Company Name: Bank of America Corp.
Public Availability Date: March 1, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 30, 2004w BY HAND DELIVERY Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, DC 20549 Re: Stockholder Proposal Submitted by Nick Rossi
Ladies and Gentlemen: Bank of America Corporation (the "Corporation") received from Nick Rossi (the
"Proponent") a proposal dated October 7, 2003 (the "Proposal") for inclusion in
the proxy materials for the Corporation's 2004 Annual Meeting of Stockholders
(the "2004 Annual Meeting"). The Proposal is attached hereto as Exhibit A. As
counsel to the Corporation, we hereby request confirmation that the staff of the
Division of Corporation Finance (the "Division") will not recommend enforcement
action if the Corporation omits the Proposal from its proxy materials for the
2004 Annual Meeting for the reasons set forth herein. GENERAL
The 2004 Annual Meeting is scheduled to be held on May 26, 2004. The Corporation
intends to file its definitive proxy materials with the Securities and Exchange
Commission (the "Commission") on or about April 19, 2004 and to commence mailing
those materials to its stockholders on or about such date.
Pursuant to Rule 14a-8(j) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), enclosed are: 1. Six copies of this letter, which includes an explanation of why the
Corporation believes that it may exclude the Proposal; and
2. Six copies of the Proposal. A copy of this letter is also being sent to the Proponent's agent as notice of
the Corporation's intention to omit the Proposal from the Corporation's proxy
materials for the 2004 Annual Meeting. BACKGROUND AND SUMMARY OF PROPOSAL
The Proposal recommends that the "Board of Directors seek shareholder approval
at the earliest subsequent shareholder election, for the adoption, maintenance
or extension of any current or future poison pill." Assuming the Proposal was
adopted, it could not be removed or diluted without shareholder approval.
REASONS FOR EXCLUSION OF PROPOSAL
The Corporation believes that the Proposal may be properly omitted from the
proxy materials for the 2004 Annual Meeting pursuant to Rules 14a-8(i)(1), (i)(2)
and (i)(10). The Proposal may be excluded pursuant to Rules 14a-8(i)(1) and (i)(2)
because it is not a proper subject for action by stockholders under Delaware law
and it violates Delaware law. The Proposal also may be excluded pursuant to Rule
14a-8(i)(10) because the Corporation has already substantially implemented the
Proposal. 1. The Corporation may omit the Proposal pursuant to Rules 14a-8(i)(1) and (i)(2)
because the Proposal is not a proper subject for action by stockholders under
Delaware law and it violates Delaware law. A stockholder proposal may be omitted under (i) Rule 14a-8(i)(1) if it is not a
proper subject for action by stockholders under applicable law and (ii) Rule
14a-8(i)(2) if its adoption would violate applicable law. As discussed below,
the Corporation believes that the Proposal may be properly omitted from the
proxy materials for the 2004 Annual Meeting for these reasons. Attached hereto
as Exhibit B is the opinion of Richards, Layton & Finger, P.A. (the "RLF
Opinion"), the Corporation's special Delaware counsel, to the effect that the
Proposal is contrary to Delaware law. The RLF Opinion is incorporated herein and
supplements each of the arguments discussed below. The Corporation believes that it is impermissible under Delaware law for the
board of directors of a Delaware corporation to commit to submit all future
stockholder rights plans to a vote of the corporation's stockholders, as would
be required under the Proposal. A. Delaware law gives the Board of Directors the exclusive authority to manage
the Corporation. The Board of Directors possesses the full power and authority to manage the
business and affairs of the Corporation under General Corporation Law of the
State of Delaware (the "DGCL"). Sections 157 and 141(a) of the DGCL provide the
statutory authority for a Delaware corporation to adopt a stockholder rights
plan. Section 157 of the DGCL provides the board of directors of a Delaware
corporation with the authority to adopt and maintain a stockholder rights plan.
See Moran v. Household Int'l, Inc., 500 A.2d 1346, 1356 (Del. 1985) ("The
directors adopted the [Rights] Plan pursuant to statutory authority in 8 Del. C.
§§141, 151 & 157."). As noted by the Delaware Supreme Court in Moran, the
authority of a board of directors to adopt a stockholders rights plan is derived
not only from Section 157, but also from Section 141(a) of the DGCL. Section
141(a) of the DGCL provides, in pertinent part: The business and affairs of every corporation organized under this chapter shall
be managed by or under the direction of a board of directors, except as may be
otherwise provided in this chapter or in its certificate of incorporation. If
any such provision is made in the certificate of incorporation, the powers and
duties conferred or imposed upon the board of directors by this chapter shall be
exercised or performed to such extent and by such person or persons as shall be
provided in the certificate of incorporation. Thus, Section 141(a) of the DGCL provides that, unless otherwise provided in a
corporation's certificate of incorporation, directors manage the business and
affairs of Delaware corporations. The Corporation's certificate of incorporation
does not provide for the management of the Corporation by persons other than by
directors. Thus, the Board of Directors possesses the full power and authority
to manage the business and affairs of the Corporation under the DGCL.
