are within the purview of the Board except by unanimous consent of
the shareholders. Amalgamated, in its February 5 letter, misinterprets the MBCA as it relates to
the Company's positions set forth above. Those misinterpretations are summarized
below. 1. Three-Percent Requirement As discussed in our January 20 letter and in the January 20 opinion of our
Minnesota counsel attached to that letter, Section 302A.181, Subd. 3, of the
MBCA expressly provides that only shareholders holding an aggregate of 3% or
more of the voting power of the shares entitled to vote may propose a by-law
amendment for action by the shareholders. Amalgamated asserts, however, that
Rule 14a-8 somehow "trumps the three percent rule." Amalgamated, without the
benefit of a supporting opinion from Minnesota counsel, bases its theory solely
upon the language in the MBCA that, after setting forth requirements for
shareholder proposals, then states that the provisions of the MBCA regarding shareholder-proposed amendments shall not apply to a corporation
registered or reporting under the federal securities laws, to the extent those
provisions are in conflict with the federal securities laws or rules promulgated
thereunder, in which case the federal securities laws or rules promulgated
thereunder shall govern." Minn. Stat. § 302A.181, Subd. 3 (emphasis supplied).
Using that language, Amalgamated erroneously jumps to the conclusion that the 3%
requirement conflicts with federal securities laws and regulations. There is no
such conflict. Rule 14a-8 was designed to govern when a corporation must include
a shareholder proposal in its proxy statement. The dollar threshold added to
Rule 14a-8 in 1983 as a procedural requirement is intended to curb abuse and to
ease the burden on issuers (see Sec. Ex. Act Rels. 19,135 (1982)), not to
preempt state law. Rule 14a-8 also sets forth policy grounds for excluding
shareholder proposals even if the procedural requirements are satisfied. Two of
the policy reasons set forth in Rule 14a-8 for excluding proposals even if the
procedural requirements are satisfied are "[i]f the proposal is not a proper
subject for action under the laws of the jurisdiction of the company's
organization" (Rule 14a-8(i)(1)) or if the implementation of the proposal would
"cause the company to violate any state, federal or foreign law to which it is
subject." (Rule 14a-8(i)(2), emphasis supplied). Rule 14a-8, therefore, is
structured in a manner that ensures that it does not conflict with substantive
state statutes that restrict shareholder actions. In light of Rule 14a-8(i)(1)
and (2)'s deference to substantive state law, Amalgamated's assertion that Rule
14a-8 preempts state law in this context is without merit. Amalgamated argues that while the Minnesota Legislature intended to preclude a
holder of 2.99% of the voting power of a private corporation from proposing a
by-law amendment, it nevertheless intended to allow a holder of $2,000 worth of
stock of any public corporation to require that a proposal to amend the
corporation's by-laws be submitted to the shareholders (even though the dollar
threshold was not added to Rule 14a-8 until two years after the MBCA was
enacted). The Minnesota Legislature did not enact such an illogical statute.
Instead, it provided that only holders of at least 3% of the voting shares could
propose an amendment to the by-laws of a corporation of any size, whether public
or private. The Minnesota Legislature wanted to avoid any suggestion that the procedural
requirements of Rule 14a-8 need not be satisfied even if the substantive
requirements of the MBCA set forth in Section 302A.181 were satisfied. It wanted
to clarify that a 3% shareholder of a public corporation would not be able to
require that a proposal be included in a corporation's proxy statement if the
SEC's procedural requirements were not satisfied. It was not ceding to federal
law the determination of which matters are a proper subject for shareholder
action under state law. Since under federal law, the issue of what is a proper
subject matter for shareholder action is determined by state law, Minnesota's 3%
threshold can never conflict with the federal securities laws or regulations.
