Also known as: proxy solicitations · solicit proxies · soliciting proxies · solicitation of proxies
Written by attorneys — see sources below.
A communication by which a person seeks authority from a corporate shareholder to vote the shareholder's shares at a meeting. The term encompasses both direct requests to furnish, revoke, or withhold proxies and indirect communications reasonably calculated to influence a shareholder's voting decision.
Pinnacle Holdings adopted a bylaw requiring reimbursement of reasonable proxy solicitation expenses once a shareholder's nominees received at least thirty percent of the votes. Pedro Pacheco, a qualifying shareholder, ran a competing slate, spent funds on mailings and consultants, and secured thirty-eight percent of the votes. When the corporate secretary refused payment, the bylaw triggered reimbursement of the documented costs.
Paul Peterson received proxy materials from Prism Analytics that omitted material facts about a proposed merger. After the merger closed, he sued alleging the solicitation was misleading. The court examined whether the solicitation itself formed an essential link in obtaining the shareholder approval needed for the transaction.
Mosinee Paper Corp. is a Wisconsin company engaged in the manufacture and sale of paper, paper products, and plastics with its principal place of business in Mosinee, Wisconsin. Its only class of equity security is common stock registered under the Securities Exchange Act of 1934, with slightly more than 800,000 shares outstanding at all times relevant to the litigation. In April 1971 Francis A. Rondeau, a Mosinee businessman, began making large purchases of the company's common stock in the over-the-counter market, some in his own name and others in the name of businesses and a foundation known to be controlled by him. By May 17, 1971, he had acquired 40,413 shares, more than five percent of those outstanding, but did not file a Schedule 13D. He continued purchasing and by July 30, 1971, had acquired more than 60,000 shares. On July 30, 1971, the chairman of the board informed Rondeau by letter that his activity had given rise to numerous rumors and seemed to have created problems under the Federal Securities Laws. Rondeau immediately stopped placing orders and consulted his attorney. On August 25, 1971, he filed a Schedule 13D disclosing among other things his purpose to seek to acquire additional stock to obtain effective control of the company, possibly through a public cash tender offer. He amended the form one month later to reflect more accurately the allocation of shares. On August 27, 1971, the company sent a letter to its shareholders informing them of the disclosures in the Schedule 13D and stating that by his tardy filing Rondeau had withheld information for more than two months in violation of federal law. Six days later the company initiated suit in the United States District Court for the Western District of Wisconsin against Rondeau, his companies, and two banks that had financed some of his purchases. The complaint alleged that they were engaged in a scheme to defraud the company and its shareholders in violation of the securities laws and prayed for an injunction prohibiting voting or pledging stock, requiring divestiture, and for damages. After three months of pretrial proceedings, Rondeau moved for summary judgment. He conceded the violation of the Williams Act but contended it was due to lack of familiarity with the securities laws and that neither the company nor its shareholders had been harmed. The District Court found no material issues of fact regarding his lack of willfulness, concluded that any anxiety suffered was not irreparable harm, and entered summary judgment against the company. The Court of Appeals reversed. It remanded with instructions to enjoin Rondeau and his codefendants from further violations and from voting the shares purchased between the due date and the filing date for a period of five years. The Supreme Court granted certiorari.
View casePulse Media launched a hostile bid for Patriot Insurance and alleged that the target's proxy solicitation contained false statements. A competing bidder sought to assert a private claim under the proxy rules. The court assessed whether the bidder fell within the class the statute was designed to protect.
