Friendly, Smith and Anderson, Circuit Judges.
This is an appeal by minority stockholders of Northeast Airlines, Inc. (Northeast) from an order of Judge Ryan in the District Court for the Southern District of New York refusing to enjoin Northeast and Storer Broadcasting Company (SBC), the majority stockholder of Northeast, from voting proxies in favor of a proposed merger of Northeast into Northwest Airlines, Inc. (Northwest) at a meeting called for October 26, 1970. Plaintiffs asked that voting of the proxies be enjoined unless Northeast stockholders were furnished plaintiffs' "Proposed Supplement" to the Northeast proxy statement at least ten days in advance of the meeting. In view of the provision of the merger agreement entitling Northwest to terminate if stockholder approval was not obtained by December 31, 1970, we indicated from the bench that we proposed to affirm. However, since this litigation has had a past, see Stedman v. Storer, 308 F. Supp. 881 (S.D.N.Y.1969), and may have a future, we think it desirable to state just what we have decided and the reasons for it.
The litigation stems from an agreement, announced in principle on November 11, 1969, and embodied in a contract dated January 19, 1970, for the merger of Northeast into Northwest. The announcement stated, and the contract provided, that shareholders of Northeast would receive one share of Northwest for each five shares of Northeast. Since Northeast's stock had been selling at about 40% of the market price of Northwest's the announcement caused a sharp drop in the price of Northeast shares. See 308 F. Supp. at 883-884. At the same time, the market price of SBC, owner of 86% of Northeast's stock, advanced. The apparent inconsistency disappears when it is understood, first, that SBC's average cost for its Northeast shares was only $5.30 per share as against the approximately $7 it would realize on the basis of the then market value of Northwest shares and, second, that Northeast's heavy losses had made that company an albatross around SBC's neck and a merger of Northeast into Northwest could be expected to relieve SBC of this burden. Minority shareholders of Northeast brought actions attacking the proposed merger in the District Court for the Southern District of New York on the basis of alleged violations of § 10(b) of the Securities Exchange Act and SEC Rule 10b-5, and sought various forms of preliminary injunctive relief. These motions were denied by Judge Frankel in the informative opinion already cited.
The Civil Aeronautics Board proceeded with the hearings concerning the proposed merger required by § 408 of the Federal Aviation Act, 49 U.S.C. § 1378. On August 4, 1970, Trial Examiner Park filed a decision recommending approval. Although the Northeast minority stockholders and others have sought review by the Board, 14 C.F.R. § 302.28, Northeast on September 23, 1970, sent out a Notice of Special Meeting in Lieu of Annual Meeting of Stockholders, to be held on October 26, 1970, accompanied by a Proxy Statement as required by § 14 of the Securities Exchange Act and the SEC's Regulation 14A.
In view of SBC's domination of Northeast through its 86% stock ownership, any attempt by the minority stockholders who opposed the merger to wage a proxy contest would have been futile. Instead they sought to have Northeast circulate a document entitled "Supplement Proposed on Behalf of Minority Shareholders of Northeast Airlines, Inc., of Proxy Statement dated September 22, 1970," which contained additional facts necessary in their judgment in order to make the Proxy Statement conform to the standards of Rule 14a-9. Northeast agreed to do this at its own expense if the Supplement were modified to make clear that it was not prepared or sponsored by management, which was inoffensive although hardly necessary in view of the changes in the cover page of the Supplement to which its proponents had already agreed, and if the proposed communication was "cleared by the SEC."
Not availing themselves of this offer, plaintiffs moved to enjoin Northeast and SBC from voting proxies at the October 26 stockholders' meeting of Northeast unless the Supplement was furnished at least ten days in advance. Judge Ryan held a hearing on October 14. Having determined to deny the motion, he signed, on October 22, an order containing findings of fact and conclusions of law substantially as proposed by the defendants.*fn1 Plaintiffs made no application to stay the meeting either in the district court or here. However, they did file a notice of appeal and a motion, returnable in this court on November 9, for an order to enjoin any tally or certification of the vote. Before the return day the tellers had certified the vote as follows:
Against the merger 64,050