A group of shareholders brought a suit against the Board of Directors of a publicly traded company in Delaware. The Board had previously decided to implant a “poison pill” agreement, where any form of attempted takeover by the shareholders would grant an equity company familiar with the Board super voting power. When a shareholder attempted to oust the current board by obtaining proxies, she retained more than ten – breaking a rule which mandates a limit on the number of proxies one shareholder can acquire. The shareholder believes there ought to be exceptions to the U.S. Securities and Exchanges Commission’s proxy rules, since the company had been delisted as an “Over-The-Counter” electronically traded pink sheet and had been consistently out of compliance with annual regulatory filings. With the shareholder believing that the “poison pill” agreement was created solely to allow the current board to keep holding company power, a respected expert on rules and regulations of the Securities and Exchanges Commission was inquired after to testify about proxy standards and similar agreements.
Question(s) For Expert Witness
- 1. Please briefly describe your experience as it relates to the Securities and Exchanges Commission proxy rules and regulations in situations like the one in this case.
- 2. Can you speak to the functionality and legality of "poison pill" agreements like the one in this case?
Expert Witness Response E-086242
I teach and research these subjects, so I know the field very well. It is possible that there is an exception to the proxy rule, though I would need to learn more about the facts of the case to know for certain. This is a relatively black and white factual analysis. From what I can tell on the poison pill element, it appears to be severe corporate entrenchment. I am confident that, based on corporate law, this particular poison pill would not pass required legal standards to be validated.
Expert Witness Response E-086140
I have been a corporate and securities transactions lawyer for many years and am familiar with the proxy rules, having drafted and advised clients regarding shareholder rights plans – or “poison pills.” Proxy rules come into play when a company registers a class of securities under the 1934 Exchange Act, which the company in this instance has apparently done. These rules are no different for electronically traded or more traditionally traded stocks, and are generally not affected if a company becomes delisted from the exchange. It would be difficult to provide advice on questioning of the 10 persons proxy rule without a more thorough review of the underlying facts of the case.