The opinion of the court was delivered by: GERARD L. GOETTEL
Progressive Bank, Inc. is a New York holding company whose only subsidiary is the Pawling Savings Bank, with its headquarters in Dutchess County, New York and 16 branch locations in surrounding counties. Progressive's shares trade over the counter on the NASDAQ system. Until 1988, Progressive experienced consistent growth and profits. In 1989, however, the company posted a loss of roughly $ 500,000. A loss of $ 8.6 million on income of $ 63 million was realized in 1990. By the time this action was commenced in 1991, estimates placed first quarter losses at $ 2 million. The current recession appears to have taken its toll on yet another savings bank.
E. Hale Mayer became Chairman of the Board and Chief Executive Officer of Progressive when the company was formed in 1986. Previously, he worked with Pawling Savings Bank for over 20 years, his most recent position being President. On December 1, 1989, Mayer and Progressive signed a five year Employment Agreement, providing that if Mayer were terminated without cause, he would receive a sum equalling the greater of either one year's salary or essentially the remaining value of the Employment Agreement.
In a letter dated November 21, 1990, Mayer offered to take early retirement from Progressive because he believed that there was insufficient merger and acquisition work at the company to fully occupy him. Although depositions suggest that the Progressive directors generally opposed Mayer's early retirement, by February 13, 1991, the directors determined that it would be in the best interests of the company to accept Mayer's proposal to retire.
Accordingly, a "Liaison Committee" was formed and met with Mayer to negotiate an early retirement plan.
At a special meeting on March 6, 1991, the Liaison Committee presented the terms of the agreement to the boards of Progressive and Pawling. Mayer did not participate in the meeting. After discussing the agreement, it appears that changes were proposed and the revised agreement was then accepted by a unanimous vote. The resulting Retirement Agreement, effective March 8, 1991, provided that Mayer would receive the remainder of his 1991 salary (equalling over $ 200,000), a lump sum payment of $ 300,000, and $ 80,000 per year in 1992, 1993, and 1994. In addition to collecting pension and other benefits, Mayer would continue his position as a Director of Progressive. Mayer, in return, agreed not to buy or sell more than 1,000 shares of Progressive stock without approval of the Board of Directors, not to participate in any fight for control of Progressive, and not to solicit banking business from any person who currently or in the previous six months had banked with the Pawling Savings Bank. This Retirement Agreement abrogated Mayer's Employment Agreement previously in effect, with payments somewhat less than would have been called for under it.
The 1991 annual meeting of Progressive shareholders was scheduled for April 30, 1991. The original proxy statement concerning the election of an unopposed slate of nominees for the Board of Directors sent by Progressive stated that "pursuant to the terms of the new agreement, Mr. Mayer received a lump sum payment, will receive payments during the remainder of 1991 equivalent to what he would have received had he remained an employee of Progressive, and, beginning January 1, 1992, he is to receive equal periodic payments over a period of three years."
The motion to enjoin the Progressive 1991 shareholders meeting was denied.
The meeting was held on April 30, 1991, and the shareholders duly elected four members of the thirteen member board.
Several weeks later, the plaintiff amended the complaint, still a derivative action, to include another § 14(a) claim and a claim that the election of the directors was illegal and invalid. The new § 14(a) claim focused on the purported inadequacy of the supplemental proxy statement Progressive sent to its shareholders on April 15, 1991. The complaint alleges that the supplemental proxy failed to disclose the business purpose justifying the making of the Retirement Agreement, and violated the requirements of Item 103 of SEC Regulation S-K by failing to fully describe these legal proceedings.
All of the defendants, with the exception of E. Hale Mayer (who earlier moved unsuccessfully on different grounds), now move for summary judgment, dismissing all five counts of the amended complaint.
The Federal Rules of Civil procedure permits summary judgment when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505, (1986). The court must resolve all ambiguities and draw all inferences in favor of the non-moving party. See EAD Metallurgical, Inc. v. Aetna Casualty & Sur. Co., 905 F.2d 8, 10 (2d Cir. 1990). The moving party has the initial burden of demonstrating that there is no genuine issue of material fact for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The non-movant then must make a showing sufficient to establish the existence of an element essential to its case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, ...