# James J. Hanks, Jr., Esq. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ac25662b0cd5e214d ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text January 26, 2011 James J. Hanks, Jr., Esq. Venable LLP 750 E. Pratt Street Suite 900 Baltimore, MD 21202 Re: The Adams Express Company — Omission of Shareholder Proposal Pursuant to Rule 14a-8 Dear Mr. Hanks: In a letter dated November 22, 2010, on behalf of The Adams Express Company (“Fund”) you requested confirmation from the staff of the Division of Investment Management that it would not recommend enforcement action to the Securities and Exchange Commission if a shareholder proposal (“Proposal”) submitted by the Gramercy Global Optimization Fund (“Proponent”) is omitted from the proxy materials for the next scheduled shareholder meeting, which is expected to take place on March 22, 2011. The Proposal states: RESOLVED: The shareholders of The Adams Express Company (the “Fund”) request the Board of Directors (the “Board”) to authorize the Fund to conduct a self-tender offer for all outstanding shares of the Fund at net asset value (“NAV”) or within 1% thereof (to cover expenses). If more than 50% of the Fund’s outstanding shares are tendered, the tender offer should be cancelled and the Fund should be liquidated or, at the discretion of the Board, merged or converted into an open-end mutual fund. You argue that the Proposal may be excluded: (1) pursuant to Rule 14a-8(i)(2) under the Securities Exchange Act of 1934, because, it would, if implemented, require the Fund to violate state and federal law; (2) pursuant to Rule 14a-8(i)(6), because the Fund lacks the power and authority to implement the Proposal; (3) pursuant to Rule 14a8(i)(3), because the Proposal is inherently vague and indefinite and because it contains false and misleading statements in violation of Rule 14a-9; and (4) pursuant to Rule 14a8(i)(4), because the Proposal is designed to result in a benefit to the Proponent which is not shared by the other stockholders. James J. Hanks, Jr., Esq. January 26, 2011 Page 2 There appears to be some basis for your view that the Proposal may be excluded under Rules 14a-8(i)(2) and 14a-8(i)(6). We note that, in the opinion of the Fund’s counsel, the Board lacks authority to liquidate, merge, or convert the Fund and implementation of these aspects of the Proposal would violate state law. It appears that this defect could be cured, however, if the Proposal were revised to state that the Board should take the steps necessary to liquidate, merge, or convert the Fund. Accordingly, unless the Proponent provides the Fund with a proposal revised in this manner, within seven calendar days after receiving this letter, we will not recommend enforcement action to the Commission if the Fund omits the Proposal from its proxy materials in reliance on Rules 14a-8(i)(2) and 14a-8(i)(6). We are unable to concur in your view that the Proposal may be excluded under Rule 14a-8(i)(3). We are unable to conclude that the Proposal is so inherently vague or indefinite that neither the shareholders voting on the Proposal, nor the Fund in implementing the Proposal, would be able to determine with any reasonable certainty what actions or measures the Proposal requires. There appears to be some basis for your view, however, that the language in the supporting statement that “[t]he Board has the authority to cause the Fund to take the actions proposed herein,” may be materially false or misleading under Rule 14a-9 and, therefore, may be excluded pursuant to Rule 14a-8(i)(3). Accordingly, unless the Proponent, within seven calendar days of receipt of this letter, revises the Proposal either to delete this language or to clarify the Board’s authority, we would not recommend enforcement action to the Commission if the Fund omits this language in reliance on Rule 14a-8(i)(3). Finally, we are unable to concur in your view that the Fund may exclude the Proposal pursuant to Rule 14a-8(i)(4). Attached is a description of the informal procedures the Division follows in responding to shareholder proposals. If you have any questions or comments concerning this matter, please call me at (202) 551-6945. Sincerely, John M. Ganley Senior Counsel Attachment cc: Gramercy Global Optimization Fund · 750 E. PRATT STREET SUITE 900 BAlTIMORE. MD 21202 T 410.244.7400 F410.244.7742· www.Venable.com November 22, 2010 VIA E-MAIL (shareho1derproposals@sec.gov) Office of Legal and Disclosure Division of Investment Management U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: The Adams Express Company - Omission of the Stockholder Proposal Submitted by Gramercy Global Optimization Fund Ladies and Gentlemen: We are counsel to The Adams Express Company, a Maryland corporation registered under the Investment Company Act of 1940, as amended (the" 1940 Act"), as a closed-end management investment company ("Adams Express" or the "Fund"), in comiection with a proposal and supporting statement (the "Proposal") received by the Fund on October 4, 2010, from Graniercy Global Optimization Fund (the "Proponent") for inclusion in the Fund's proxy materials (the "Proxy Materials") for its Annual Meeting of Stockholders in 2011 (the "Annual Meeting"), pursuant to Rule 14a-8 promulgated under the Securities Exch!Ulge Act of 1934, as amended. We hereby respectfully request confmnation from the staff (the "Stafr') of the Securities and Exchange Commission (the "Commission") that no enforcement action will be recommended ifthe Fund excludes the Proposal from the Proxy Materials. , i The Fund currently expects the Annual Meeting to take place on March 22, 2011, and it expects to file its Proxy Materials on or about February 14,2011. Pursuant to Rule 14a­ 80), the Fund, by separate letter, is contemporaneously advising the Proponent of the Fund's intention to omit the Proposal from the Proxy Materials. I I l 0,i j The Proposal, attached hereto as Exhibit A, requests, in relevant part, that the Board ofDirectors ofAdams Express (the "Board") authorize a self-tender for 100% of the outstanding shares of the Fund at or near net asset value ("NAV") on the condition that, if more than 50% ofthe Fund's outstanding shares are tendered, the tender offer should be canceled and (a) the Fund should be liquidated or (b), at the discretion of the Board, "merged" or "converted" into an open-end fund and provides that the Board alone has the authority to take these actions. The Fund believes that the Proposal may be excluded: 1. Pursuant to Rule 14a-8(i)(2), because it would, if implemented, require the Fund to violate state and federal law; BA0f276794 ii f I [ ~overnber22,2010 Page 2 2. Pursuant to Rule 14a-8(i)(6), because the Fund lacks the power and authority to implement the Proposal; 3. Pursuant to Rule 14a-8(i)(3), because