Opinion ID: 72378
Heading Depth: 3
Heading Rank: 2

Heading: Plan Provisions on Voting Shares

Text: The Polaroid ESOP has several provisions that address the voting of ESOP shares. In general, the ESOP provides for pass-through voting, which allows participants to vote their allocated shares like ordinary shareholders. Without that provision, the Polaroid ESOP would not 2 Shamrock sought an injunction against Polaroid's creation of the ESOP, claiming it was an illegal anti-takeover device. See Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d 257, 26970 (Del.Ch.1989). The Delaware Chancery Court denied the injunction. The court found that the ESOP's voting provisions gave plan participants control over the ESOP shares. See id. at 273-74. Based largely upon that finding, the court held that the ESOP was not an illegal anti-takeover device. See id. at 274. 3 This paper sale of the newly issued stock resulted in significant tax savings to Polaroid. See 26 U.S.C. § 404(a)(9); see also Summers v. State Street Bank and Trust Co., 104 F.3d 105, 106 (7th Cir.1997) (describing a similar transaction and its tax consequences). 2 qualify for tax benefits. See 26 U.S.C. § 409(e). The ESOP further provides that in the event of a tender offer, plan participants may direct the trustee to tender or not tender their allocated shares. The ESOP prohibits the trustee from tendering a participant's shares unless the participant specifically instructs the trustee to tender. It states that the trustee should interpret a participant's silence as a direction not to tender his or her allocated shares. In addition, the ESOP provides for mirror voting, which means that the trustee is instructed to tender unallocated shares held by the plan in the same proportion as it tenders allocated shares. According to the briefs of the amici curiae, provisions for pass-through voting of allocated shares and mirror voting of unallocated shares are commonly included in ESOPs. According to the ESOP documents, the trustee's liability for its conduct during a tender offer depends, in part, on how well the trustee complies with the other voting provisions. The Polaroid ESOP states that Polaroid will indemnify the trustee for any liability incurred in responding to tender offers, so long as the trustee followed the participant direction provisions of the plan. If a tender offer is accepted, the ESOP further provides that, except in limited circumstances not relevant to this appeal, the trustee must reinvest all tender offer proceeds in Polaroid stock.