Proxy Contests

Question 1

Campbell v. Loew’s Incorporated (1957) summary

Answer 1

Plaintiffs, corporate directors, sought to enjoin defendants (corporation and rival directors) from holding a stockholders’ meeting at which stockholders would be called upon to remove them. The Delaware chancery court declined to enjoin the stockholders’ meeting but did preclude the corporation from counting proxy votes and from using corporate personnel and facilities to solicit proxy votes.

The injunction was denied as to the meeting itself, as the president of the board of directors was authorized by the bylaws to call a stockholders’ meeting and the bylaws permit the stockholders to replace the directors for good cause; the injunction was granted as to proxy voting owing to the failure to afford plaintiffs specifics about the allegations and an opportunity to be heard.

• 0722 → A proxy is always revocable unless it is coupled with an interest.
  •They are only good for a year

Question 2

Rosenfeld v. Fairchild Engine & Airplane Corp. (1955) summary

Answer 2

The old board of directors and the new board spent over $120,000 each in soliciting proxies for a shareholder vote for new directors. After the new board won, they authorized Fairchild to reimburse the old board for most of their expenses, and they voted to have Fairchild reimburse their own expenses. Plaintiff did not allege any fraudulent behavior, and agreed that the expenses were reasonable, but nonetheless not legal.

The Court of Appeals of New York held that when there is a good faith dispute concerning a significant policy, the directors should be able to use corporate resources to fund proxy solicitations to ensure that the upcoming vote receives the attention that it is due. In a situation such as the case at bar, the expenses were reasonable and did go to a reasonable dispute between two factions.

Question 3

Rosenfeld v. Fairchild Engine & Airplane Corp. (1955) rule

Answer 3

A corporation’s directors may spend the corporation’s money for proxy solicitation in a bona fide policy contest provided that the amount is reasonable (must be about the policy of the board, not about keeping their jobs)

Question 4

Hewlett v. Hewlett-Packard Company (2002)

Answer 4

Plaintiff shareholders contested the validity of a shareholder vote approving the merger of defendant corporation into another corporation (HP and Compaq), asserting management: (1) knowingly misrepresented material facts about the integration of the two Delaware corporations throughout the proxy campaign; and (2) improperly coerced and enticed a bank into voting both its own and asset-managed shares for the merger. Both corporations were publicly traded global providers of computers and computer-related products and services.

The court reviewed the corporation’s integration planning process, conclusion that integration was vital to the merger’s success (based, in part, on continuing value capture update analyses of gaps between bottom-up and top-down numbers), and consistent public reports of cost synergies and revenue loss targets to conclude that the shareholders failed to prove the corporation misrepresented or omitted material facts about integration in the proxy contest. The evidence demonstrated the corporation’s statements concerning the merger were true, complete, and made in good faith, and management did everything it could do to maximize the chance that integration would be a success. The court also concluded that credible evidence indicated the bank’s votes, of its own shares and managed shares (based upon a purported separation of the bank’s commercial and asset management divisions) were based upon the harm the bank might incur, if the merger was not approved, substantive shareholder considerations, and not the promise of future business from the corporation.

Question 5

For a merger, need to:

Answer 5

• Make an agreement with the other company
• Submit it to the Board and get a majority approval
• The board must initiate it
• Then hold a shareholder meeting (both companies) and must pass by a majority of those entitled to vote

Question 6

Triangular merger → Hewlett v. Hewlett-Packard Co. (2002)

Answer 6

• HP (public) sets up a subsidiary
• Compaq (public)
• Compaq merges with HP’s subsidiary so that HP’s shareholders don’t have to vote on the merger
• But the HP shareholders will have to vote to approve issuing 20% of the outstanding shares of HP because it will dilute the voting power
  • Required by the NY stock exchange
  • This is what the plaintiffs sued on

Question 7

This joint proxy statement

Answer 7

This joint proxy statement → proxy statement for the shareholders of Compaq to approve merger (proxies under 34 Act) and for HP shareholders to issue shares (33 Act)

Question 8

Is it illegal to buy votes?

Answer 8

Vote buying is not necessarily illegal (Schreiber v. Carney)