the Proposal is inherently vague and indefInite and because it contains false and misleading statements in violation of Rule 14a-9; and 4. Pursuant to Rule 14a-8(i)(4), because the Proposal is designed to resultin a benefIt to the Proponent which is not shared by the other stockholders. I. The Proposal The Proposal reads, in full, as follows: RESOLVED: The shareholders of The Adams Express Company (the "Fund") request the Board of Directors (the "Board") to authorize the Fund to conduct a self-tender offer for all outstanding shares ofthe Fund at net asset value (''NAV") or within I% thereof (to cover expenses). Ifmore than 50% of the Fund's outstanding shares are tendered, the tender offer should be cancelled and the Fund should be liquidated or, at the discretion of the Board, merged or converted into an open-end mutual fund. Shares of the Fund are trading at a double-digit discount to the value of the assets owned by the Fund. The discount is, as of 09/30/1 0, over 15%. As of 09/30/1 0, the total return on net asset value of the Fund's shares has had mediocre perfonnance relative to the Standard & Poor's 500 Composite Stock Index ("S&P500") over the last I-year, 3-year, and 5-year periods as evidenced by Exhibit C. In fact, over the last 5 years, as of 09/30/1 0, the Fund has returned 2.18% in contrast to 3.22% returned by S&P500 which the Fund compares itself in the 06/30/1 0 semi-annual report. The Board has the authority to cause the Fund to take the actions proposed herein. A self-tender by the Fund would close the tradhtg discount and allow participants to receive approximately 17% more than the price ofthe shares as of 09/30/10. The legal structure of the Fund allows it to trade at a discount to the assets it holds. A mere change in legal fonn would reverse this discount and allow you to receive the difference. In light of these facts, we think the Board should authorize the Fund to conduct a self-tender offer for all outstanding shares at ~AV in order to provide shareholders with the opportunity to receive full value for their shares. Tender participation by a majority ofthe Fund's shareholders would demonstrate insufficient shareholder support for continuing the I I I II I i I VENABLE:LP ~ovember22,20l0 Page 3 Fund in its closed-end fonnat. In that case, the tender offer should be cance]]ed and the Fund should be liquidated or merged (or converted) into an open-end fund. ! ! Uyou agree that the Fund's persistent discount and mediocre t at best, performance is unacceptable and would like to increase the value of your shares and your return, please vote for this proposal. (Emphasis I I i original.) ! i I ! i II. ii The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(2) Because It Would, if Implemented t Cause the Fund to Violate Maryland Law and the 1940 Act II I Rule 14a-8(i)(2) permits a company to omit a stockholder proposal that would, if implemented, cause the company to violate any state, federal or foreign law to which it is subject. The implementation of the Proposal would cause the Fund to violate Maryland law and the 1940 Act. The Proposal, in part, requests that the Board authorize a self-tender for 100% of the outstanding shares of the Fund at or near ~AV and states that, if more than 50% of the Fund's outstanding ·shares are tendered, the Fund should be "liquidated" or, at the Board's discretion, "merged" or "converted" into an open-end fund and that the Board alone has the authority to take these actions. . II I I ! After conducting a tender offer, as discussed above, the liquidation of the Fund would necessarily involve the sale of all ofthe Fund's assets, which is governed by Section 3-105 of the Maryland General Corporation Law (the "MGCL"). Customarily, a liquidation also involves the dissolution of a corporation under Section 3-403 ofthe MGCL. Contrary to the statements of the Proponent, both the sale of all the Fund's assets and the dissolution ofthe Fund require Board and stockholder approval. - In addition to the conditional tender offer and subsequent liquidation, the Proposal gives the Board the alternative, "in its discretion," after conducting the tender offer, to merge or convert the Fund into an open-end fund. However, the Proposal fails to specifY how the "conversion" would be effected. The MGCL does not specifically provide for "conversion" of a closed-end fund into an open-end fund; rather, a "conversion" would require an amendment to the Fund's charter (the "Charter")) or a consolidation, merger, share exchange or a transfer or sale of assets. All ofthese actions would require the Board to consider and adopt a resolution setting forth the proposed transaction, declare the advisability ofthe transaction and "direct that the proposed transaction be submitted for consideration at either an annual or special meeting of the stockholders." Then, pursuant to Section 3-105(e) oftheMGCL, the stockholders would have to vote to approve the proposed transaction. If the "conversion" is accomplished by an amendment to the Charter, Section2-604 of the MGCL would require the same statutory procedures - namely, board and stockholder approval. I A copy of the Charter is attached hereto as Exhibit C. ! i 1 ~ . VENABLE~p November 22,2010 Page 4 In each instance, the MGCL requires that the foregoing actions musi be considered and approved by both the Board and the stockholders. Board approval alone is not sufficient. Accordingly, the Proposal, if implemented, would cause the Fund to violate Maryland law because it calls for the Board, after conducting the conditional tender offer, to unilaterally ­ without the statutorily required stockholder vote - amend the Charter; merge or consolidate the Fund into an open-end fimd; sell all ofthe assets of, or dissolve, the Fund; or compel the Fund to engage in a share exchange. A supporting opinion of Venable LLP with respect to matters of Maryland law is attached hereto as Exhibit B. Unilateral Board action to implement the Proposal is also prohibited under the 1940 Act. Section5(a) of the 1940 Act divides management companies into closed-end funds and open-end fimds. Under Section 5(a)(l), an open-end fund is defined as a "management company which is offering for sale or has outstanding any redeemable security of which it is the issuer." Section 5(a)(2) provides that a closed-end fund is "any management company other than an open-end company." Under Section 13(a) of the 1940 Act, a registered investment company may not change its subclassification under Section 5(a)(l) or (2) of the 1940 Act, unless authorized by a majority of its voting securities. Because the "conversion" of the Fund to an open-end fund would necessarily involve a change in the Fund's subclassification, implementation of the Proposal by the Board, acting