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In a ruling plaintiffs lawyers called a victory for “shareholder democracy,” a Southern District judge ruled Wednesday that a dissident shareholder’s use of a duplicate proxy card in a campaign to defeat a corporate merger did not require filings and disclosures normally required for shareholder solicitations. In a case of apparent first impression, Judge Richard J. Holwell denied a preliminary injunction sought by a company that claimed the inclusion of the card triggered the filing and disclosure requirements of rules passed pursuant to � 14(a) of the Securities Exchange Act of 1934. Instead, the relatively rare practice of sending duplicate proxies and asking fellow disgruntled shareholders to return them to management fell within an exemption for filings carved out by the Securities and Exchange Commission, Holwell found. The ruling in The MONY Group Inc. v. Highfields Capital Management, 04 Civ. 0916, concerned a dispute over the plans of AXA Financial Inc. to acquire MONY for $1.5 billion in cash. The deal, in which The MONY Group Inc. shareholders would receive $31 per share of stock, was approved by the company’s board of directors and announced in September. MONY mailed a proxy statement and proxy card to shareholders in advance of a Feb. 24 vote on the sale. Highfields Capital Management objected to the sale, saying the price was too low and the transaction was both poorly timed and driven by the self-interest of management. As it announced its intention to urge shareholders to reject the agreement, counsel for Highfields contacted the commission and asked whether it was proper to include a copy of MONY’s proxy card in the materials Highfields planned to send to shareholders. The request was made, one lawyer associated with the case said, because the use of duplicate proxy cards has not been a common practice to date. The SEC’s Office of Mergers and Acquisitions responded that Highfields may do so if certain conditions were met. MONY filed suit in the Southern District of New York, arguing that the inclusion by Highfields in the shareholder mailing of a copy of the MONY proxy card attached to a page referencing the card and urging shareholders to reject the sale triggered the filing and disclosure requirements of Rules 14a-3 to 14a-6, which were promulgated pursuant to � 14(a) of the 1934 act. Anyone who solicits a proxy, whether on behalf of the company board or for some other party, has to file detailed information with the SEC and then deliver the same information to the solicited shareholders. An exemption to these requirements is found in Rule 14a-2(b)(1), adopted in 1992 by the SEC, which said in a release that “the federal proxy rules have created unnecessary regulatory impediments to communication among shareholders and others to the effective use of shareholder voting rights.” The SEC said, “It is generally not possible for a shareholder to know with certainty that a communication will or will not be deemed to constitute a solicitation,” which creates a “chilling effect” on shareholder communication, in part because management “would be the only party willing to assume the regulatory costs, resulting in a one-sided discussion of the merits.” MONY contended that the exemption did not apply because the inclusion of a copy of the proxy card meant that Highfields had furnished a “form of revocation.” Highfields disagreed, arguing that even if it was a form of revocation, the exemption applied because it was not seeking the power to act as a proxy. The judge disagreed that the copy amounted to a form or revocation. “It is true that the proxy card may have the effect of a revocation in those cases where a shareholder has previously submitted a proxy,” he said, “but that is not a necessary effect inherent in the card and does not transform management’s proxy card into a form of revocation that places Highfields outside the ambit of the exemption.” The judge said the policy underlying the exemption “is not advanced by reading the phrase ‘form of revocation’ to include the distribution of a copy of management’s own proxy card that is to be returned, if at all, to management and not to the dissident shareholder as some form of authorization.” In fact, Holwell said, “effectively foreclosing the mailing of the company’s proxy card can be seen as frustrating the animating spirit that lies at the core of Rule 14(a)-2(b)(1).” CLAIMS DISMISSED MONY had claimed that a misinformed shareholder vote would have “devastating consequences,” including a drop in its share price. MONY also said it would be impossible to undo the damage if the injunction was not granted and the mailing was later found to be unlawful. But Holwell dismissed those claims as “too speculative and causally tenuous to support a preliminary injunction.” “MONY concededly runs the risk that shareholders will vote against the merger, using the proxy cards provided by defendants that might, following a determination on the merits, be deemed to have been illegal,” he said. “On the other hand, defendants too face a hardship in that, if the mailing of the proxy card were enjoined,” and later found to be lawful, they “would have been prevented from exercising to the extent of the law its right to communicate with other shareholders on an issue of vital concern to them [as] owners of MONY.” R. Todd Cronan, who represented Highlands along with fellow Goodwin Procter partner Joseph L. Johnson III, said the ruling was a victory for “shareholder democracy.” Cronan said the use of duplicate proxy cards might increase following the precedent set by the judge’s ruling. John F. Collins and James P. Smith of Dewey Ballantine represented MONY. They could not be reached for comment.

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