Lacos Land Co. v. Arden Group, Inc.

517 A.2d 271 (Del. Ch. 1986)

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Nature of the Case

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Facts

P sought to enjoin a pending recapitalization of Arden. There was to be a new class of Class B Common Stock that would possess ten votes per share and be entitled to elect as a class 75 % of the Arden Board of Directors (D). All D shareholders were entitled to exchange their outstanding common shares on a share for share basis. P owned approximately 4.5% of Arden's Class A Common Stock. It was acknowledged by D that this new class of shares was fashioned specifically for Briksin (D1), D's principal shareholder. The aim of this particular measure was a device to transfer stockholder control to D1. D1 had become the chief executive officer of D in 1976 at a time when D was in desperate condition. Stock was trading between $1 and $2 per share. During D1's tenure, the stock had risen to $25 per share. In instigating the dual common stock voting structure, D1 was apparently not responding to any specific threat to existing policies or practices of D posed by a specific takeover threat. D1 was motivated to protect his power. This does not itself constitute a wrong. D1 took his idea to the board, and it established a three-member committee of non-officer directors to consider the matter. The special committee retained neither independent counsel nor an independent financial advisor. At its first meeting, the chairman distributed a draft report that he had previously prepared which gave approval to a supervoting stock plan. The committee reviewed this draft and suggested changes. A final three-page report was signed four days later at the committee's second, and final, meeting. Management prepared a proxy statement describing the proposed charter amendments authorizing the new supervoting Class B Common Stock. The measure was approved by 64% of all outstanding shares. P claimed that the proxy statement that was used to solicit votes was materially misleading. P also claimed that the offer constituted an impermissible entrenchment scheme designed principally to thwart all possible changes in corporate control not personally agreeable to D1 and to perpetuate him in office. P sought a preliminary injunction.