## Facts

- Hewlett-Packard Company (HP), a Delaware corporation, agreed in September 2001 to a stock-for-stock merger with Compaq Computer Corporation, conditioned on HP stockholder approval of HP’s share issuance.
- Walter B. Hewlett (an HP director and son of an HP founder) and related trust parties opposed the merger and participated in a highly public proxy contest against HP management.
- At a March 19, 2002 special meeting, HP stockholders approved the share issuance by a very narrow margin.
- On March 28, 2002, the Hewlett parties filed an expedited action under 8 Del. C. § 225(b) challenging the validity of the vote and seeking, among other relief, invalidation of votes cast in favor of the proposal and a declaration that the proposal failed (or that a new vote be held).
- Plaintiffs alleged HP’s solicitation campaign contained material misstatements and omissions about merger integration planning and expected synergies, including claims that HP’s public projections were misleading in light of more cautious internal analyses.
- Plaintiffs also alleged impermissible vote buying or coercion involving Deutsche Bank, which held a large block of HP shares and had substantial banking relationships with HP.
- Deutsche Bank initially indicated opposition but later supported the merger after intensified contacts with HP and after HP retained Deutsche Bank for advisory and financing roles that generated fees and business.
- The Court of Chancery denied a motion to dismiss, expedited discovery, tried the case over three days in April 2002, and issued a post-trial decision on April 30, 2002.

## Issues

1. Whether alleged misstatements or omissions in HP’s proxy solicitations and related communications were materially misleading so as to taint the stockholder vote under Delaware law.
2. Whether HP’s dealings with Deutsche Bank constituted unlawful vote buying or actionable coercion sufficient to invalidate Deutsche Bank’s votes or the overall election result in a § 225 proceeding.
3. Whether equity required the extraordinary remedy of setting aside the contested stockholder vote in the circumstances of a fully litigated and vigorously contested proxy battle.

## Decision

- The Court of Chancery upheld the validity of the March 19, 2002 stockholder vote approving the share issuance for the merger.
- The court held plaintiffs failed to prove that HP’s proxy materials or supporting statements contained material misrepresentations or omissions.
- The court held plaintiffs failed to prove that HP unlawfully bought or coerced Deutsche Bank’s votes; the record did not establish an improper quid pro quo that compromised the stockholder franchise.
- The court denied plaintiffs’ requested relief, leaving the merger-related stockholder approval intact.

## Legal Principles

- Proxy-solicitation challenges under Delaware law turn on materiality: information is material if there is a substantial likelihood a reasonable stockholder would consider it important in deciding how to vote.
- Optimistic projections, synergy claims, and integration expectations generally are not actionable absent proof they were knowingly false or misleading when made, rather than expressions of permissible opinion or good-faith business judgment.
- Not every influence on voting constitutes prohibited vote buying; the central concern is whether private consideration, unrelated to stock ownership, is traded for votes in a way that compromises the stockholder franchise.
- Commercially explainable advisory, financing, or fee arrangements with an institutional holder do not, without clear evidence of an improper exchange for votes, justify invalidating votes as “bought.”
- In a § 225 proceeding, invalidating a corporate election is an exceptional equitable remedy; where stockholders received extensive information and participated in a hotly contested campaign, a challenger must show clear, outcome-relevant taint (such as materially misleading disclosures or unlawful vote buying).

## Conclusion

The court refused to overturn HP’s narrowly approved merger-related vote because plaintiffs did not establish that HP’s disclosures were materially misleading or that HP’s interactions with Deutsche Bank amounted to unlawful vote buying or coercion sufficient to justify setting aside the stockholder franchise.


Hewlett v. Hewlett-Packard Co., 2002 WL 818091 (Del. Ch. Apr. 30, 2002)