B. It is a fundamental principle of Delaware law that questions concerning the
adoption, use or redemption of a poison pill are within the exclusive power of
the Board of Directors. Adoption of a rights plan is a function specifically conferred on the board of
directors of a Delaware corporation by statutei.e., by Section 157 of the DGCL.
Accordingly, absent any provision of the certificate of incorporation to the
contrary, a board of directors of a Delaware corporation cannot be completely
divested of such authority. In addition, directors cannot substantially limit
(by delegation or otherwise) their ability to make a business judgment on
matters of management policy. Delaware courts have held that agreements which
have the effect of removing from directors in a very substantial way their duty
to use their own best judgment on management matters were not enforceable under
Delaware law. See Chapin v. Benwood Found, Inc., 402 A.2d 1205, 1211 (Del. Ch.
1979), aff'd, Harrison v. Chapin,
415 A.2d 1068 (Del. 1980).
A board's ability to adopt a rights plan in the context of a sale of the
corporation is a fundamental matter of management policy that cannot be
substantially limited under Delaware law. In Quickturn Design Sys., Inc. v.
Shapiro, 721 A.2d 1281 (Del. 1998), the Delaware Supreme Court held that a
future board's ability to redeem a rights plan implicated a fundamental "matter
[] of management policy" the "sale of [a] corporation" and, therefore, could
not be substantially restricted under Delaware law. Id. at 1292.
The sale of a corporation also is implicated when a corporation adopts (as
opposed to redeems under Quickturn) a rights plan. Because the adoption of a
rights plan implicates a matter of management policy, directors cannot
completely delegate the ability to veto, or exercise final authority with
respect to, the adoption of a rights plan. Indeed, the delegation of the final
authority to adopt a future rights plan to the Corporation's stockholders would
impose a substantial restriction on the ability of a board of directors to
exercise managerial policy in connection with a contest for corporate control.
In the face of an imminent takeover proposal, a requirement that stockholders
approve a stockholders rights plan will, at best, slow down the ability of a
board of directors to respond and, at worst, completely eliminate the ability of
a board of directors to respond to the threat. The Delaware courts have
recognized that time is of the essence in responding to takeover proposals. See,
e.g., Gilbert v. El Paso Co., 575 A.2d 1131, 1146 (Del. 1990) (noting that a
board's "prompt adoption of defensive measures in an attempt to meet [an]
imminent [takeover] threat was hardly improvident"). Indeed, the "selection of a
time frame for achievement of corporate goals ... [is a] duty [that] may not be
delegated to the stockholders." In re Pure Res., Inc. S'holders Litig.,
808 A.2d 421, 440 n.38 (Del. Ch. 2002). If a board of directors submits a stockholders
rights plan to stockholders of a corporation and it is adopted after the time
delay inherent in the solicitation process, the board will have impermissibly
delegated the duty to set a time frame for corporate action to the stockholders.
C. The Proposal would cause the Board of Directors to breach their fiduciary
duties under Delaware law. Directors who improperly delegate, or limit their freedom with respect to,
managerial duties under Section 141(a) of the DGCL breach the fiduciary duty of
care. A board's fiduciary duty of care also is implicated when it is faced with
an unfair takeover offer. Directors of Delaware corporations have a fiduciary
duty to protect the corporation's stockholders from an unfair takeover offer. A
duty to protect stockholders from harm derives from the fiduciary duty of care.
The Delaware courts and learned commentators have repeatedly noted that the
adoption of a rights plan is one (if not the most powerful and effective) means
by which a board of directors can protect a corporation's stockholders from an
unfair or inequitable takeover offer. See, e.g., In re Pure Resources, 808 A.2d
at 431 (noting that the adoption of a rights plan is the "de rigeur tool of a
board responding to a third party tender offer" and is quite effective at giving
a target board under pressure room to breathe); 10 Corporate Counsel Weekly
(BNA), No. 20, at 7 (May 17, 1995) (in which former Delaware Supreme Court
Justice Andrew G.T. Moore II is quoted as stating that "failure to adopt a pill
under certain circumstances could in itself be a breach of the duty of loyalty
and care"). The ability to utilize a rights plan is particularly important in the case of a
corporation such as the Corporation, whose certificate of incorporation and
bylaws (collectively, the "Organizational Documents") contain a limited number
of provisions that would deter or prevent the acquisition of significant blocks
of shares, through unsolicited tender offers or other means, including
acquisitions that would result in a sale of control of the Corporation at an
inadequate price or on other inadvisable terms. For example, the Organizational
Documents do not contain a staggered board provision, supermajority voting
requirements, or a fair price provision. Nor does the certificate of
incorporation prohibit the Corporation's stockholders from acting by written
consent. Accordingly, a rights plan provides a readily available method by which
the Board of Directors can effectively deal with inadequate or abusive takeover
