Nature of the Case
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Facts
D owns and operates resort hotels and gaming establishments in Las Vegas and Reno, Nevada. After a terrible fire struck D, and in response to the reduced price of D's stock and to the risks to stockholders' investment represented by the fire-related litigation claims, on April 1, 1982, D publicly offered to exchange one share of common stock for one share of a new class of stock, the Series A Redeemable Preferred Stock. The offer extended to a maximum of 10 million shares of the Company's then-outstanding 32,500,000 shares. The offering document stated that Kerkorian (D) (who at that time controlled very slightly in excess of 50 % of the issued and outstanding common stock) would tender into the offer that number of shares equal to the total number tendered by all other shareholders, but in no event would he tender less than 5 million shares. The preferred stock issued in connection with the 1982 exchange offer carries a cumulative $ .44 annual dividend (the same dividend paid with respect to the common stock both at the time of the exchange offer and now), is non-convertible, elects no directors unless dividends remain unpaid for six quarters, has a liquidation preference of $20 per share and carries a complex redemption right. The redemption provisions require D to acquire each year a number of preferred shares determined by a formula set forth in the certificate designating the rights, preferences, etc. of the preferred. D is required to redeem the stock at $20 per share in any year only if it is unable privately to purchase, on the market, or through a tender offer, the number of preferred shares required to be 'redeemed' that year. During fiscal years 1982-84 the Company purchased a total of 766,551 shares of preferred stock on the open market at an average cost of $7.92 per share and has been required to redeem no shares at $20 per share. Through the exchange offer, 9,315,403 common shares were exchanged, including 5 million shares by Kerkorian (D) and his corporation, Tracinda. D entered into an agreement with Bally Manufacturing Corporation contemplating a merger between a Bally subsidiary and D. On the effectuation of such merger, all classes of the Company's presently outstanding stock will be converted into the right to receive cash. Kerkorian (D) individually and through Tracinda Corporation, beneficially owns 69% of D's issued and outstanding common stock and 74 % of its only other class of stock, its Series A Redeemable Preferred Stock (preferred). Kerkorian (D) took an active part in negotiating the proposed merger with Bally and agreed with Bally to vote his stock in favor of the merger. Since neither the merger agreement nor D's charter contains a provision conditioning such a transaction on receipt of approval by a greater than majority vote, Kerkorian's (D) agreement to vote in favor of the merger assured its approval. Bally, at least prior to its obtaining an option on Kerkorian's (D) shares as part of the negotiation of the agreement of merger, has owned no stock in D. P is an owner of the Company's preferred stock. P brought this class action on behalf of all owners of such stock other than Kerkorian's (D) and seeks to enjoin preliminarily and permanently the effectuation of the proposed merger. P claims the proposed merger would constitute a breach of a duty to deal fairly with the preferred shareholders owed to such shareholders by Kerkorian (D), as a controlling shareholder of D, and by the directors of D. The merger is said to constitute a wrong to the preferred shareholders principally in that it allegedly contemplates an unfair apportionment among D's shareholders of the total consideration to be paid by Bally upon effectuation of the merger. P has moved for a preliminary injunction.
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