alone, would violate the 1940 Act. . Exclusion of the Proposal on these grounds is consistent with prior Staff positions. The Staff has detenninedthat a company may propedy exclude a stockholder· . proposal recommending the board of directors to take an action that would result in the company violating state law. For example, in Northrop Grumman Corporation (Feb. 29, 2008), a stockholder submitted a proposal recommending that the bOard adopt cumulative voting - an action requiring both board and subsequent stockholder approval. In response to Northrop's no­ action request, the Staff held that there were grounds for excluding the stockholder's proposal pursuant to, among others, Rule14a-8(iX2). See also Xerox Corporation (Feb. 23, 2004) (perinitting exclusion of a stockholder proposal under Rule 14a-8(i)(2) because it recommended that the board amend the company's certificate of incorporation, which under state law could only be done "upon authorization thereofby the board of directors initially, followed by approval . thereof by the shareholders"); and Burlington Resources Inc. (Feb. 7,2003) (holding a stockholder proposal - requesting that the board of directors amend the certificate Of incorporation to reinstate the rights of the stockholders to take action by written consent and to call special meetings - properly excludable under Rule 14a-8(i)(2) because, if implemented, it would cause the company to violate Delaware law). . III. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(6) Because the Fund Lacks the Power and Authority to Implement the Proposal Rule 14a-8(i)(6) pennits a company to exclude a stockholder proposal ifthe company "lacks the power or authority to implement" such proposal. The Fund believes that it does not have the power or authority to implement the Proposal. As discussed above, (l) the I! Ii I .1I I, i. ! November22,2010 PageS MGCL does not permit the Board to implement the Proposal without a stockholder vote and (2) the 1940 Act prohibits the Fund from "converting" to an open-end fund unless authorized by a majority of its voting securities. Moreover~ the Charter does not (and, under the MCGL, may not) vest in the Board the power to unilaterally implement the Proposal. The stockholder voting provisions in the Charter are consistent with the approval requirements of the MGCL described above. In addition to Board approval, Section 6.2 of the Charter generally requires the affirmative vote ofthe holders of shares entitled to cast at least two-thirds ofthe votes entitled to be cast on the matter to authorize any amendment to the Charter to make the Fund's common stock a "redeemable security" or to convert, by merger or otherwise, from a closed-end fund to an open-end fund. 2 Accordingly, without both Board and stockholder approval, the Fund lacks the power to implement the Proposal. 3 A supporting opinion of Venable LLP with respect to matters of Maryland law is attached hereto as Exhibit B. Exclusion of the Proposal on these grounds is consistent with prior Staff positions. The Staffhas previously determined that a company may exclude a stockholder proposal where, as here, the board lacks the power and authority to implement it. See Northrop Grumman Corporation (Feb. 29,2008) (finding the proposal excludable pursuant to Rule 14a­ 8(i)(6) because it was not within the power of the company or the board to adopt cumulative voting (a stockholder vote was required»; Burlington Resources Inc. (Feb. 7,2003) (holding the proposal excludable because it was beyond the board's Power and authority to amend the certificate of incorporation). IV. The Proposal MayBe Excluded Pursuant to Rule-t4a-8(i)(3) Because the Proposal is Inherently Vague and Indefinite and Because it Contains False and Misleading Statements in Violation of Rule 14a-9 The Staffhas stated that a stockholder proposal may be excluded where "the resolution contained in the proposal is so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with-any reasonable certainty exactly what actions or measures the proposal requires." SEC StajJLega/ Bulletin No. 14B (CF) (2004). Further, the Staffhas held that a proposal may be excluded for vagueness where "the standards under the proposal may be subject to differing interpretations," Hershey Foods Corp. (Dec. 27, 1988), and where "any 2 While Section 6.2 of the Charter provides, under limited circumstances, that the stockholders may approve the . open-ending of the Fund by the affinnative Yote of a majority of the votes entitled to be cast, stockholders are stilI required to approve any proposal to open-end the Fund. In any event, the vote requirements under the Charter would be substantially higher than those required to approve the Proposal (which is only a majority of votes cast). 3 Contrary to what the Proposal seeks, there is no way to disenfranchise the stockholders from voting rights on extraordinary matters vested in them by the ] 940 Act, the MGCL and the Charter. While the Proposal refers to the action as "[a] mere change in legal fonn," the ]940 Act, the MGCL and the Charter treat these matters as extraordinary corporate actions. November 22, 2010 Page 6 resultant action by the Company would have to be made without guidance from the proposal and, consequently, in possible contravention of the intentions of the shareholders who voted on the proposaL" Jos. Schlitz Brewing Co. (Mar. 21, 1977). As further explained below, the Proposal will result in material uncertainty (a) for the Board, in considering and determining whether to recommend the Proposal; (b) for the stockholders,in considering and voting on the Proposal; and (c), if approved by the stockholders, for. the Board, in implementing the Proposal. The Proposal refers alternatively to a conditional tender offer of unknown size, a liquidation, a merger and a "conversion" into an open.;end fund. Each of these alternatives or combination of alternatives presents various possible outcomes, each with differing economic, tax and other consequences. As a result, neither the Board nor the stockholders are able to know with any reasonable certainty what they are being asked to do or to approve. For example, a tender offer woUld result in an outflow of cash from the Fund in exchange for the purchase of shares, thus increasing the percentage of ownership of the non-tendering stockholders but likely also the expense ratio. A liquidation, on the other hand, typically (but not always) results in the complete extinguishment of the Fund with no opportunity for any ofthe stockholders opposed to liquidation to remain as stockholders and with the recognition of tax gain or loss, even for non­ approving stockholders. But even that is uncertain because the cash proceeds from the sale of the Fund's assets in a liquidation could be reinvested for other purposes. 