Opinion ID: 359001
Heading Depth: 1
Heading Rank: 2

Heading: The Takeover

Text: 10 The groundwork for the 1973 takeover was apparently laid by Belcher Sr. sometime prior to the 1972 annual stockholders meeting. It was the company's longstanding practice to solicit proxies from stockholders in anticipation of each year's annual meeting. These proxies were always voted in favor of management. The form of the proxies sent out in 1972 varied from past proxies in two significant respects. First, Belcher Sr. insisted that his name be added to that of Belcher III as one of the proxy holders. Second, the 1972 proxies bore the legend: This proxy is solicited by management for annual meeting on (date). The attorney who drafted the 1972 proxy later testified at trial that the legend was added to show that the proxy was solicited by and would be voted in favor of existing management. In fact, the proxies were voted for management in the 1972 election. 11 For the 1973 election, however, in furtherance of their plan to oust Belcher III, defendants secretly began to solicit proxies from certain selected stockholders. Those stockholders not solicited were not informed of defendants' intention to oppose the reelection of management. 12 Defendants' proxy form bore the names of Belcher Sr. and Belcher Jr. Management's proxy for the 1973 annual meeting was virtually identical to the 1972 management proxy, bearing the names of Belcher Sr. and Belcher III. Although aware that the management proxy carried his name, Belcher Sr. did not inform management of his opposition to its reelection or otherwise afford management an opportunity to remove his name from the management proxy and to resolicit the stockholders for management support in light of the impending fight for control. In fact, in early October Belcher Sr. executed three management proxies covering approximately 30,600 shares of Belcher Oil Company stock held in the Gerhart Trust, of which he and Belcher III were joint trustees, and silently delivered them to management. Not until the actual stockholders meeting and election on October 23, 1973 did defendants disclose their takeover plan to management, the other board members, and the nonsolicited stockholders. 13 Shortly before the meeting, defendants Belcher Sr., Allen, and Snodgrass tallied up their proxies and concluded that they lacked the voting strength necessary to win the upcoming election. Accordingly, they decided that management proxies listing both Belcher Sr. and Belcher III would not be counted in favor of either faction, a decision which ultimately determined the outcome of the election. 14 On October 23 defendant Belcher Sr., in his capacity as chairman of the board, called the 1973 annual meeting to order. Although management's report on the year's activities was customarily the first order of business at Belcher Oil Company annual meetings, Belcher Sr. opened the 1973 meeting by calling for the election of directors and appointing defendant Snodgrass to count the votes. 15 Snodgrass attributed to Belcher Sr.'s faction all proxies returned on defendants' form and all management proxies on which Belcher III's name had been lined out by the signing shareholder. Management proxies on which Belcher Sr.'s name had been lined out were counted in favor of Belcher III's faction. Pursuant to the prearranged decision of defendants Belcher Sr., Allen, and Snodgrass, management proxies on which neither Belcher Sr. nor Belcher III had been lined out were not counted at all. Over 16,000 votes, in addition to the 30,643 votes represented by the Gerhart Trust shares, were nullified on this basis. 16 After tallying the votes, Snodgrass announced that Belcher Sr. had proxies representing 58.1% Of the voting shares. This announcement was repeatedly challenged during the meeting by various shareholders demanding a recount and the right to examine the proxies. Belcher Sr., by invoking his newly acquired 58.1% Voting strength, defeated all such motions for a recount. Within three days after the meeting, a number of shareholders again made oral and written demands for proxy inspection and a recount. These demands were likewise refused. 17 Shortly after the October election, Belcher Sr. reorganized the company's management. Belcher Sr. remained chairman of the board, Snodgrass became president, Belcher Jr. was demoted to a vice-president, and Allen assumed the post of general counsel. In March 1974 defendant K. O. Johnson entered the picture, succeeding the aging Snodgrass as president of the company. A former employee of the Exxon Corporation, Johnson was widely experienced in the oil industry. Included in Johnson's long-term employment contract was a stock option plan under which Johnson was empowered to purchase, over a period of five years, a total of 7,500 shares of Belcher Oil Company stock at $30 per share, substantially less than the fair market value at the time. 18 By the summer of 1974 it became clear to defendants that the Belcher III faction would seek to regain control of the company at the 1974 annual meeting. Shortly before the October 1974 annual meeting, defendants learned that Belcher III's group was negotiating with three shareholders to buy 6,378 shares of company stock. To keep those votes from falling into Belcher III's hands, the defendants caused the company to purchase the 6,378 shares for $164 and $165 per share, prices which Belcher Sr. later admitted to have been in excess of the stock's fair market value. Defendants timed the stock purchase to enhance their own voting strength in the 1974 election. Proxies covering the 6,387 shares were secured from the sellers before the closing of the company's stock books for record purposes at the election. The purchase itself, however, was postponed until after the company's stock books had been closed. Thus, when the shares were retired to the corporate treasury, Belcher Sr.'s faction kept the proxies and voted them in the 1974 election. The Belcher Sr. faction ultimately won the election by a margin of approximately 23,000 votes. At that October 1974 annual meeting, Johnson's contract and stock option plan were ratified.