have gone into it would have constituted the most reckless kind of speculation. No steps have been taken toward litigating the validity of the debt; and the New Haven Reorganization Court, in its Order No. 679 dated August 15, 1972, did not instruct the New Haven Trustee to do so, but left the matter along with certain other matters, to the Trustee "in the sole exercise of his discretion". It is an issue on which there are few undisputed or proven facts and many differences of opinion. Anything that might have been said about it in the proxy material would almost certainly have been misleading, and we are not convinced that a wild guess as to how this question might finally be determined is a material fact which ought to have been stated.
One of plaintiff's more puzzling allegations is that defendants failed to disclose in the proxy material that the $5.50 exercise price was an arbitrary figure selected without consideration of the book value of each share, and that if book value had been considered the exercise price would have been higher. Plaintiff has offered us nothing beyond his bare assertion that would lead us to believe that the exercise price is "arbitrary" rather than "negotiated", as the proxy statement says it is. His suggestion that book value is any indication of the real value of shares of stock has long been discredited, and should not have been resurrected for the purposes of this proxy solicitation.
In his complaint, plaintiff makes several allegations which charge that the proxy material violates § 14(a) because it fails to disclose the extent and nature of the opposition to the New Plan of Refinancing. He claims that the proxy material misstates or omits (1) plaintiff's reasons for opposing the proposal; (2) the opposition of the Trustee of the New Haven Railroad to the plan; and (3) the Order issued on August 15, 1972 by Judge Robert P. Anderson of the New Haven reorganization court which instructed the New Haven Trustee to vote against the New Plan and to recommend that the Penn Central Company immediately petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq.
Plaintiff has offered no proof as to when or in what manner he expressed his opposition to the New Plan to the Board of Directors. We assume, however, that the Board was notified sometime between the mailing of the July 17 proxy statement and the preparation of the August 9 supplement.
Defendants do note Mr. Allen's opposition to the Plan in the supplement. Under the italicized heading of Opposition of Nominee for Director to the Plan of Refinancing they state that Mr. Allen is a substantial stockholder and a management nominee for election to the Board who "opposes and intends to vote against the Plan of Refinancing." [Emphasis in the supplement.] They also note that Mr. Allen had supported the plaintiffs in the litigation over the 1971 proxy material ( Robinson v. Penn Central Company, supra).
It is undoubtedly true that Mr. Allen's opposition to the New Plan is a material fact which was properly stated in the proxy material. The opposition of a nominee for Director to the plan, and especially that of one who has been nominated by the same management that has proposed adoption of the plan, is a matter of more than routine interest to the Company's shareholders. We are not convinced, however, that a statement of Mr. Allen's reasons for opposing the plan should have been included to satisfy § 14(a).
A management proxy statement must explain the proposal accurately and fully, but it need not be a forum for every possible disagreement with the proposed course of action. An avalanche of detailed argument of all positions may render the proxy statement so opaque as to be nearly incomprehensible. We therefore conclude that the Board did all that was necessary with respect to Mr. Allen's opposition.
The supplement's statement of the position of the New Haven Trustee is a substantially accurate explanation of the Trustee's position as of the time the supplement was sent to the shareholders. In the Trustee's petition to the New Haven reorganization court for instructions on what action to take on the New Plan of Refinancing, the Trustee expressed the opinion that appropriate proceedings should be instituted for adjudication of the validity of the Company's guarantee of the debt to the Noteholders. In the Matter of the New York, New Haven and Hartford Railroad Company, Debtor, Petition for Order No. 679 (D.C.Conn., Aug. 3, 1972). This position was stated in the supplement. The Trustee also set out seven alternative courses of action for him to take on the New Plan, including voting for the adoption of the Plan and voting against it. Id. It would have been unwise and misleading for the Board of Directors to have tried in the proxy statement to speculate further on the New Haven's position.
The more important question is what defendants should have done after they learned of Judge Anderson's Order No. 679 of August 15. Plaintiff argues that this Order, because it instructed the Trustee to vote against the Plan and expressed a distinguished judge's opinion that immediate reorganization would be preferable to the New Plan, was of such importance that defendants should have further supplemented the proxy statement.
The Estate of the New Haven, with 4% of the outstanding common stock, is the Company's single largest shareholder. The intention of one stockholder, no matter how substantial his interest may be, would ordinarily not be a material fact for the purposes of § 14(a). However, the New Haven's decision was the result of a court order by a distinguished judge who had carefully examined the New Plan and the overall position of the Company. Because of this we think the August 15 Order should normally have been brought to the shareholders' attention and that its omission had a "significant propensity to affect the voting process." Mills v. Electric Auto-Lite Co., supra, 396 U.S. at 384, 90 S. Ct. at 621.
Defendants argue that they would have included some reference to Judge Anderson's Order had it not been issued on a Friday only nine days before the Annual Meeting was to take place. We do not, however, regard the expense and inconvenience of further supplementing the proxy statement as a complete justification for defendants' failure to do so.
Nevertheless, the remedy for the omission of a material fact must vary with the circumstances.
"We assume that Rule 14a-9 may be read as authorizing a court to require a further statement and an opportunity to revoke proxies where a proxy statement, correct at the time of its issuance, has become misleading as a result of subsequent developments [citation omitted], although the words of the Rule are not exactly apt to that end. But this is strong medicine * * * and a correspondingly strong showing of materiality is required." General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 163 (C.A.2, 1968), cert. denied 393 U.S. 1026, 89 S. Ct. 631, 21 L. Ed. 2d 570 (1969).