4 Moreover, in a liquidation, all of the Fund's securities would have to be sold, causing greater (perhaps far greater) downward pressure on their prices than would result from a tender offer, which would involve sale of something less than all ofthe Fund's securities. Further, the reference to "merger" does not address whether the consideration to be received by the stockholders ofthe Fund should be cash or stock (or something else) in the successor fund. Again, significantly different consequences for the stockholders voting on the Proposal would flow from the decision on the form of consideration used in the merger. The indeterminacy ofthe Proposal is further compounded by the option to "convert" the Fund into an open-end fund. A "conversion," a concept that, as discussed above, does not specifically exist under the MGCL, requires amendment of the Charter; a merger, a consolidation, a share exchange with an open-end fund or a sale ofassets; or some combination thereof. In a stock merger and in a "conversion," the stOCkholders ofthe merging or "converting" fund remain holders in the successor fund, as opposed to a liquidation or cash merger, where the interests of all ofthe stockholders, including those who voted against the action, are completely extinguished. . Thus, under Maryland law, there are no less than six different outcomes, each with varying consequences, to effecting a tender offer and subsequent liquidation, merger or 4 In fact, it was in the context of a sale of assets that the Fund changed its operations from an express company to a closed-end fund in 1929. Of course, de-registration as an investment company would require a vote of a majority of the Fund's voting securities. As stated above, the Proponent completely ignores the requirement of a stockholder vote under the 1940 Act. I .i I I! !I I I i I I I· VENABLE:LP November 22,2010 Page 7 . conversion ofthe Fund. TIris is significant because, without addressing which action the Board should take, the Proposal leaves both to the stockholders in voting on the Proposal and to the Board in implementing the Proposal (if adopted) the task of guessing whether the Proposal intends for the Fund to liquidate (with its various options) or merge, or under the non-Maryland­ recognized concept of "conversion," consolidate, engage in a share exchange, transfer assets, amend the Charter, or some combination thereof, and thus is potentially confusing for both the stockholders and the Board. .,1 .~ In sum, the Proposal presents the same type of situation in which the Staff has concluded that "any action(s) ultimateIytaken by the Company upon implementation ofth[e] proposal could be significantly different from the actions envisioned by the shareholders voting on the proposal." See Occidental Petroleum Corp. (Feb. 11,1991),5 Rule 14a-8(i)(3) also permits a company to exclude a stockholder proposal from its proxy materials if the proposal or supporting statement is contrary to any ofthe Commission's proxy rules, including Rule 14a-9, which prohibits the inclusion of materially false or misleading statements in proxy materials. The Proposal flatly states that "the Board has the authority to cause the Fund to take the actions proposed herein." As explained above, the Board does not have the power to take the actions in the Proposal. Moreover, the Proponent repeatedly and erroneously suggests that, after conducting a tender offer, the Board alone has the power to liquidate the Fund or merge the Fund with, or convert the Fund into, an open-end fwid. The Proposal fails to appreciate that the Board must first consider, approve and advise the action and then submit the action to the Fund's stockholders for a vote at a meeting of stockholders. This is a material omission and misstatement, as it (a) suggests that these actions are easier to achieve than in fact they are and (b) completely ignores the duties of directors, set forth in Section 2-405.1 of the MGCL, in considering any such action. Any implication or direct statement suggesting stockholders do not have the right to vote on these actions, or that they. could be taken without the time and expense of a proxy solicitation and stockholder vote, is false and misleading. I i I r j t ! I. I I 1 I !i !! I i I 5 The Propos~l is distinguishable from Capital Senior Living Corporation (Mar. 23,2007), in which a stockholder proposal recommended that the board "promptly engage an investment banking fmn and pursue a sale or liquidation of the Corporation," In that situation, stockholders were being asked to vote on a proposal that would only begin a process ("engage" and "pursue") that might lead to a liquidation or sale. By contrast, the Proposal is recommending a fmal action by the Fund - to conduct a tender offer and subsequently liquidate, merge or convert the Fund - thus providing the stockholders arid the Board with less opportunity to understand the action called for by the Proposal. Moreover, as detailed above, the Proposal pennits - indeed, suggests - the transaction to be brought about in far more fonns(and combinations of forms) - each with significantly different outcomes and consequently greater uncertainty for the Board and stockholders - than was the case in Capital Senior Living Corporation. I November 22, 201 0 Page 8 . V. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(4) Because the Proposal is Designed to Result in a Benefit to the Proponent That is Not Shared by the Other Stockholders ! iI i I· t ! Rule 14a-8(i)(4) provides that a company may exclude a stockholder proposal from a company's proxy statement ifthe proposal is designed to result in a benefit to the proposing stockholder, or to further a personal interest ofthe proposing stockholder, which is not shared by the other stockholders of the company. The Staffhas long recognized that Rule 14a­ 8(i)(4) was adopted in order to ellSl.ire "that the security holder proposal process would not be abused by proponents attempting to achieve personal ends that are not necessarily in the common . interest of the [company's] shareholders generally." Securities Exchange Act Release No. 20091 (Aug. 16, 1983). Otherwise, persons owning a minor stockholder interest in a company would be permitted to advance their own personal interests at the expense of the company by forcing inclusion oftheir proposals in the company's proxy materials. The Proponent seeks to have the Board authorize the Fund to conduct a conditional self-tender offer for all outstanding shares of the Fund at NAV or within 1% thereof. If more than 50% of the outstanding shares are tendered, the Proponent wants the tender offer to be canceled and the Fund liquidated or, at the option of the Board, merged or "converted" into an open-end fund. Thus, under