Also known as: proxy solicitation · soliciting proxies · solicited proxies · solicitations of proxies
Written by attorneys — see sources below.
A communication by which a person seeks authority from shareholders to vote their shares at a corporate meeting. The term encompasses both direct requests to furnish, revoke, or withhold proxies and indirect statements that may accomplish the same result or form part of a chain of communications aimed at that outcome.
Skyline Construction fixes March 1 as the record date for its annual director election. On March 15 the board adopts a bylaw promising reimbursement of reasonable proxy solicitation expenses to qualifying shareholders. Solstice Ventures, which began soliciting proxies in February, demands payment after its slate loses. The corporation refuses because the record date preceded adoption of the bylaw.
Sierra Solutions circulates proxy materials containing misleading statements about the terms of a proposed merger with Sapphire Holdings. Shareholder Seth Shapiro votes in favor based on the materials and later sues when the merger terms prove less favorable than described. The suit alleges the solicitation violated federal proxy rules.
Respondent owned 2,000 shares of common stock of J. I. Case Company acquired prior to the merger. He brought a civil action based on diversity jurisdiction. Respondent sought to enjoin a proposed merger between Case and the American Tractor Corporation on grounds including breach of the fiduciary duties of the Case directors, self-dealing among the management of Case and ATC, and misrepresentations contained in the material circulated to obtain proxies. The complaint was in two counts. The first count was based on diversity and claimed a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a) of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The injunction was denied and the merger was consummated. Successive amended complaints were filed. The case was heard on the two-count complaint. The allegations included that petitioners solicited proxies for a special stockholders’ meeting at which the merger was to be voted upon. The proxy solicitation material was false and misleading in violation of § 14(a) and Rule 14a-9. The merger was approved by a small margin of votes and would not have been approved but for the false and misleading statements. Case stockholders were damaged thereby. The District Court held that as to the federal count it had no power to redress the alleged violations of the Act but was limited solely to the granting of declaratory relief thereon under § 27 of the Act. The court held the Wisconsin security for expenses statute applicable to both counts except the declaratory portion of Count 2. It ordered respondent to furnish a bond in the amount of $75,000. Upon his failure to do so, the court dismissed the complaint save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal the Court of Appeals reversed on both counts. It held that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. The Supreme Court granted certiorari limited to the question of whether § 27 of the Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger authorized pursuant to a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act.
View caseStroud family members controlling a closely held corporation refuse to release detailed financial data during a proxy contest over a proposed sale. Minority shareholder Sean Steele demands the information to solicit proxies against the transaction. The court balances the duty to disclose material facts against the need to protect confidential business information.
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 caseVirginia Bankshares directors solicit proxies for a freeze-out merger and omit facts showing the offered price undervalues the shares. Shareholder Sabrina Shah withholds her proxy upon learning the omitted information. The court examines whether the omitted facts would have assumed actual significance in a reasonable shareholder's decision.
In December 1986, First American Bankshares, Inc. (FABI), a bank holding company, began a freeze-out merger in which the First American Bank of Virginia (Bank) eventually merged into Virginia Bankshares, Inc. (VBI), a wholly owned subsidiary of FABI. VBI owned 85 percent of the Bank's shares, with the remaining 15 percent held by approximately 2,000 minority shareholders. FABI hired the investment banking firm of Keefe, Bruyette & Woods (KBW) to opine on the appropriate price for the minority shares. Based on market quotations and unverified information from FABI, KBW advised the Bank's executive committee that $42 per share would be a fair price. The executive committee approved the merger proposal at that price, and the full board followed suit. Although Virginia law required only that the merger proposal be submitted to a vote at a shareholders' meeting preceded by circulation of a statement of information, the directors solicited proxies for voting on the proposal at the annual meeting set for April 21, 1987. In the solicitation, the directors urged adoption of the proposal and stated they had approved the plan because it provided an opportunity for the minority shareholders to achieve a high value for their shares, which they elsewhere described as a fair price. Respondent Sandberg, a minority shareholder who did not provide the requested proxy, filed suit in the United States District Court for the Eastern District of Virginia against VBI, FABI, and the Bank's directors. She alleged violations of section 14(a) and Rule 14a-9. She also alleged breaches of fiduciary duties under state law. Sandberg claimed the directors did not believe the $42 price was high or the merger terms fair but recommended the merger only to retain their board seats. At trial, the jury returned verdicts for Sandberg on both counts and awarded her $18 per share after finding she would have received $60 if the stock had been valued adequately. While Sandberg's case was pending, other minority shareholders including respondent Weinstein filed a similar action in the United States District Court for the District of Columbia. That case was transferred to the Eastern District of Virginia. After Sandberg's trial, the Weinstein respondents obtained summary judgment on liability through collateral estoppel. On appeal, the United States Court of Appeals for the Fourth Circuit affirmed the judgments, holding that certain statements in the proxy solicitation were materially misleading and that the respondents could maintain their action even though their votes had not been needed to effectuate the merger. The Supreme Court granted certiorari.
