Kaplan v. Goldsamt

Delaware Court of Chancery · 1977 · Corporations

380 A.2d 556 (1977)

Updated August 22, 2026

Corporationscorporate wastestock repurchasedissident shareholderproxy disclosurematerial omissionbusiness judgment rulestockholder ratification

Facts

Medicorp's board and founder-director Goldsamt had a prolonged and bitter disagreement over corporate policy: Goldsamt wanted available cash used heavily to repurchase Medicorp stock, while the other directors wanted to preserve assets for growth and expansion. At a January 28, 1976 board meeting, after again pressing for a tender offer, Goldsamt said he would sell his own holdings for $10 per share; the board quickly explored the possibility, obtained estimates from Loeb, Rhoades and later Bache that a tender offer for 550,000 shares would likely cost about $9.50 per share including fees and expenses, and approved purchasing Goldsamt's shares for $5,225,000 plus $275,000 for a five-year noncompetition and consultation agreement. The proxy statement disclosed the transaction terms, prior open-market repurchases, market price history, and the board's reasons for removing dissension; shareholders approved the agreements by 81% of shares voting. Plaintiff claimed the proxy statement was misleading and that paying this price for Goldsamt's shares constituted waste.

Issue

Whether Medicorp's proxy statement seeking shareholder approval of the Goldsamt transaction was materially false or misleading, and whether the board's decision to purchase Goldsamt's shares and enter the related agreement at the agreed price constituted waste of corporate assets. Also, whether the board acted within protected business judgment in buying out a dissident shareholder.

Rule

A proxy statement is materially misleading only if there is a substantial likelihood that the omitted or misstated fact would have been viewed by a reasonable investor as significantly altering the total mix of information made available. After stockholder ratification, a court reviewing an alleged waste claim examines whether the consideration was so inadequate that no person of sound, ordinary business judgment would deem it worth what the corporation paid; if ordinary businessmen might differ, the transaction stands. Directors are protected when acting in good faith, with honest motives and reasonable investigation, and corporate funds may be used to acquire a dissident stockholder's shares when done to remove a threat to the company's business policy rather than primarily to entrench management.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Care Holdings, a Delaware corporation based in Phoenix, agreed to repurchase a 9% block from director Evan Mercer at $14 per share and circulated a proxy statement seeking stockholder approval. The proxy disclosed the block price, the company's recent open-market repurchases over the past year at prices ranging from $6 to $12, and quarterly trading ranges, but it did not list that on the same day the board approved the deal the company had bought 8,000 shares on the market at $11.25.

A stockholder sues derivatively, arguing the omission of the same-day $11.25 purchases made the proxy materially misleading. Which is the strongest answer?

Explanation. The governing test is whether there is a substantial likelihood that disclosure of the omitted fact would significantly alter the total mix of information available to a reasonable investor. Where the proxy already discloses the proposed price, prior repurchase ranges, and market history sufficient to show the company is paying above market and above prior purchases, omission of specific same-day market purchases is not necessarily material.