the Proposal, if implemented, the Proponent is attempting to seize a benefit that is particular to the Proponent - a hedge fund that has been described as poised to "squeeze profits il out of closed-end funds,6 through an increasingly aggressive investment strategy 7 and an activist approach, 8 seeking to directly and personally benefit - while the rest of the stockholders are coerced into voting to allow the tendering oftheir shares under the added pressure of hoping to avoid a negative impact on their personal finances that could result from a possible liquidation ofthe Fund or a fundamental change in its essential structure. Specifically, the Proposal, if implemented, is designed to stampede stockholders, who otherwise would not wish to tender their shares, into voting to be able to tender them out of fear of what they will receive after the Proponent tenders its shares. . In a 1999 survey, Adams Express found that approximately two-thirds of its stockholders have held their shares for ten or more years and over 77% ofthe stockholders are 65 or older. These other stockholders who invested in the Fund did so with knowledge ofthe discount at which the Fund's shares trade and, by implication, in agreement with the Fund's well­ 6 See Emma Trincal, New Hedge Fund Minds Gap, THE STREET (Oct. 19,2005, 11 :00 AM), http://www.thestreet.com/story/l024802I/new-hedge-fund-minds-gap.html. 7 See Equity Optimization Strategy, GRAMERCY IS EMERGING MARKETS, http://www.gramercy.comlInvestment_Themes/Optimization_Strategy.aspx (last visited Oct. 26,2010) 8 See Emma Trincal, New Hedge Fund Minds Gap, THE STREET (Oct. 19, 2005, 11 :00 AM), http://www.thestreet.com/storyIl024802I/new-hedge-fund-minds-gap.html. !, I I I I I November 22, 2010 Page 9 known9 "conservative investment prulosophy."lO The Fund is managed with the expectation that it will generate solid returns with lower-than-material risk for long-term investors. Investments are made by the Fund with a focus on protecting stockholders' original investment and generating dividends and capital gains for its investors. In the words ofDoug Ober, the chairman and chief executive officer ofAdams Express: "A long-term investment strategy makes more sense today thart ever, and continues to be the foundation of our fund's investment management philosophy."l1 . The implementation of the Proposal, while consistent with the Proponent's announced investment strategy, would create a classic prisoner's dilemma for the other stockholders: Once the Proponent tendered its shares, the Fund would be required to sell assets to acquire the :Proponent's tendered shares (if less than 50% tendered). The Fund's sales of its securities would tend to exert downward pressure on the prices ofthese securities, in turn exerting downward pressure on the share price of the Fund. Stockholders other than the Proponent would thus be forced to choose between holding their shares in the Fund at a lower price or selling them to try to divest as many shares as they could before the price went still lower, thus adding further downward pressure on the price of the Fund's securities and, in turn, on the share price of the Fund itself. Worse, a smaller Fund would be likely to have a greater expense ratio. Worse still, if the total shares tendered by the Proponent and other stockholders reached 50% and the Fund were to be liquidated entirely, these pressures could be substantially increased. If, instead, the Food "converted" to an open-end fund, the stockholders would lose the benefits of investing in a closed-end fund with the Fund's stated investment objective, which the stockholders presumably thought they would realize when they acquired their Fund shares. In this light, it is likely that the majority of all stockholderS could actually be adversely affected by the adoption of the Proposal. Accordingly, because the Proposal is designed to confer a benefit on the Proponent that is not shared by the majority of all other stockholders of the Fund, the Proposal should be excluded pursuant to Rule 14a-8(i)(4). VI. Request While we recognize that the Staff, on occasion, will pennit proponents to revise their proposals to correct errors that are "minor in nature and do not alter the substance of the proposal;" the Fund believes, for the reaSons previously stated, that ifthe Proponent is allowed to revise its Proposal, the Staff would be permitting the altemtion of the substance of the Proposal, in contradiction of the Staffs long-standing practice. See StaffLegal Bulletin No. 148 (CF) (2004). I ? See The Adams Express Co., Certified Shareholder Report of Registered Management Investment Companies (Form N-CSR) (July 23, 2010); see also ADAMS EXPRESS COMPANY (last visited Oct. 26, 2010), http://www.adamsexpress.com/. 10 ADAMS EXPRESS COMPANY (last visited Oct 26, 2010).http;//www.adamsexpress.com/. II ADAMS EXPRESS COMPANY (last visited Oct. 26,2010), http;//www.adamsexpress.com/. I I I!, VENABLE~LP November 22, 2010 Page 10 Pursuant to StaffLegal Bulletin No. 14D (CF), Shareholder Proposals (November 7, 2008), Question C, we have submitted this letter and the related exhibits to the Commission via email to shareholderproposals@sec.gov. If you have any questions regarding this matter or require additional information, please contact the undersigned at (410) 244-7500 or Lawrence 1. Hooper, Jr., Vice President, General Counsel and Secretary, Adams Express, at (410) 752-5900. Ifthe Staffdoes not agree with the conclusions set forth in this letter, we respectfully request the opportunity to confer with you before the determination ofthe Staffs final position. Sincerely, ~~~~.~ James J. Hanks, Jr. cc: Lawrence 1. Hooper, Jr. Vice President, General Counsel and Secretary, Adams Express .~ ; I i VENABLE:lP Exhibit A BA0J276794 EXHIBIT A Proposal: RESOL YED: The shareholders of The Adams Express Company (the "Fund") request the Board of Directors (the "Board") to authotizethe Fund to conduct a self-,tender offer for all outstanding shares of the Fund at net asset value (UNA Y") or within I o/l1thereof (to cover expenses). If more than 50% of the Fund's outstanding shares are tendered) the tender offer should be cancelled and the Fund should be liquidated or, at the discretion of the Board, merged or converted into an open-end mutual fund. Supporting Statement: Shares of the Fund are trading at a double-digit discount to the value of the assets owned by the Fund. The discount is, as of 09/30/10, over 15%. As of 9/30/J 0, the totall'etum on net asset value of the Fund's shares has had mediocre performance relative to the Standard & Poor's 500 Composite Stock Index ( S&P500") over the last I-year) 3-year) and 5-year periods as l evidenced by Exhibit C. In fact, over the last 5 years, as of 9/30/l 0, the Fund has retumed 2.18% in contrast to 3.22% retumed by S&P500 which the Fund compares itself in the 06/30110 semi­ annual report. The Board has the authority to cause the Fund to take the actions proposed herein. A self­ tendel: by the Fund would close the trading discount and allow palticipants to receive approximately 17% more than the price of the shares as of 9/30/10. 