Proxy Fights

Question 1

Annual Meetings

Answer 1

Annual meetings are required to be held for election of directors and voting on other matters.

• SH elect directors

Question 2

Special Meetings

Answer 2

Special meetings are called when there is a pressing issue that needs to be voted on.

Question 3

Quorum

Answer 3

Corporations need a quorum before they can vote on an issue, typically more than 50% of shares with voting rights

Question 4

Proxy Voting

Answer 4

• The shareholder, who will not attend the meeting himself, uses a document called a proxy, sometimes referred to as a proxy card, to appoint an agent to vote at the meeting on their behalf.
• Delegation of right to vote for SH
• Revocable unless “coupled with an interest”

Question 5

Proxy Solicitation

Answer 5

Generally, just before the annual meeting the managers of a large firm will solicit proxies from the shareholders of record, and ask them to sign and return the proxy record.

Question 6

Proxy Fights

Answer 6

Proxy fights results when an insurgent group tries to oust the incumbent managers by soliciting proxy cards and electing their own representatives to the board.

Question 7

Stock Held in Street Name

Answer 7

Stock held in the name of the broker. Individual shareholder certificates are rarely issued anymore. Stock is typically held in “street name” that is in the name of the brokerage which the shareholder contracted with for easy transactions. When a company solicits through street name, the firm holding the stock for the shareholder will forward the proxy information to the shareholder.

Question 8

Law Regarding Proxy Fights

Answer 8

Like tender offers, proxy fights are subject both to the 1934 Securities Exchange Act and to state corporate statutes.

Question 9

Can you use company recourses to solicit proxies?

Answer 9

There is no law against the solicitation of proxies through the use of corporate resources, and if there is no showing of irreparable harm to Plaintiffs then proxy solicitation should not be prohibited.

Question 10

LIMITATIONS: There are limitations on incumbents’ right to use corporate money for defending against proxy battles:

Answer 10

• REASONABLE:
  
  • The amount expended must be reasonable and not excessive. It must not shock the conscience.
• BATTLE MUST BE OVER POLICY:
  
  • The proxy battle being defended against with corporate money must be over legitimate issues of corporate policy, not merely a difference in personalities.

Question 11

Proxy Statements

Answer 11

14a-3, 4, 5, & 11 require that people who solicit proxies furnish each shareholder with a proxy statement which must disclose the annual report, conflicts of interest, and any major issues he expects to raise at the shareholder meeting. Under 14a-6 proxy statements must be filed with the SEC.

Question 12

Mailing Proxies

Answer 12

two options:

1. to mail the proxy statements to shareholders themselves, or
2. to turn over the list of shareholders to the insurgents on demand and allow the insurgents to do the mailing.

The management will generally opt to send the statements themselves rather than turn over the shareholder list which will allow the insurgents to do a more effective targeted mailing.

Question 13

Economics of Proxy Fights

Answer 13

Proxy fights are risky and often costly for insurgents. If they lose, they bear the entire cost of mailing the proxies and trying to win over shareholders. If they win, and the corporation is more profitable as a result they only receive the portion of that benefit relative to the amount of shares that they own. In a tender offer they actually acquire more stock, and thus receive more benefit in the event of an effective takeover.

Question 14

Material Misrepresentation in Proxy Statements

Answer 14

A material misstatement or omission in a proxy statement is all that is required to maintain an action

Question 15

Insurgents can challenge incumbents in a proxy battle

Who pays expenses?

Answer 15

Incumbents can charge corp

• Good faith
• Policy issue NOT purely personal power contest
• Reasonable and proper expenses

Insurgents

• Must when
• Reasonable and bonafide expenses
• Must obtain SH approval

Question 16

Valuaton of Shares

Answer 16

• SH uses “Black Sholes” method to value shares
• Black Sholes not material because nothing requires disclosure
• Don’t have to disclose valuations

Question 17

NO NEED FOR MINORITY SHAREHOLDER VOTES:

Answer 17

The Supreme Court held that in a situation where it is absolutely certain that minority shareholders could not vote down a transaction, i.e., in a situation where the majority owns 85% of the shares, the court should not award damages for misleading statements in proxy solicitations because there is no interference with shareholder suffrage.

Question 18

Whether the non-disclosure of the option value under the Black-Scholes method, or the tax consequences of the options, were material omissions

Answer 18

An omitted or misleading fact is only material, for the purposes of determining whether a proxy statement violates Section: 14(a), if it was likely to have a reasonable effect on a shareholder’s decision for voting.