Chris-Craft Industries, Inc., a diversified manufacturer, began purchasing Piper Aircraft Corp. common stock in December 1968. By January 22, 1969, Chris-Craft had acquired 203,700 shares, approximately 13 percent of Piper's 1,644,790 outstanding shares. On January 23, 1969, after unsuccessful preliminary overtures by its president Herbert Siegel, Chris-Craft announced a cash tender offer for up to 300,000 Piper shares at $65 per share. Piper's management, consisting principally of members of the Piper family who owned 31 percent of the stock, met with investment banker First Boston Corp. and decided to oppose the offer. Between January 25 and 27, Piper sent letters to shareholders arguing against acceptance, with W. T. Piper, Jr., stating the board viewed the offer as inadequate. On January 29, 1969, Piper entered an agreement with Grumman Aircraft Corp. for the purchase of 300,000 authorized but unissued Piper shares at $65 per share. The press release and shareholder letter announcing the deal omitted that Grumman held a put option to sell the shares back to Piper at cost plus interest. Piper was also required to keep the proceeds in a separate lien-free fund. Chris-Craft acquired 304,606 shares by the cash offer's February 3 expiration. While its exchange offer was in registration, Chris-Craft made open-market purchases until SEC officials warned that such purchases during an exchange offer violated Rule 10b-6, prompting immediate cancellation of orders. In March 1969 Piper terminated the Grumman agreement and negotiated with Bangor Punta Corp. On May 8, 1969, the Piper family agreed to exchange its 31 percent holdings for Bangor securities, and Bangor committed to an exchange offer valued by First Boston at not less than $80 per Piper share. In mid-May 1969 Bangor purchased 120,200 Piper shares in privately negotiated off-exchange transactions from three institutional investors after the SEC had issued a May 5 release proposing Rule 10b-13, which would codify existing interpretations under Rule 10b-6 prohibiting purchases during an exchange offer. Bangor made no attempt to secure an exemption. Bangor's exchange offer became effective July 18, 1969. Its registration materials, reviewed by First Boston, valued the Bangor & Aroostock Railroad subsidiary at $18.4 million based on a 1965 appraisal without disclosing a pending $5 million purchase offer. Chris-Craft's revised exchange offer attracted 112,089 additional shares while Bangor's attracted 110,802. By August 4, 1969, Bangor owned 44.5 percent and Chris-Craft 40.6 percent of Piper stock. Bangor continued cash purchases and by September 5, 1969, held a majority interest exceeding 50 percent, with Chris-Craft at 42 percent. On May 22, 1969, Chris-Craft filed suit in the United States District Court for the Southern District of New York seeking damages and injunctive relief against Bangor, First Boston, and the Piper defendants. The district court denied a preliminary injunction on August 19, 1969. The Second Circuit affirmed the denial of injunctive relief on April 28, 1970, but held Bangor had violated gun-jumping provisions and Rule 10b-6. On remand the district court, after a bench trial, dismissed Chris-Craft's damages complaint on December 10, 1971. The Second Circuit reversed on liability on March 16, 1973, held Chris-Craft had standing under section 14(e), found violations by all defendants, and remanded for damages. The district court awarded Chris-Craft $1,673,988 plus prejudgment interest and a five-year voting injunction on November 6, 1974. The Second Circuit recalculated damages at $25,793,365 plus approximately $10 million in interest on April 11, 1975. The Supreme Court granted certiorari on April 5, 1976.
View casePaula Pierce bought shares of a company after management issued a proxy statement touting a pending acquisition. When the deal collapsed, she claimed the statement was materially misleading. The court considered whether the solicitation itself supplied the necessary causal link without requiring proof of direct reliance.
Basic Incorporated was a publicly traded company primarily engaged in manufacturing chemical refractories for the steel industry. As early as 1965 or 1966 Combustion Engineering expressed interest in acquiring Basic but was deterred by antitrust concerns. In 1976 regulatory action removed the antitrust barrier and Combustion's strategic plan listed an objective to acquire Basic for thirty million dollars. Beginning in September 1976 Combustion representatives met and spoke by telephone with Basic officers and directors about a possible merger. During 1977 and 1978 Basic issued three public statements denying that merger negotiations were under way. On December 18 1978 Basic asked the New York Stock Exchange to suspend trading in its shares and announced it had been approached by another company concerning a merger. The next day Basic's board endorsed Combustion's offer of forty-six dollars per share. On December 20 1978 Basic publicly announced approval of Combustion's tender offer for all outstanding shares. Respondents are former Basic shareholders who sold their stock after Basic's October 21 1977 public statement and before the December 1978 trading suspension. Respondents brought a class action against Basic and its directors alleging that the three statements violated section 10(b) and Rule 10b-5 by misleading the market and causing sales at artificially depressed prices. The District Court certified the class under a presumption of reliance but granted summary judgment for the defendants on the ground that any misstatements were immaterial. The Court of Appeals for the Sixth Circuit affirmed class certification reversed the summary judgment and remanded the case. The Supreme Court granted certiorari.
View casePavel Petrov sued Parklane Hosiery after an SEC action established that the company's proxy statement was false. He moved for summary judgment on the same issues. The court evaluated whether the prior adjudication of the solicitation's falsity could bind the defendants in the private action.