'Ine legal structure of the Fund allows it to trade at a disC9unt to the assets it holds. A mere change in legal form would reverse this discount and allow you to rcceive the differcnce. In light of these facts, we think the Board should authOlize the Fund to conduct a self.. tender offer for all outstanding shares at NAY in order to provide shareholders with the opportunity to receive full value for their shares. Tender participation by a majority of the Fund's shareholders would dcmonstrate insuflicient shareholder support for contiJiuing the Fund in its closed~end format. Tn that case, the tender offer should be cancelled and the Fund should be liquidated or merged (or converted) into an open-end fund. Tfyou agree that the Fund's persistent discount and mediocre, at best, performance is unacceptable and would like to increase the value of your shares and your return, please vote for this proposal. VENABLE:LP ExhibitB BA01276794 750 E. PRATT STREET SUITE 900 BALTIMORE, MD 21202 T 410.244.7400 .F 410.244.7742 www.Venable.com November 22,2010 The Adams Express Company Seven St.Paul Street, Suite 1140 Baltimore, Maryland 21202 Re: The Adams Express Company - Omission of the Stockholder Proposal Submitted by Gramercy Global Optimization Fund Ladies and Gentlemen: We are Maryland counsel to The Adams Express Company, a Maryland corporation (the "Fund"), in connection with certain matters of Maryland law arising out ofa stockholder proposal (the "Proposal") submitted by Gramercy Global Optimization Fund for inclusion in the Fund's proxy materials for the 2011 Annual Meeting of the Stockholders. We. have been asked to consider whether (1) the Proposal, if implemented, would cause the Fund to violate Maryland law and (2) the Fund lacks the power and authority to implement the Proposal. In connection with our representation ofthe Fund, and as a basis for the opinion hereinafter set forth, we have examined the charter (the "Charter") of the Fund, the Proposal and such matters of law as we have deemed necessary or appropriate to issue this opinion. The Proposal reads, in full, as follows: RESOLVED: The shareholders of The Adams Express Company (the "Fund") request the Board of Directors (the "Board") to authorize the Fund to conduct a self-tender offer for all outstanding shares of the Fund at net asset value ("NAV") or within 1% thereof (to cover expenses). Ifmorethan 50% of the Fund's outstanding shares are tendered, the'tender offer should be cancelled and the Fund should be liquidated or, at the discretion ofthe Board, merged or converted into an open-end mutual fund. Shares of the Fund are trading at a double-digit discount to the value of the assets owned by the Fund. The discount is, as of 09/30/1 0, over 15%. As of 09/30/10, the total return on net asset value of the Fund's shares has had mediocre performance relative to the Standard & Poor's 500 Composite Stock Index ("S&P500") over the last I-year, 3-year, and 5-year periods as evidenced by Exhibit C. In fact, over the last 5 years, as of 09/30/1 0, the Fund has returned 2.18% in contrast to 3.22% returned by S&P500 which the Fund compares itself in the 06/30/10 semi-aimua1 report. The Board has the authority to cause the Fund to take the actions proposed herein. A self-tender by the Fund would close the trading discount and BAO-277304 VENABLE:LP The Adams Express Company November 22,2010 Page 2 allow participants to receive approximately 17% more than the price ofthe shares as of 09/30/10. The legal structure of the Fund allows it to trade at a discount to the assets it holds. A mere change in legal form would reverse this discount and allow you to receive the difference. In light of these facts, we think the Board should authorize the Fund to conduct a self-tender offer for all outstanding shares at NAVin order to provide shareholders with the opportunity to receive full value for their shares. Tender participation by a majority of the Fund's shareholders wouid demonstrate insufficient shareholder support for continuing the Fund in its closed-end format. In that case, the tender offer should be .cancelled and the Fund should be liquidated or merged (or converted) into an open-end fund. Uyou agree that the Fund's persistent discount and mediocre, at best, performance is unacceptable and would like to increase the value of your shares and your return, please vote for this proposal. (Emphasis original.) I. Violation of Law The Proposal requests, in relevant part, that the Board of Directors (the "Board") of the Fund authorize a self-tender for 100% of the outstanding shares of the Fund at or near net ,asset value, if more than 50% of the Fund's outstanding shares are tendered, the tender offer should be cancelled, and {a) the Fund should be "liquidated" or (b), at the discretion of the Board, "merged" or "converted" into an open-end fund and provides that the Board alone has the authority to take these actions. As more fully discussed below, in the case of each of a Ii.. . . er or conversion, the Board oi.Dir~£~9Js. (the "Board") o.fthe Fund is required, .. __ .. un~d-Gene orporationl&_~J1Pe.~MQ~1"), t~~PP~2X~.!h._~_p~~posed action, declare it advisable and then submit it to the stockholders for consideration at an annuwof-- 7 special meeting and the stockholders are required to approve the action. In view of the board approval and stockholder voting requirements oftheMGCL, the Board may not unilaterally liquidate the Fund or merge or convert the Fund to an open-end fund. If the Board were to unilaterally approve and carry out the liquidation or the merger or conversion of the Fund,the Fund would violate the MGCL. Thus, because the MGCL does not vest in a corporation the power to act in a manner inconsistent with law; the Fund lacks the power and authority under Maryland law to implement the Proposal. - BAQ-277304 ~.' .