tactics, and may provide the most effective means, or the only effective means,
of dealing with a particular threat. Since the fiduciary duty of care precludes a board of directors from foreclosing
its ability to defend the corporation's stockholders against an unfair takeover
offer, the Board of Directors cannot limit or substantially restrict its ability
to respond to an unfair takeover offer. If the Board of Directors' limited
ability to use one of, if not the most effective means of, responding to an
unfair takeover by agreement, the Board would be limiting its fiduciary duty of
care under Delaware law. As the Delaware Supreme Court recently stated, "to the
extent that a contract, or a provision thereof, purports to require a board to
act or not act in such a fashion as to limit the exercise of fiduciary duties,
it is invalid and unenforceable." Omnicare v. NCS Healthcare, Inc.,
818 A.2d 914, 936 (Del. 2003); Quickturn Design Sys., 721 A.2d at 1292 (same); Paramount
Communications Inc. v. QVC Network Inc., 637 A.2d 34, 51 (Del. 1993) (same); Ace
Ltd. v. Capital Re Corp.,
747 A.2d 95, 105 (Del. Ch. 1999) (same); accord
Restatement (Second) of Contracts §193 (1981) ("A promise by a fiduciary to
violate his fiduciary duty or a promise that tends to induce such a violation is
unenforceable on grounds of public policy"). In short, in the absence of a "fiduciary out" for the Board of Directors of the
Corporation, the Proposal cannot be adopted within the parameters of Delaware
law. D. The most recent no-action letters permitting the exclusion of proposals
requiring stockholder approval for the adoption of poison pills fully support
the exclusion of the Proposal. The Corporation's view with respect to the omission of the Proposal from the
Corporation's proxy materials for the 2004 Annual Meeting is consistent with the
Division's recent no-action determinations regarding proposals requiring
stockholder approval for a poison pill. See Toys "R" Us, Inc. (April 9, 2002)
(proposal requiring the approval of a majority of stockholders for the adoption
of a rights plan could be excluded); and Atlas Air Worldwide Holdings, Inc.
(April 5, 2002) (same). Moreover, the Corporation's view is consistent with the
Division's most recent no-action determinations regarding proposals to amend
bylaws to prohibit the adoption of a poison pill without prior stockholder
approval. See General Dynamics (March 5, 2001) (the Division stated that it
would not recommend enforcement action if, in reliance upon Rule 14a-8(i)(2),
the company omitted a stockholder proposal that would have adopted a bylaw
provision requiring a stockholder vote to adopt or maintain a poison pill); and
Novell, Inc. (February 14, 2000) (the Division stated that it would not
recommend enforcement action if, in reliance upon Rule 14a-8(i)(1), the company
omitted a stockholder proposal that would have amended the company's bylaws to
prohibit adoption of any stockholder rights plan without prior stockholder
approval). Accordingly, consistent with the Division's prior no-action letters,
the Proposal should be excluded pursuant to Rules 14a-8(i)(1) and (i)(2).
Based on the forgoing, and in reliance on the RLF Opinion, the Corporation
believes that the Proposal may be excluded pursuant to Rules 14a-8(i)(1) and
(i)(2) because it is not a proper subject for action by stockholders under
Delaware law and it violates Delaware law. 2. The Company may omit the Proposal pursuant to Rule 14a-8(i)(10) because the
Corporation has already substantially implemented the Proposal.
The Corporation believes that the Proposal may be properly omitted from the
proxy materials for the 2004 Annual Meeting pursuant to Rule 14a-8(i)(10), which
permits the omission of a stockholder proposal if "the company has already
substantially implemented the proposal." The "substantially implemented"
standard replaced the predecessor rule, which allowed the omission of a proposal
that was "moot." The current rule also clarifies the Commission's interpretation
of the predecessor rule that the proposal need not be "fully effected" by the
company to meet the mootness test, so long as it was substantially implemented.
The goal of the Proposal is clear on its face - the Proponent wants the
Corporation to remove any existing poison pill or have any new poison pill
submitted for stockholder approval. The Corporation does not have a rights plan
or poison pill. Additionally, the Corporation's Board of Directors has adopted a
policy that no poison pill shall become effective without the affirmative vote
of a majority of stockholders. Accordingly, since the Corporation has adopted a
policy prohibiting the adoption of a poison pill in the absence of stockholder
approval, the goal of the Proposal has not only been substantially implemented,
but it has, in fact, been "fully effected" and should be excluded pursuant to
Rule 14a-8(i)(10). Upon the recommendation of the Corporation's Corporate
Governance Committee, the Board of Directors of the Corporation, on October 23,
2002, adopted the following resolution (the "Resolution"):
NOW, THEREFORE, BE IT RESOLVED, that, in the event the Board of Directors
determines in the future that the adoption of a poison pill would be in the best
interests of the Corporation, the Corporation shall submit such poison pill to a
vote of the stockholders and such poison pill shall not be effective without the
affirmative vote of a majority of the votes cast by the stockholders entitled to
vote. The Resolution is in full force and effect.
