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Kerbs v. California Eastern Airways, Inc.

Court of Chancery of Delaware, New Castle County

January 20, 1953

KERBS et al.
v.
CALIFORNIA EASTERN AIRWAYS, Inc.

Proceeding involving question whether certain corporate profit sharing plan was effectively ratified by stockholders. The Court of Chancery in and for New Castle County, Seitz, Chancellor, held that opponents of plan failed to establish that proponents of plan made false and misleading statements as to material facts and omitted to state material facts in their solicitation for proxies.

Order in accordance with opinion.

See also, Del., 91 A.2d 62.

On question whether certain corporate profit sharing plan was effectively ratified by stockholders, proxies solicited by proponents of plan were not invalidated by reason of fact that professional proxy solicitor was employed, where there was no showing that stockholders were misled or that corporate funds were so flagrantly used that votes obtained should not be counted.

Page 218

[33 Del.Ch. 396] Arthur G. Logan, of Logan, Marvel & Boggs, Wilmington, for plaintiffs.

David F. Anderson, of Berl, Potter & Anderson, Wilmington, and Walter R. Barry, James E. Hughes and George F. Mason, Jr., of Coudert Brothers, New York City, for defendant.

SEITZ, Chancellor.

The question is whether a certain profit sharing plan was effectively ratified by the stockholders.

The defendant corporation's board of directors adopted a Profit Sharing Plan which plaintiffs attacked in this court. After the trial, but before the decision, the directors called a meeting to request stockholder ratification of the plan. This court's decision[1] upholding the plan came down before the meeting date and the subsequent stockholder ratification was therefore not involved in this court's decision. Plaintiffs appealed and in connection with the appeal the Corporation raised for the first time the defense based upon ratification. The Supreme Court declared the director action approving the plan invalid for want of an affirmative vote by a disinterested quorum.[2] Thus that Court was required to face the issue presented by the stockholder ratification. The Supreme Court decided that the question should be presented to the trial court, noting the following guide:

‘ Necessarily, the effectiveness of such ratification depends upon the type of notice sent to the stockholders and of the explanation to them of the plan itself. We think, however, if there was effective ratification by the stockholders that the profit-sharing plan is valid.’

A hearing on this issue was held by this court and this is the decision thereon.

Plaintiffs charge that there was no effective ratification because:

[33 Del.Ch. 397] (1) The proxies solicited by Management contained false and misleading statements as to material facts and omitted to state a material fact.

(2a) The vote was close and was carried only because the votes of the interested beneficiaries were ...


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