~ ------~ VENABLE:LP. The Adams Express Company November 22, 2010 Page 3 Liquidation To liquidate the FUnd as contemplated by the Proposal, the Fund would be required to sell all of its assets, payoff its debts and obligations and make one or more cash distributions to its stockholders. The liquidation ofthe Fund involves the sale of alII ofthe Fund's assets outside the ordinary course of business? Section 3-105(b) and (e) of the MGCL, respectively, provide that a Maryland corporation may transfer all or substantially all of its assets only if (1) the board approves the sale, declares the sale advisable and submits the proposed sale ·to the stockholders for consideration at an annual or special meeting and (2) the stockholders approve the proposed sale. 3 Moreover, a liquidation customarily involves the statutory dissolution of a corporation. While the Proposal is unclear, ifit is contemplated that the liquidation of the Fund would be followed by the dissolution of the Fund, such an action would be governed by Section 3-403 of the MGCL. As with a sale of assets, the dissolution of a Maryland corporation under Section 3-403 requires (1) the board ofdirectors to approve the dissolution, declare the dissolution advisable and direct that the proposed dissolution be submitted to the stockholders for consideration at an annual or special meeting and (2) the stockholders to approve the dissolution.4 • . Merger The merger ofa Maryland corporation is governed by Section 3-105 ofthe MGCL. With respect to a merger into an open-end fund, as contemplated by the Proposal, the approvals required under Section 3-105 are the same as for a liquidation. Section 3-105 requires (l) the board of directors to approve the merger, declare the merger advisable and direct that the proposed merger be submitted to the stockholders for consideration at an annual or special meeting and (2) the stockholders to approve the merger. Conversion While the MGCL does not have speCific provisions governing the "conversion tl of a corporation, a closed-end fund could become an open-end fund through a share exchange, J Section 1-101 (y) ·of the MGCL provides that "'transfer of assets' mean[s) to sell, lease, exchange, or otherwise transfer all or substantially all of the assets ofa corporation." 2 See MGCL Section 3-1 04(a)(I), which provides that a "[t]ransfer of assets by a corporation in the ordinary course of business actually conducted by it" does not require a stockholder vote or the filing of Articles of Transfer. 3 The requirements ofSection 3-105 are subject to certain exceptions, not relevant for the purposes ofthis opinion,: including certain exceptions for open-end funds. 4 See MGCL Section 3-403. BAo-277304 The Adams Express Company November 22, 2010 Page 4 consolidation, merger or a transfer or sale ofassets. 5 Section 3-105 governs consolidations and share exchanges and, in this context, provides that consolidations and share exchanges are subject to the same board approval and stockholder voting requirements as a liquidation or merger as described above. A closed-end fund could also become an open-end fund by amending its charter, inter alia, to make its shares redeemable at the option ofthe stockholders. Section 2-604 ofthe MGCL governs the type of charter amendments that would be necessary for the "conversion" of the Fund to an open-end fund. 6 Like the MGCL provisions governing liquidation, merger, consolidation, share exchange and dissolution, Section 2-604 requires (I) the board of directors to approve the proposed amendment, declare the amendment advisable and direct that the proposed .amendment be submitted to the stockholders for consideration at an annual or special meeting and (2) the stockholders to approve the proposed charter amendment. 7 The statutory framework of the MGCL for the approval of extraordinary actions . . has long been upheld by Maryland courts. 8 II. Lack of Power or Authority Section 2-103 ofthe MGCL sets forth the general powers of a Maryland corporation. Section 2-103 does not specifically address liquidations, mergers or conversions. However, in addition to specific enumerated powers, SectIon 2-103(16) provides that a corporation may" [e]xercise generally the powers set forth in its charter and those granted by law." Section 2-103(17) states that a corporation may "[d]o every other Act not inconsistent with law.which is appropriate to promote and attain the purposes set forth in the charter." (Emphasis added.) In other words, a corporation does not have the power to do what it is prohibited from doing by law or in its charter. As discussed above, under the MGCL it is impermissible for the Fund to liquidate or merge or convert into an open-end ftmd by unilateral Board action. The Charter has similar limitations on disenfranchising stockholders. The vote required under the MGCL for stockholders to approve a dissolution, charter amendment, merger, sale of all or substantially all of the assets, consolidation or share exchllDge is the affirmative vote of stockholders entitled to cast two-thirds ofthe votes entitled to ~ As previously discussed, a sale or transfer of assets and a merger require both board and stockholder approval. 6 The MGCL does provide some exceptions to stockholder approval of charter amendment (e.g., change in the name of the corporation, changes in the name or other designation of a class or series of stock, changes to the par value of stock, change to the aggregate number of shares of stock of the corpOration or of any class or series). None of these exceptions apply to the transactions described in the Proposal. 7 See MGCL Section 2-604. 8 See In re May Oil Burner Corp., 38 F. Supp. 516, 519-20 (D. Md.1941); Downing Dev. Corp. v. Brazelton. 253 Md. 390, 395-96,252 A.2d 849, 852-53 (1969); Prince George's Country Club Y. Edward R. Carr, Inc., 235 Md. 591,596,202 A.2d 354, 356 (1964). BAo-277304 . The 4-daIils Express Company November 22,2010 PageS be cast on the matter. 9 However, the MGCL permits a Maryland corporation to provide in its charter for the approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter, or a greater percentage. IO The Charter provides that· certain Charter amendments may be approved by the holders of a majority of votes entitled to be cast. Section 6.2 ofthe Charter also provides, subject to exceptions not relevant for this opinion: The affirmative vote ofthe holders of[: (i)] two:"thirds of the votes entitled to be cast on the matter shall be required to authorize a . merger, consolidation .. ,or sale of substantially all iofthe assets of the Corporation .... [(ii)] shares entitled to cast at leasttwo­ thirds of the votes entitled to be cast on the matter ... shall be necessary to effect: Any amendment to the charter oithe Corporation to make the Corporation's Common Stock a 'redeemable security' or to convert the Corporation, whether by merger or otherwise, from a 'closed-end company' to an 'open end company' .... While the MGCL allows flexibility on the percentage of votes required to approve a matter, the MGCL does not permit the actions described in the Proposal (liquidation, merger, conversion) without a stockholder vote. Unlike the Proposal itself, which only needs to be . approved by a majority of votes cast, any of the actions ultimately contemplated by the Proposal . require a vote of at least two-thirds