650 A.2d 1270 (Del. 1994)
In 1991, Society for Savings Bancorp, Inc. ("Bancorp"), a Delaware corporation, faced severe financial distress due primarily to the poor performance of its subsidiary Society for Savings, though it remained afloat largely because of the high profitability of Fidelity Acceptance Corporation ("FAC"), a Society subsidiary.1 Plaintiff Robert H. Arnold was at all relevant times a Bancorp stockholder.2 The defendants included Bancorp, Bank of Boston Corporation ("BoB"), BBC Connecticut Holding Corporation ("BBC"), and twelve of Bancorp's fourteen directors.3
On April 30, 1991, Bancorp publicly announced that it had retained Goldman, Sachs & Company to identify transactions that would enhance stockholder value.4 After canvassing the market, Goldman reported a paucity of interest in acquiring Bancorp as a whole.5 The board considered selling Bancorp in four parts—Society's deposits, Society's investment and loan assets, FAC, and a stub entity—with each sale contingent on the others.6 Goldman received nine bids solely for FAC, and Norwest Corporation emerged as the highest bidder with a bid forecasted at approximately $275 million as of December 31, 1992, subject to regulatory approvals and other conditions.7
On May 28, 1992, Goldman presented the May Proposal to the board under which BoB would purchase Society's deposits, Norwest would purchase FAC, Goldman would purchase much of Society's loan portfolio, and unsalable assets would go to the stub.8 Goldman estimated net value to stockholders of $15.94 per share, which could rise to $19.26 per share if the stub had positive value of $3.32 per share.9 The board rejected the May Proposal by a 5-8 vote as too risky and speculative.10 Shortly thereafter, CEO Lawrence Connell negotiated with BoB over the summer of 1992.11
On August 24, 1992, BoB sent a written expression of interest.12 The board approved the merger on August 31, 1992, with final terms providing that each Bancorp share would be exchanged for 0.80 BoB shares subject to a $20 per share cap.13 The proxy statement dated February 1, 1993, discussed the May Proposal and its rejection, the summer negotiations with BoB, the August board meetings and votes (including the final 12-0-2 tally and the Chairman's and Weinerman's abstentions), but did not disclose Norwest's $275 million bid for FAC or Goldman's $19.26 valuation estimate.14 Stockholders approved the merger on March 4, 1993, by a vote of 7,750,253 shares in favor, 1,389,272 opposed, 264,146 abstaining, and 2,552,297 not voting.15 The merger closed on July 9, 1993.16
On March 8, 1993, Arnold sought a preliminary injunction to enjoin the merger.17 The Court of Chancery denied the motion.18 After the merger closed, the Court of Chancery granted defendants' motion for summary judgment and denied Arnold's cross-motion on December 15, 1993, holding that the alleged omissions and misrepresentations were immaterial as a matter of law and that Revlon duties were not implicated.19 Arnold appealed to the Delaware Supreme Court.20
Whether the proxy statement's partial disclosures of the May Proposal rendered the omission of Norwest's $275 million contingent bid for FAC materially misleading?21
Directors of Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board's control when seeking shareholder action.22 An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.23 The disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.24
Yes. The proxy statement partially disclosed the background of the May Proposal by describing the engagement of Goldman Sachs and the evaluation of transactions.25 It described the May 28 meeting where the board considered the series of transactions including the sale of FAC and the rejection due to uncertainties.26 The statement omitted the specific $275 million bid by Norwest.27
Once defendants traveled down the road of partial disclosure of the history leading up to the Merger and used the vague language described, they had an obligation to provide the stockholders with an accurate, full, and fair characterization of those historic events.28 This partial disclosure made the omission material. A reasonable stockholder would have found significant that FAC had been the subject of a genuine auction bid of $275 million under contingent and explainable circumstances when the Merger transaction itself was valued at $200 million.29 The stockholder would consider the information when deciding whether to support the merger or keep FAC as part of an independent Bancorp.30
Whether the proxy statement's omission of Goldman's $19.26 per share valuation estimate was material?33
Directors must balance potential benefit versus harm when deciding whether to disclose an investment advisor's earnings per share valuation.34 An overly optimistic per share figure that is unreliable because it is predicated on uncertain variables need not be disclosed.35 It is too speculative and thus immaterial.36