View caseStephen Shaw, an outside consultant, assists Sierra Solutions in preparing proxy materials that contain false statements about upcoming director elections. Investor Serena Soto loses her investment after relying on the materials and sues the consultant. The court determines whether the consultant's conduct qualifies as primary liability under the proxy rules.
Stoneridge Investment Partners, LLC, a Delaware limited liability company, served as lead plaintiff in a class action filed in the United States District Court for the Eastern District of Missouri on behalf of purchasers of Charter Communications, Inc., common stock. The suit named as defendants Charter itself, some of its executives, its independent auditor Arthur Andersen LLP, and two other companies that had acted as both suppliers and customers of Charter. Charter, a cable operator, engaged in a variety of fraudulent accounting practices throughout 2000 so that its quarterly reports would meet Wall Street expectations for subscriber growth and operating cash flow. By late 2000 Charter executives realized that these practices would still leave the company short of projected operating cash flow by fifteen to twenty million dollars. To close the gap, Charter entered into arrangements with Scientific-Atlanta, Inc., and Motorola, Inc., under which Charter overpaid the respondents twenty dollars for each digital cable converter box it purchased through the end of the year. In return, the respondents agreed to purchase advertising time from Charter at prices higher than fair value, with the transactions documented through backdated contracts and false statements about increased production costs. The arrangements had no economic substance, yet Charter recorded the advertising purchases as revenue and capitalized its purchases of the set-top boxes, thereby inflating reported revenues and operating cash flow by approximately seventeen million dollars on financial statements filed with the Securities and Exchange Commission and disseminated to the public. Respondents had no role in preparing or disseminating Charter's financial statements, and they recorded the transactions as a wash on their own books under generally accepted accounting principles. It is alleged that respondents knew or were in reckless disregard of Charter's intention to use the transactions to mislead research analysts and investors. The District Court granted respondents' motion to dismiss for failure to state a claim. The Court of Appeals for the Eighth Circuit affirmed, holding that the allegations showed at most aiding and abetting by respondents. The Supreme Court granted certiorari to review the judgment.
View caseTSC Industries omits facts from its proxy materials about a proposed acquisition that would have altered the total mix of information available to shareholders. Sydney Santos, a shareholder who approved the transaction, later claims the omission was material. The court applies the standard that an omitted fact is material if there is a substantial likelihood a reasonable shareholder would consider it important.
In February 1969 National Industries, Inc. acquired 34% of TSC Industries, Inc.'s voting securities from Charles E. Schmidt and his family. Schmidt, TSC's founder and principal shareholder, resigned from the board along with his son. Five National nominees then joined TSC's board. Stanley R. Yarmuth, National's president and chief executive officer, became chairman of the TSC board. Charles F. Simonelli, National's executive vice president, became chairman of the TSC executive committee. On October 16, 1969, the TSC board, with the National nominees abstaining, approved a proposal to liquidate and sell all of TSC's assets to National in exchange for National Series B preferred stock and warrants. On November 12, 1969, TSC and National issued a joint proxy statement to their shareholders recommending approval of the proposal. The proxy solicitation succeeded. TSC entered liquidation and dissolution, and the share exchange was completed. Northway, Inc., a TSC shareholder, filed suit on December 4, 1969, in the United States District Court for the Northern District of Illinois against TSC and National. The complaint alleged that the joint proxy statement violated section 14(a) of the Securities Exchange Act of 1934 and Rules 14a-3 and 14a-9. It claimed the statement failed to disclose that the Schmidt interests transfer had given National control of TSC. It also claimed the statement omitted material facts concerning the degree of National's control over TSC and the favorability of the transaction terms to TSC shareholders. The District Court denied Northway's motion for summary judgment on liability. The Court of Appeals for the Seventh Circuit affirmed that a genuine issue of fact existed regarding whether National had acquired control through the Schmidt purchase. This precluded summary judgment on the Rule 14a-3 claim. But the court reversed on the Rule 14a-9 claims and ordered partial summary judgment for Northway. It held that certain omissions were material as a matter of law. The Supreme Court granted certiorari to address the standard of materiality applied by the Court of Appeals.
View caseA corporation may adopt a bylaw requiring reimbursement of reasonable expenses incurred by a shareholder in soliciting proxies or consents in connection with an election of directors. The bylaw must set forth procedures and conditions, and it cannot apply to any election for which the record date precedes its adoption.
Supporting sources
No. The statute expressly provides that a reimbursement bylaw shall not apply to elections for which any record date precedes its adoption. Once the record date is fixed, later adoption of the bylaw cannot create reimbursement rights for that election even if the vote occurs afterward.
Supporting sources
The term includes both direct requests to furnish, revoke, or withhold proxies and communications that may indirectly accomplish the same result or constitute a step in a chain of communications ultimately designed to obtain proxy authority.