Although not expressly stated in the Resolution, the adoption and implementation
of the Resolution is subject to the requirements of Delaware law. The
Corporation believes that the Resolution is consistent with the intent of the
Proposal. However, circumstances could arise in the future where the Board of
Director's ability to adopt a new poison pill without obtaining stockholder
approval would enhance the Board or Director's ability to protect the interests
of the Corporation's stockholders. Accordingly, it is implicit in the Resolution
and, in fact, required by Delaware law, that the Board of Directors retain the
authority to act on its own to adopt a poison pill without first submitting such
matter to a stockholder vote if, under the circumstances then existing, the
Board of Directors in the exercise of its fiduciary responsibilities deems it to
be in the best interest of the Corporation and its stockholders to adopt a
poison pill without the delay that would come from the time reasonably
anticipated to solicit a stockholder vote. In AutoNation, Inc. (March 5, 2003), the company adopted a similar resolution
without an express "fiduciary out" provision. The policy adopted by AutoNation
was as follows: The Board of Directors will not adopt a or extend any poison
pill unless such adoption or extension has been submitted to a shareholder
vote." In rebutting the proponent's argument that this policy did not
substantially implement his proposal because it could be revoked by the board of
directors, AutoNation argued: The revocablilty of the Policy is consistent with other Company policies and the
well-settled principal [sic] of corporate governance that current directors may
not irreversibly bind future directors from discharging their fiduciary duties.
Of course, the Board would only revoke or change the Policy if, in the future in
the good faith exercise if its fiduciary duties, the Board determines that the
revocation or change of the Policy is in the best interests of the Company and
its shareholders. Proponent's argument is disingenuous in implying that
"substantial implementation" of the Proposal, which would not be binding on the
Company even if approved by the Company's stockholders, requires irrevocable
action by the Board. Similarly, in Hewlett-Packard Company (December 23, 2003), the existence of a
"fiduciary out" for the board of directors, did not impact the Division's view
that a substantially similar proposal had been substantially implemented and was
excludable under Rule 14a-8(i)(10). As noted in Section 1 of this letter and
consistent with AutoNation and Hewlett-Packard, neither the current Proposal nor
the Resolution can be implemented in the absence of a "fiduciary out." See also,
the RLF Opinion. This same Proponent submitted a substantially similar proposal last year and the
Division concurred that the proposal could be excluded under Rule 14a-8(i)(10)
since it had been substantially implemented. See Bank of America (February 18,
2003). In the Bank of America Corporation letter, the Proponent argued to the
Division that there was "nothing in the company policy to prevent the [above
resolution] from a reversal in 3 months without a shareholder vote." The
Proponent proffered an unrealistic and untenable scenario whereby the
Corporation would rotate "in a poison pill policy any year in which a related
shareholder proposal topic is submitted. And then rotate out this policy three
months later." In finding that the proposal had been substantially implemented,
the Division stated, "[w]e note Bank of America's representation that it does
not have a current rights plan in place and that the board has adopted a
resolution that requires a shareholder vote in order to implement a rights
plan." The current Proposal is altered in a transparent manner in an attempt to
merely turn last year's unpersuasive arguments into this year's Proposal.
However, all the pertinent facts remain the same and consistent with last year's
determination, the Corporation requests that the Division find that the Proposal
has been substantially implemented. The Division recently concurred with the
exclusion of a substantially similar proposal based on substantially similar
facts. See SBC Communications Inc. (December 24, 2003); Hewlett-Packard Company
(December 23, 2003); and AutoNation, Inc. (March 5, 2003),
The Division has historically permitted the exclusion of proposals under Rule
14a-8(i)(10) and its predecessor, Rule 14a-8(c)(10), where a corporation is
requested to redeem a poison pill or rights plan that does not exist, has
expired or that will be terminated or expire in the immediate future. See Bell
Atlantic Corporation (December 15, 1995, affirmed on reconsideration, January
23, 1996) (proposal to redeem rights plan when company was in the process of
redeeming the plan); TJX Companies, Inc. (March 17, 1994) (proposal to redeem
rights plan where board had previously voted to redeem the plan); Bank of
America (February 13, 2002) (proposal to redeem rights plan that did not exist);
Occidental Petroleum Corporation (January 28, 1997) (proposal to redeem rights
plan that no longer existed); and Compaq Computer Corporation (February 15,
1996) (proposal to redeem rights plan that no longer existed). In the instant
case, the Proponent requests that the Corporation adopt a policy prohibiting the
adoption or extension of a poison pill unless such adoption or extension has
been submitted to a stockholder vote. The Corporation has already adopted such a
policy. Accordingly, consistent with the Division's prior no-action letters, the
Proposal should be excluded pursuant to Rule 14a-8(i)(10).
In Bell Atlantic, the proposal (submitted in November 1995) requested that the
board of directors redeem the shareholder rights plan unless the plan was
approved by a majority of shareholders. The company argued that its board of
directors had recently adopted a resolution directing the company's management
to submit to the board (at its January 1996 meeting) a detailed plan of action
to terminate the rights plan. The company indicated that the requested
termination plan would be submitted, as requested, and would call for the
termination of the rights plan in May 1996. In Bell Atlantic, the existence of
concrete plans that would substantially implement the proposal appeared to be
sufficient grounds for excluding the proposal pursuant to Rule 14a-8(c)(10). As
with Bell Atlantic, the Corporation's Board of Directors has already voted to
adopt the policy referenced in the Proposal. If the Proposal were submitted to and approved by the Corporation's
stockholders, the means of implementation would be the adoption by the Board of
Directors of the Resolution set forth above. Accordingly, because the Proposal
has been fully implemented, it should be excluded pursuant to Rule 14a-8(i)(10).