No. Goldman’s share valuation of $19.26 per share was too unreliable to be material.37 It was inextricably bound to the uncertain value of the stub.38 The stub required cash to satisfy indemnity and the amount was subject to negotiations with various buyers.39 The board received affidavits from Connell, Berlinski, and Stone confirming that the stub value was speculative and likely considerably less than $3.32 per share.40
Chase testified that the stub more likely had a negative value of $3 per share.41 The proxy statement accurately disclosed that the value ultimately distributable to stockholders could only be estimated in light of uncertainties involving the value of negative assets. Plaintiff failed to offer proof that the $3.32 figure reflected a realizable value.42
The Court of Chancery did not err in holding the $19.26 estimate immaterial as a matter of law.43
Whether the proxy statement contained material misrepresentations or omissions regarding the merger negotiations, board votes, and management projections?44
A proxy statement must not contain material misrepresentations or omissions.45 Details of merger negotiations are immaterial under the total mix standard unless they would alter the total mix of information provided to stockholders.46 A board's description of its reliance on projections is not misleading if the disclaimer accurately states that the projections are outside the control of the corporation and should not be relied upon.47
No. The proxy statement disclosed the final 12-0-2 vote tally and the Chairman's and Weinerman's abstentions and their reasons in detail.48 It accurately described the board's consideration of the May Proposal and the summer negotiations with BoB.49 The $20 share cap figure suggested by Connell was not material under the circumstances. The description of the 8-1-5 vote as an interim vote was proper.50
The Connell memo concluded the risks of the best case scenario outweighed the potential benefits and supported pursuing the May Proposal rather than the merger. The proxy statement's disclaimer regarding the projections was accurate and not misleading.51
The Court of Chancery did not err in rejecting these claims as the purported facts were either immaterial or mischaracterized.52
Whether the provision in Bancorp's certificate of incorporation adopted pursuant to 8 Del. C. § 102(b)(7) shields the individual directors from liability for any disclosure violation?53
A certificate of incorporation provision adopted pursuant to 8 Del. C. § 102(b)(7) shields directors from personal liability for breach of fiduciary duty as a director.54 The shield applies except for liability for any breach of the duty of loyalty.55 It also excepts acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law.56 The statutory language is unambiguous and extends to disclosure violations that do not fall within the enumerated exceptions.57
Yes. Article XIII of Bancorp's certificate of incorporation parallels the language of Section 102(b)(7) and protects directors from monetary damages for breach of fiduciary duty except in cases of loyalty breaches or knowing violations.58 The single disclosure violation found was consistent only with a good faith omission.59 The individual defendants did not violate the duty of loyalty and did not engage in intentional misconduct.60
The proxy statement was disseminated after good faith balancing of which facts to disclose. The colloquy in the Court of Chancery regarding remedies did not constitute an unequivocal waiver of the protection.61
Whether the merger triggered Revlon duties requiring the board to seek the transaction offering the best value reasonably available to stockholders?64
Enhanced scrutiny under Revlon is required when a corporation initiates an active bidding process seeking to sell itself or to effect a business reorganization involving a clear break-up of the company.65 It is also required when in response to a bidder's offer a target abandons its long-term strategy and seeks an alternative transaction involving the break-up of the company.66 It applies when approval of a transaction results in a sale or change of control.67 There is no sale or change in control when control of both companies remains in a large fluid changeable and changing market.68
No. The events between the May 28 1992 rejection of the May Proposal and the August 31 1992 approval of the merger do not fit the circumstances requiring enhanced scrutiny.69 Bancorp did not initiate an active bidding process for sale or break-up.70 The merger did not result in a change in control.71
After rejecting the May Proposal the board focused on strengthening Bancorp as an independent entity. As continuing BoB stockholders the former Bancorp stockholders retained the opportunity to receive a control premium in the fluid market of BoB shares.72
The Court of Chancery did not err in holding that Revlon was inapplicable under the facts of this case.73