A proponent cannot avoid the state law requirement by arguing that a procedural
requirement of Rule 14a-8 conflicts with the 3% requirement under Minnesota law,
thereby boot-strapping a procedural requirement of Rule 14a-8 into a conflict
with a substantive state law requirement (particularly because the minimum share
ownership requirement, which is the basis for Amalgamated's asserted conflict,
was not even in effect when the state law was enacted). Uncontrovertibly, Rule
14a-8 simply does not conflict with the 3% state law requirement, a requirement
that clearly can be imposed under state law notwithstanding Rule 14a-8. The Staff's no-action position in PLM Int'l, Inc. (available April 28, 1997)
strongly supports the position that the 3% threshold in the MBCA is not in
conflict with Rule 14a-8. In PLM, a proposal (the "Smuckler proposal") was made
to amend the Certificate of Incorporation of a Delaware corporation. The issuer
requested a no-action position that the proposal may be excluded because, if
implemented, it would violate a Delaware statute that permits such amendments
only if proposed by the Board of Directors. The Staff concluded that "[t]here
appears to be some basis for your view, supported by an opinion of counsel, that
the Smuckler proposal may be excluded under Rule 14a-8(c)(2) as a violation of
state or federal law" and that the defect could be cured only by recasting it as
a recommendation or request. If a statute such as the Delaware statute, which
absolutely precludes shareholders from proposing a charter amendment, does not
conflict with Rule 14a-8, a statute permitting shareholder proposals to amend
by-laws only if proposed by 3% or greater shareholders clearly does not violate
the rule. 2. Prohibition on Board Actions Require Unanimous Shareholder Consent. In its February 5 letter, Amalgamated argues that the shareholders by majority
vote can adopt a by-law amendment that limits the ability of a board of
directors to take actions to manage the business and affairs of the corporation,
even though Section 302A.201 of the MBCA permits such a limitation only by
unanimous shareholder action. Amalgamated ignores the language quoted by it from
Section 302A.409 that permits such corporate action only "after the terms,
provisions, and conditions of the rights...are fixed by the board" (emphasis
supplied) and eliminates from the quote the words that follow, which provide
that such power is only "subject to any restrictions in the articles," not the
by-laws (emphasis supplied). This is the precise reason why, as set forth in our
Minnesota counsel's January 20 opinion, unanimous consent is required by Section
302A.201 to limit the power that the MBCA expressly gives the board, not the
shareholders, under both Section 302A.201 and 302A.409 and is precisely why the
Quickturn decision cited in our Minnesota counsel's opinion supports the
Company's position. Finally, Amalgamated asserts the relevance of the Oklahoma Supreme Court
decision in International Bhd. of Teamsters v. Fleming Cos., No. 90,185 (January
26, 1999). What is not mentioned by Amalgamated is that the Oklahoma statute at
issue does not expressly authorize Oklahoma corporations to adopt share rights
plans. As set forth in the January 20 opinion of our Minnesota counsel,
Minnesota is one of the states that specifically authorizes the issuance of
rights under share rights plans, which, as the Oklahoma Supreme Court expressly
notes, presents a completely different situation from that presented in Fleming.
3. Conclusion. A 3% shareholder proponent is needed to propose an amendment to the by-laws of a
Minnesota corporation. Amalgamated acknowledges that it is not a 3% proponent.
Rule 14a-8's procedural requirements are not in conflict with this substantive
statutory requirement. Therefore, the Proposal may be properly omitted from the
Company's proxy materials under Rule 14a-8(i)(1) and (2). Even if there had been a 3% proponent, the Board authority to approve and redeem
share rights plans may not be precluded by a by-law amendment under the MBCA
without unanimous shareholder consent. The Fleming decision of the Oklahoma
Supreme Court is of no relevance because the MBCA expressly authorizes share
rights plans whereas the Oklahoma statute does not, a fact that the Oklahoma
Supreme Court itself deemed critical. The Company and its Minnesota counsel therefore reaffirm their conclusions that
the Proposal may be properly omitted pursuant to Rules 14a-8(i)(1) and (2). A
copy of the reaffirmation of the opinion of our Minnesota counsel is enclosed.