of the votes entitled to be cast on the matter. J 1 Because the Proposal requests that the Board carry out these actions without a stockholder vote, the Proposal would cause the Fund to violate both the MGCL and Article VI ofthe Charter. Because the implementation of the Proposal would cause the Fund to violate both the MGCL and its Charter, the Fund lacks the power and authority to implement the Proposal. Based upon the foregoing analysis and subject to the limitations, assumptions and qualifications set forth herein, it is our opinion that (1) the Proposal would, if implemented, cause the Fund to violate Maryland law and (2) the Fund lacks the power and authority to implement the Proposal. The foregoing opinion is limited to the MGCL, and judicial interpretations thereof, in effect on the date hereof and we do not express any opinion herein concerning any law other than the MGCL. Furthermore, the foregoing opinion is limited to the matters specifically set forth therein and no other opinion shall be inferred beyond the matters expressly stated. We 9 See MGCL Section 3-105, Section 3-403 and Section 2-604. 10 See MGCL Section 2-104(b)(4) and (5). II Under limited circumstances, not relevant to this opinion, Section 6.2 ofthe Charter does allow approval matters by the shares entitled to cast a majority of the votes entitled to be cast on the matter. BA().217304 of these The Adams Express Company November 22,2010 Page 6 assume no obligation to supplement this opinion if any provision ofthe MGCL, or any judicial interpretation of any provision of the MGCL, changes after the date hereof. The opinion presented in this letter is solely for your use in connection with the Proposal and may not be relied upon by any other person or entity, or by you for any other purpose, without our prior written consent. However, we consent to inclusion of this opinion with a request by you to the Securities and Exchange Commission (the "Commissiontl)for concurrence by the Commission with your decision to exclude the Proposal from.the proxy . . materials for your next annual meeting of stockholders. Very truly yours, BAO-277304 Exhibit C BA0/276794 THE ADAMS EXPRESS COMPANY ARTICLES OF AMENDMENT AND RESTATEMENT FIRST: The Adorns Express Compony, a Maryland corporation (the "Corporation"), deshes to amend and restllte its charter os cunently in effect and as hereinafter emended. SECOND: The following provisions nre all the provisions of the charter CIllTently in etfcctaoo as hereinafter amended: ARTICLE I NAME The name oftbe corporation (the "Corporation") is: The Adams Express Company ARTJCLEIJ PURPOSE The purposes for which the Corporation is fonned are to cOnduct and can}' on the business of II closed-end management invesbllent compony registered under the Inveslment Company Act of J940, as amended (Ihe "1940 Act"), and 10 engage in any other lawful act or activity for which corporations may be organi:r.ed under the general laws ofthe State ofMaryland as now or hereafter in force. ARTICLEI1J PRINCIPAL OFFICE IN STATEANDRESJDENT AGENT The address oflhe principal office oflhe Corporation in this State is 7 S1. Paul Street, Baltimore, Maryland 21202. The name and addres.q _of the resident agenl ofthe / / Corporation are Lawrence L. Hooper, Jr., 7 Sr. Paul StI'Cet, Suite 1140, Baltimore. Maryland 21202. IlAI)(1746971? ---------------- - --------- -------_._---­ ARTJCLEIV PROVlS10NS FOR DEFINING. LlMJTING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS &:clion 4.1 Numbq and ElectiQn QfDircctQrs. The business and affairs Qf the Corpomtion shall be mllnllged under the din:clioll oftheBOllrd of DirectQrs. The number of directOts Qf the Corporation is 10, which number may be increased or decreased only by the BQard ofDircctors pursuant to the Bylaws, but shall never be less than three. The names ofthe directorS who shall serve until their successors ~re duly e/ccted and qualify are: Enrique R. Ar7.llC Thomas H. Lenagh Phyllis O. Bonanno Kathleen T. McGahran Daniel E. Emerson Douglas G. Dber Frederic A. Escherich John J. Roberts Rogel' W. Gale Craig R. Smith P\lrsullnt tQ the CQrporatiQn's election 10 be subject IQ Section 3-804(b) and (c) of the Marylllnd General CQrporation LIIw (tho "MGCL"). but subject to applicable requirements of the 1940 Act lind except as may be provided by the Board of Directors i':l setting the telms Df IIny class or series QfPreferrcd Stock (as hereinafter defined), any and all vlIcancies on the Board Qf Directors may be filled only by the affirmative vole of a majolily of the remaining directDrs in . office, even iflhe remaining dircctors do not constilUle a qoorum. and any director elected 10 fin a vacancy sholl serve fQr Ibe remainder Qfthe fuJI tOO11 ofthe dircctorship in which such vacaney occurred end until a successor is duly. eJected and qualifies.. BAOiI7469719 2 The Bylaws of the Corporation may provide for the election of a director by a plurality of all the votes cast inthe election ofa director. a majority or other percentage of all the votes entitled to be cost in the election ofa director or by any other vote, in any case as specified in the By11lws and as may vary as specified in the Bylaws depending upon whether the election of directors is contested. Section 4.2 Authorization by Board of Stock Issuance. The Board ofDirectors may authorizo the issuance from time to time ofshares ofstock ofthc Corporation ofany class or series, whether now or hereafter authorized, or secutities or rights convertible into shores of its stocl< ofony class.or series. whether now or hereafter authorized; for such consideration. if anY. as the Boan! ofDirectors may deem advisable (or without considerati~n in the case ofa stock split or stock dividend). subject to such restrictions or limitations, ifany, as may be set forth in the chal1er or the Bylaws. Section 4.3 Quorum. The presence in person or by proxy of the holders ofshares ofstock ofthe Corporation entitled tl> CllSt a majority ofthe votes entitled to be CDst on a mailer (witho\lt regard to clnss}shall constitute· a quorum at any meeting ofstockholders with respect to such malter, except With respect to lJriy such matter that, underapplicllble shitutes'or regulatory requirements or the charter. requires approval by a separate voto oflbe holders ofone or more classes 'ofmock, in whi,ch casc the presence In person or by proxy ofthe holdCfS ofshal'C.'l entitled to casla mnjolity of the votes entitled to be cast by each such closs on such a matter shall constilute a quorum. Notwithstanding the foregoing, the Bylaws mllY provide for a greater or lesser quorum requirement provided thaI such requirement ~hilll not be less tbnn one-third nor more thall two-thirds of the votes entitled 10 be cast on a ma!lcr(without regard to class). nAclI1741l97,