CONCLUSION On the basis of the foregoing, and on behalf of the Corporation, we respectfully
request the concurrence of the Division that the Proposal may be excluded from
the Corporation's proxy materials for the 2004 Annual Meeting. Based on the
Corporation's timetable for the 2004 Annual Meeting, a response from the
Division by March 5, 2004 would be of great assistance. If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact the undersigned at 704.378.4718 of
Jacqueline Jarvis Jones, Assistant General Counsel of the Corporation, at
704.386.9036. Please acknowledge receipt of this letter by stamping and returning a copy of
this letter to our courier. Thank you for your prompt attention to this matter.
Very truly yours, /s/
Andrew A. Gerber cc: Jacqueline Jarvis Jones, Esq.
C. Stephen Bigler, Esq.
Nick Rossi
John Chevedden [APPENDIX 1]
Nick Ross,
P.O. Box 249
Boonville, CA 95415 Mr. Kenneth Lewis
Chairman
Bank of America Corporation (BAC)
Bank of America Corporate Center
100 North Tryon St., 18th Fl.
Charlotte, NC 28255
Phone: (704) 386-8486
Fax: (704) 386-8486, 386-7924, 370-3515, 386-6699 Dear Mr. Lewis,
This Rule 14a-8 proposal is respectfully submitted for the next annual
shareholder meeting. This proposal is submitted in support of the long-term
performance of our company. Rule 14a-8 requirements are intended to be met
including ownership of the required stock value until after the date of the
applicable shareholder meeting. This submitted format, with the
shareholder-supplied emphasis, is intended to be used for definitive proxy
publication. This is the proxy for Mr. John Chevedden and/or his designee to act
on my behalf in shareholder matters, including this shareholder proposal for the
forthcoming shareholder meeting before, during and after the forthcoming
shareholder meeting. Please direct all future communication to Mr. John
Chevedden at: 2215 Nelson Ave., No. 205
Redondo Beach, CA 90278
PH: 310/371-7872 Your consideration and the consideration of the Board of Directors is
appreciated. Sincerely, /s/
cc: Jacqueline Jarvis Jones
Assistant General Counsel
PH: 704-386-1621
FX: 704-387-0108
Oct 7-03 [APPENDIX 2]
3 - Shareholder Input on Poison Pills RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any dilution or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder election. Directors have the flexibility of
discretion accordingly in scheduling the earliest shareholder vote and in
responding to shareholder votes. I do not see how our Directors object to this proposal because it gives our
Directors the flexibly to ignore our shareholder vote if our Directors seriously
believe they have a good reason. This topic won an overall 60% yes-vote at 79
companies in 2003. I believe majority shareholder votes are a strong signal of
shareholder concern. Nick Rossi, P.O. Box 249, Boonville, Calif. 95415 submitted this proposal.
The Potential of a Tender Offer Can Motivate Our Directors
Hectoring directors to act more independently is a poor substitute for the
bracing possibility that shareholders could turn on a dime and sell the company
out from under its present management. Wall Street Journal, Feb. 24, 2003
Diluted Stock An anti-democratic scheme to flood the market with diluted stock is not a reason
that a tender offer for our stock should fail. Source: The Motley Fool
Akin to a Dictator Poison pills are akin to a dictator who says, "Give up more of your freedom and
I'll take care of you. Source: T.J. Dermot Dunphy, CEO of Sealed Air (NYSE) for more than 25 years
The key negative of poison pills is that pills can preserve management deadwood
instead of protecting investors. Source: Moringstar.com
I believe our Directors may make a token response to this proposalhoping to
gain points in the new corporate governance rating systems. A reversible
response, which could still allow our directors to give us a poison pill on
short notice, would not substitute for this proposal. Council of Institutional Investors Recommendation
The Council of Institutional Investors www.cii.org, an organization of 130
pension funds investing $2 trillion, called for shareholder approval of poison
pills. Based on the 60% overall yes-vote in 2003 many shareholders believe
companies should allow their shareholders a vote. Notes:
The above format is the format submitted and intended for publication.
Please advise if there is any typographical question.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2. References: The Motley Fool, June 13, 1997
Moringstar.com, Aug. 15, 2003 Mr. Dunphy's statements are from The Wall Street Journal, April 28, 1999.
IRRC Corporate Governance Bulletin, JuneSept. 2003
Council of Institutional Investors, Corporate Governance Policies, March 25,
2002 Please advise within 14 days if the company requests help to locate these or
other references. [INQUIRY LETTER]
6 Copies
7th copy for date-stamp return February 21, 2004
Via Airbill Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Rebuttal to Last-Minute $5.34 Hunton & Williams No Action Request
Built-in 10-Day Delay Caused by Firm Using Mail Delivery
Bank of America Corporation (BAC)
Poison Pill Proposal
Nick Rossi Ladies and Gentlemen:
This is in further support of the February 14, 2004 rebuttal letter.
The company waited until the last minute to submit its no action request and
then forwarded it with a built-in 10-day delay by using $5.34 in postage.
Although the company annual meeting is delayed one-month from the 2003 annual
meeting the company held to the same shareholder proposal deadline. Yet the
company is still submitting its no action request at the last possible minute.