Parklane Hosiery Company, Inc., and eleven of its officers and directors issued a proxy statement in connection with a merger between Parklane and another corporation. Leo Shore, a stockholder of Parklane, filed a class action on behalf of stockholders in the United States District Court for the Eastern District of New York against Parklane and the individual defendants. The complaint alleged that the proxy statement was false and misleading in violation of sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934 and related SEC rules. The complaint sought damages for the class, rescission of the merger, and recovery of costs. Before Shore’s action came to trial, the Securities and Exchange Commission filed a separate suit against the same defendants in the United States District Court for the Southern District of New York. The SEC complaint alleged that the proxy statement that had been issued by Parklane was materially false and misleading in essentially the same respects as those that had been alleged in the respondent's complaint. After a four-day trial, the District Court found that the proxy statement was materially false and misleading in the respects alleged, and entered a declaratory judgment to that effect. The court permanently enjoined the defendants from further violations of the securities laws and ordered them to offer rescission to shareholders who had tendered shares. The defendants did not appeal this judgment. Shore then moved for partial summary judgment in the Eastern District of New York action, asserting that the defendants were collaterally estopped from relitigating the issues resolved against them in the SEC action. The District Court denied the motion on the ground that application of collateral estoppel would deny the defendants their Seventh Amendment right to a jury trial. The Court of Appeals for the Second Circuit reversed, holding that a party who has had issues of fact determined against him after a full and fair opportunity to litigate in a nonjury trial is collaterally estopped from obtaining a subsequent jury trial of these same issues of fact. Because of an intercircuit conflict with the Fifth Circuit’s decision in Rachal v. Hill, the Supreme Court granted certiorari.
View casePilar Pena challenged a charter amendment at Stroud Corporation. The board had not solicited proxies but had sent a notice of the meeting. The court determined whether any additional disclosure obligations arose beyond the statutory notice requirements when no proxy solicitation occurred.
Milliken Enterprises, Inc. is a privately held Delaware corporation and one of the largest textile businesses in the world. Its approximately 200 shareholders are mostly direct descendants of founder Seth Milliken. The ten-member board includes four directors who are Milliken family members or employees, while the remaining six are unaffiliated. Roger Milliken, Gerrish Milliken, and Minot Milliken own or control through trusts more than 50 percent of the preferred and common shares. Following the 1985 death of Mrs. W.B. Dixon Stroud, shares held in a trust controlled by Roger, Gerrish, and Minot Milliken were released to the Strouds, who now own or control close to 17 percent of the shares. Roger Milliken then proposed a General Option Agreement under which the Milliken family and the company would have a right of first refusal on any shares offered to unrelated persons. Nearly 75 percent of shareholders executed the agreement, but the Strouds and a few others did not. The board proposed charter and by-law amendments for consideration at the April 15, 1987 annual meeting. The Strouds filed suit in the Court of Chancery seeking to enjoin the meeting on grounds including inadequate notice and proxy materials. The trial court entered a temporary restraining order that was not contested. A few weeks later, the Milliken board reconvened, withdrew the challenged charter amendments and by laws, and replaced them with a series of new provisions. Further litigation followed, and the 1987 amendments were ultimately withdrawn. In early 1989 the board adopted new Amendments, including provisions on director qualifications and nomination procedures. On March 14, 1989, the company mailed notice of the April 24, 1989 annual meeting to shareholders along with copies of the current by-laws, the board resolution, and the certificate of incorporation. The notice indicated that the board would not solicit proxies. At the meeting, 93 percent of eligible voters attended in person and 78 percent of shares entitled to vote approved the Amendments. Roger Milliken answered questions about business condition but declined to release confidential information without a confidentiality agreement. After the meeting the Strouds filed individual and derivative actions in the Court of Chancery challenging the notice, the Amendments, and By-law 3. The Court of Chancery sua sponte granted summary judgment for the defendants on all claims except the challenge to By-law 3, which it invalidated.
View caseAny request for authority to vote shares counts, as do indirect communications reasonably calculated to influence a shareholder's vote. Courts examine whether the communication is a step in a chain ultimately aimed at obtaining or revoking a proxy.
It is unlawful to solicit proxies until the solicitor has first delivered a proxy statement to the shareholders. Materials must also be filed with the SEC before use.
No bylaw providing for reimbursement of proxy solicitation expenses may apply to any election for which the record date precedes its adoption.
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Any shareholder meeting the bylaw's stated ownership, holding-period, and procedural conditions may enforce the bylaw. The board retains authority to add reasonable procedures ensuring an orderly process.
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A board may adopt a bylaw that coordinates proxy access and reimbursement rights, including a condition requiring waiver of reimbursement in exchange for inclusion, provided the condition promotes a reasonable and orderly election process.
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…we did not require proof that material omissions or misstatements in a proxy statement decisively affected voting, because the proxy solicitation itself, rather than the defect in the solicitation materials, served as an essential link in the transaction. See Mills v. Electric Auto-Lite Co., 396 U. S. 375, 384-385 (1970). The modern…