Please call Timothy R. Baer at 612/370-6426 if you have any questions regarding
this matter or as soon as a response is available. Very truly yours, James T. Hale Senior Vice President, Secretary and General Counsel Enclosures cc: Mr. Cornish F. Hitchcock (Federal Express) Mr. Timothy R. Baer Faegre & Benson LLP [APPENDIX]
February 15, 1999 Dayton Hudson Corporation 777 Nicollet Mall Minneapolis, Minnesota 55402 You have provided us with a copy of the letter dated February 5, 1999 from
Amalgamated Bank of New York LongView Fund ("Amalgamated") that was submitted to
the Office of Chief Counsel, Division of Corporation Finance of Securities and
Exchange Commission in connection with Amalgamated's proposal to amend Dayton
Hudson's By-Laws in the manner set forth in the proposal. We have reviewed
Amalgamated's February 5 letter. We believe that Amalgamated's letter reflects a misunderstanding of the
Minnesota Business Corporation Act (the "MBCA"). The 3% ownership requirement
for a by-law amendment proposed by a shareholder or shareholders under Minnesota
law was adopted in 1981, two years before any procedural requirement for stock
ownership was added to Rule 14a-8. To our knowledge, the procedural requirements
of Rule 14a-8 were intended to be requirements imposed in addition to, and not
in preemption of, the state law requirements for proper shareholder action. With respect to Amalgamated's position regarding the board's authority to manage
the business and affairs of a Minnesota corporation, it is clear that the
statute by its terms permits shareholders to take certain actions. With respect
to other actions such as a board's right to manage the business and affairs of a
Minnesota corporation under Section 302A.201 of the MBCA and to fix the terms,
provisions and conditions of rights to purchase shares (including rights granted
under share rights plans) under Section 302A.409, Subd. 3, however, the MBCA
vests the power in the board. This power is subject to override only by
unanimous shareholder consent, as discussed more fully in our January 20
opinion. International Bhd. of Teamsters v. Fleming Cos., No. 90,185 (January 26, 1999),
cited by Amalgamated in its February 5 letter, was decided by the Oklahoma
Supreme Court after our January 20, 1999 opinion. However, the Fleming decision
has no relevance to our opinion because the MBCA expressly authorizes share
rights plans whereas the Oklahoma statute does not. The distinction between
state statutes that contain "rights plan endorsement provisions" and those, such
as Oklahoma's statute, that do not, was deemed to be of critical importance by
the Oklahoma Supreme Court in its decision. We hereby reaffirm our opinion of January 20, 1999 that for the reasons stated
in that opinion, Amalgamated's proposal (as modified in its February 5 letter)
to amend Dayton Hudson's by-laws is not a proper action by shareholders under
Minnesota law and would not be valid under the MBCA, and that its implementation
would violate the MBCA. Very truly yours, FAEGRE & BENSON LLP By........................ EXHIBIT A 14 December 1998 James T. Hale, Esq. Senior Vice President, General Counsel and Corporate Secretary Dayton Hudson Corporation 777 Nicolet Mall Minneapolis, Minn. 55402 By UPS and facsimile: (612) 370-6565 Re: Shareholder proposal for 1999 annual meeting Dear Mr. Hale: On behalf of the Amalgamated Bank of New York Long View Collective Investment
Fund (the "Fund"), I submit the enclosed shareholder proposal for inclusion in
the proxy statement that Dayton Hudson plans to circulate to shareholders in
anticipation of the 1999 annual meeting. The proposal is being submitted under
the SEC's proxy solicitation rule (Rule 14a-8), and it consists of a by-law
amendment requiring shareholder approval on any Shareholder Rights Agreement.
We are aware of the 1992 shareholder vote on the predecessor Rights Agreement
and the existence of the shareholder referendum provision in that Agreement and
the current Agreement. For the reasons stated in support of the proposal,
however, we believe that it is appropriate to raise the issue with the
shareholders again at this time. The Fund is an S&P 500 index fund, located at 11-15 Union Square, New York, N.Y.
10003, with assets exceeding $2.3 billion. It beneficially owns 124,200 shares
of Dayton Hudson common stock, which are held of record by the Amalgamated Bank
of New York through its agent, CEDE, Inc.. The Fund has thus owned shares worth
at least $2000 for over a year and plans to continue ownership through the date
of the 1999 annual meeting, which a representative is prepared to attend. If you require any additional information, please let me know. Very truly yours, Cornish F. Hitchcock
[STAFF REPLY LETTER]
March 25, 1999 Response of the Office of Chief Counsel Division of Corporation Finance Re: Dayton Hudson Corporation Incoming letter dated January 20, 1999 The proposal amends Dayton Hudson's bylaws to require shareholder approval of
any current or future rights agreement and to state that this requirement may
not be amended, modified or repealed, except by holders of a majority of the
outstanding shares. There appears to be some basis for your view that Dayton Hudson may exclude the
proposal under rule 14a-8(i)(2). We note that in the opinion of your counsel,
implementation of the proposal would cause Dayton Hudson to violate section 437
of the Minnesota Business Corporation Act. Accordingly, we will not recommend
enforcement action to the Commission if Dayton Hudson omits the proposal from
its proxy materials in reliance on rule 14a-8(i)(2). In reaching this position,
we have not found it necessary to address the alternative basis for omission on
which Dayton Hudson relies. Sincerely, Theresa Regan Attorney-Advisor
|