Additionally the shareholder proposal was initially faxed to the company on
October 13, 2003 and a revised, yet similar version was faxed on November 14,
2003. The company no action request letter states its meeting this year will be May
26, 2004six months after the shareholder proposal deadline of November 28,
2003. The company improperly submitted the October 13, 2003 proposal text with the
cover letter from the November 14, 2003 proposal. The November 14, 2003 proposal
and cover letter are included here. The text of the submitted proposal states:
RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any dilution or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder election. Directors have the flexibility of
discretion accordingly in scheduling the earliest shareholder vote and in
responding to shareholder votes. In contrast the 2002 company policy used in the company argument states:
NOW, THEREFOR, BE IT RESOLVED, that, in the event the Board of Directors
determines in the future that the adoption of a poison pill would be in the best
interest of the Corporation, the Corporation shall submit such a poison pill to
a vote of the stockholders and such poison pill shall not be effective without
the affirmative vote of a majority of the votes cast by the stockholder entitled
to vote. Any impact of the Richards, Layton & Finger Opinion seems to apply to more to
the above company 2002 "Resolution" than to the 2004 shareholder proposal. The
2002 company "Resolution" seems to bind future boards by requiring "the
affirmative vote of a majority of the votes cast by the stockholder entitled to
vote" for a poison pill to be "effective." The 2004 shareholder proposal merely calls for submitting "the adoption,
maintenance or extension of any poison pill to a shareholder vote...."
Thus according to the RFL Opinion the 2002 company proposal could compel a
future board to not have a poison pill because "the affirmative vote of a
majority of the votes cast by the stockholder entitled to vote" was not
obtained. I believe that it would be at least misleading for there to be any "implicit"
element in the 2002 "Resolution" which would nullify the stated text.
On the other hand the shareholder proposal, in merely calling for a
[non-binding] shareholder vote, would allow the board to have a pill under all
circumstances. The company appears to mismatch its 2002 "Resolution" to its 2004 argument which
is based on a 2004 opinion of Richards, Layton & Finger, P.A. (RLF Opinion).
The October 23, 2002 company "Resolution" in requiring "the affirmative vote of
a majority of the votes cast by the stockholder entitled to vote" would seem to
trigger the company argument addressed only to the shareholder proposal, "The
[Shareholder] Proposal would cause the Board of Directors to breach their
fiduciary duties under Delaware law." The same RLF Opinion claim must apply
equally to the company 2002 "Resolution." The key point is that the shareholder proposal calls for a non-binding
"shareholder vote" which would apparently be allowed under Delaware law
according to an interpretation of the RLF Opinion. Whereas the company
"Resolution" mandates "the affirmative vote of a majority of the votes cast by
the stockholder entitled to vote" which according to the company 2004 argument
and the 2004 RLF Opinion is contrary to Delaware law. Paradoxically the company claim of contrary to Delaware law appears to apply to
the company 2002 "Resolution" but not to the shareholder proposal.
Accordingly the company 2002 "Resolution" may be unenforceable due to the issue
raised in the 2004 company argument against the shareholder proposal and the RLF
Opinion. Thus an apparently unenforceable response to a shareholder proposal, i.e. the
2002 company "Resolution," cannot make a shareholder proposal substantially
implemented or moot. A non-sustainable company resolution cannot implement a sustainable shareholder
proposal The company resolution completely fails to address a sustaining part of the
proposal: "Also once this proposal is adopted, dilution or removal of this
proposal is requested to be submitted to a shareholder vote at the earliest
possible shareholder election." Without this key part the shareholder proposal
is subject to manipulation at the expense of shareholders because the company
resolution can be removed secretly at any time and removed without a shareholder
vote at any time. Any time the board feels uncomfortable without a poison pill,
the Board can simply repeal the company resolution without notice.
The company gives no precedent for a continuing and sustainable proposal to be
replaced by a non-sustainable policy that can be secretly repealed.
Circular Policy? This substitute company policy could be largely moot because it can apparently
be reversed next month or later without a shareholder vote. It can probably be
reversed with a conference call. The above text under this heading is shareholder text from the precedent: 3M
Company (Jan. 28, 2003) which stated: "We are unable to concur in your view that 3M may exclude the proposal under
rule 14a-8(i)(10)." Resolution which allows no vote for the resolution to be totally disbanded
implements a proposal calling for a vote if disbanded? The company purports that a shareholder proposal which calls for a vote can be
substantially implemented by a resolution that allows for no vote if the
resolution is disbanded. Company Resolution is Non-Functional Resolution due to Lack of Transparency
The company inscrutably claims that a shareholder proposal which calls for the
transparency of a vote can be substantially implemented by a resolution that
lacks transparency: 1. No announcement of adoption.
2. No notice if repealed. Essential Component
The two-element shareholder proposal calls for a vote at each of two points,
adoption of a pill and disbanding the foundational provision for a vote if a
pill is adopted. There is no substantial implementation if the company sets up a
condition: 1) Where the company has complete control.
2) And the company can avoid a vote to disband the foundational provision of a
this shareholder vote. The company is in the inscrutable position of claiming that adopting the first
half of the two-element shareholder proposal compares favorably with adopting
the whole proposal. The company is arguing that half the shareholder proposal
equals the whole shareholder proposal. Nordstrom Inc., claimed a favorable
12-for-12 match in Nordstrom Inc., 1995 SEC No-Act. LEXIS 226 (Feb. 8, 1995).
Yet the company now claims that one-for-two is as favorable 12-for-12 when
addressing the poison pill topic. In Nordstrom Inc., the staff allowed a company to exclude a proposal where the
company demonstrated that it already had adopted policies or taken actions to
address each of 12 points of the proposal. In Nordstrom a 12-for-12 match at a detail level of the company was apparently
established in order to obtain concurrence. At the highest level of the company the company claims a one-for-two match
compares favorably. A key principle of rule 14a-8 and corporate governance is
that shareholder voices are intended to be heard more at the macro level of the
company because the managers are responsible for the details. Thus if 12-for-12
is the standard for detailed items in Nordstrom, the standard should at least
approach 100% at a much higher level of a companynot 50%.
For shareholders the greater importance of macro issues is supported by text in
rule 14a-8: i. Question 9: If I have complied with the procedural requirements, on what
other bases may a company rely to exclude my proposal?... 7. Management functions: If the proposal deals with a matter relating to the
company's ordinary business operations. In Nordstrom Inc., the company argued:
A comparison of the Proponent's "code of conduct" and the Guidelines reveals
that the Guidelines include each form of prohibited supplier conduct listed in
the Proposal and include the means to verify compliance as requested in the
Proposal. The Proponent, for example, requests that under the code of conduct
the Company will not do business with suppliers which: (1) utilize forced or prison labor;
(2) employ children under compulsory school age or legal working age;
(3) fail to follow prevailing practice and local laws regarding wages and hours;
(4) fail to maintain a safe and healthy working environment; or
(5) contribute to local environmental degradation.
In addition, the Proponent requests that the Company verify its suppliers'
compliance through certification, regular inspections and/or other monitoring
processes. Under the Guidelines, the Company's vendors are expected to refrain from:
(1) utilizing prison or forced labor;
(2) utilizing child labor; (3) failing to offer wages, hours and overtime consistent with prevailing local
industry standards; (4) failing to provide safe and healthy work environments for their workers;
(5) failing to demonstrate a commitment to the environment;
(6) failing to comply with all applicable legal requirements; or
(7) discriminating. A token implementation is not substantial implementation
CII Alerts, Council Research Service, November 13, 2003 establishes concern
regarding token company responses. It states: SO FAR, WE'VE TRACKED 62 majority votes on poison pill proposals submitted in
2003. Only seven have adopted policies terminating their pills or amending their
policies. 3M, Hewlett-Packard and JP Morgan Chase, which also don't have poison pills,
responded to the majority votes by approving policies to get shareholder
approval before adopting any poison pills. But their policies include a huge
loophole giving their boards the right to adopt pills without prior shareholder
approval if, as fiduciaries, they decide a pill would be in the best interests
of shareholders. These clauses effectively render the policies meaningless.
The text of the submitted proposal states:
RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any dilution or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder election. Directors have the flexibility of
discretion accordingly in scheduling the earliest shareholder vote and in
responding to shareholder votes. In contrast the 2002 company policy used in the company argument states:
NOW, THEREFOR, BE IT RESOLVED, that, in the event the Board of Directors
determines in the future that the adoption of a poison pill would be in the best
interest of the Corporation, the Corporation shall submit such a poison pill to
a vote of the stockholders and such poison pill shall not be effective without
the affirmative vote of a majority of the votes cast by the stockholder entitled
to vote. In contrast the following provisions are thus not implemented in the company
resolution: 1. A vote as a separate ballot item is not needed to adopt a pill.
2. No shareholder vote ever applies to repealing the entire policy.
a. The entire policy can be repealed secretly.
3. Since no vote is required to repeal the entire policy then the second "as a
separate ballot item" is not implemented. 4. Since no vote is required to repeal the entire policy then "the earliest
possible shareholder election" is not implemented. The text of the submitted proposal states:
RESOLVED: Shareholders request that our Directors increase shareholder rights
and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item on the next shareholder ballot. Also
once this proposal is adopted, any dilution or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder election. In contrast the company resolution appears addressed to a proposal which would
read: RESOLVED, that the Corporation will not adopt a poison pill unless such adoption
is approved by a majority of the votes cast by holders of common stock entitled
to vote presented as a bundle of items for a single vote or otherwise. This
policy may be secretly revised or repealed without prior public notice and the
Board may thereafter act on its own to adopt a poison pill at any time in the
future. Pfizer Inc. (PFE) in 2003 had the transparency to adopt this same
half-resolution response with more detail to reveal the limitations (from a
shareholder viewpoint) of such a resolution: "This policy may be revised or
repealed without prior public notice and the Board may thereafter determine to
act on its own to adopt a poison pill" I do not believe the company has met its burden of proof obligation according to
rule 14a-8particularly that the company resolution may be in violation of
Delaware law. For the above reasons this is to respectfully request non-concurrence with the
company no action request on each point. Sincerely,
/s/ John Chevedden
cc: Nick Rossi
Kenneth Lewis [INQUIRY LETTER]
February 14, 2004 Via Airbill 6 Copies
7th copy for date-stamp return Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Initial Rebuttal to Last-Minute $5.34 Hunton & Williams No Action Request
Built-in 10-Day Delay Caused by Firm Using Mail Delivery
Bank of America Corporation (BAC)
Poison Pill Proposal
Nick Rossi Ladies and Gentlemen:
This an initial rebuttal to the company no action request.
The company waited until the last minute to submit its no action request and
then forwarded it with a built-in 10-day delay by using $5.34 in postage.
Although the company annual meeting is delayed one-month from the 2003 annual
meeting the company held to the same shareholder proposal deadline. Yet the
company is still submitting its no action request at the last possible minute.
Additionally the shareholder proposal was initially faxed to the company on
October 13, 2003 and a revised, yet similar version was faxed on November 14,
2003. The company no action request letter states its meeting this year will be May
26, 2004six months after the shareholder proposal deadline of November 28,
2003. The company improperly submitted the October 13, 2003 proposal text with the
cover letter from the November 14, 2003 proposal. The text of the submitted proposal states:
RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any dilution or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder election. Directors have the flexibility of
discretion accordingly in scheduling the earliest shareholder vote and in
responding to shareholder votes. The 2002 company policy states:
NOW, THEREFOR, BE IT RESOLVED, that, in the event the Board of Directors
determines in the future that the adoption of a poison pill would be in the best
interest of the Corporation, the Corporation shall submit such a poison pill to
a vote of the stockholders and such poison pill shall not be effective without
the affirmative vote of a majority of the votes cast by the stockholder entitled
to vote. Any impact of the Richards, Layton & Finger Opinion seems to apply to more to
the above company 2002 "Resolution" than to the 2004 shareholder proposal. The
2002 company "Resolution" seems to bind future boards by requiring "the
affirmative vote of a majority of the votes cast by the stockholder entitled to
vote" for a poison pill to be effective. The 2004 shareholder proposal merely calls for submitting "the adoption,
maintenance or extension of any poison pill to a shareholder vote...."
Thus according to the RFL Opinion the 2002 company proposal could compel a
future board to not have a poison pill because "the affirmative vote of a
majority of the votes cast by the stockholder entitled to vote" was not
obtained. I believe that it would be at least misleading for there to be any "implicit"
element in the 2002 "Resolution" which would nullify the stated text.
On the other hand the shareholder proposal, in merely calling for a
[non-binding] shareholder vote, would allow the board to have a pill under all
circumstances. The company appears to mismatch its 2002 "Resolution" to its 2004 argument which
is based on a 2004 opinion of Richards, Layton & Finger, P.A. (RLF Opinion).
The October 23, 2002 company "Resolution" in requiring "the affirmative vote of
a majority of the votes cast by the stockholder entitled to vote" would seem to
trigger the company argument addressed only to the shareholder proposal, "The
[Shareholder] Proposal would cause the Board of Directors to breach their
fiduciary duties under Delaware law." The same claim RLF Opinion must apply
equally to the company 2002 "Resolution." The key point is that the shareholder proposal calls for a "shareholder vote"
which would apparently be allowed under Delaware law according to an
interpretation of the RLF Opinion. Whereas the company "Resolution" mandates
"the affirmative vote of a majority of the votes cast by the stockholder
entitled to vote" which according to the company 2004 argument and the 2004 RLF
Opinion is contrary to Delaware law. Thus the company claim appears to applies to the company 2002 "Resolution" but
not to the shareholder proposal. Accordingly the company 2002 "Resolution" may be unenforceable due to the issue
raised in the 2004 company argument against the shareholder proposal and the RLF
Opinion. Thus an unenforceable 2002 "Resolution" cannot make a shareholder proposal
substantially implemented or moot. This is to respectfully request an additional opportunity to respond to the
last-minute company no action request. I do not believe the company has met its burden of proof obligation according to
rule 14a-8. For the above reasons this is to respectfully request non-concurrence with the
company no action request on each point. Sincerely,
/s/ John Chevedden
cc: Nick Rossi
Kenneth Lewis
[STAFF REPLY LETTER]
March 1, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Bank of America Corporation Incoming letter dated January 30, 2004
The proposal requests that the board seek shareholder approval for the adoption,
maintenance or extension of any current or future poison pill and further
requests that once adopted, removal or dilution of this proposal be submitted to
a shareholder vote at the earliest subsequent shareholder election. The
supporting statement of the proposal clarifies that directors have the
flexibility "to overrule" a shareholder vote. There appears to be some basis for your view that Bank of America may exclude
the proposal under rule 14a-8(i)(10). We note Bank of America's representation
that it has adopted a resolution that requires a shareholder vote in adopting
any poison pills. Accordingly, we will not recommend enforcement action to the
Commission if Bank of America omits the proposal from its proxy materials in
reliance on rule 14a-8(i)(10). In reaching this position, we have not found it
necessary to address the alternative bases for omission upon which Bank of
America relies. Sincerely, /s/
Grace K. Lee
Special Counsel
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