Schreiber v. Carney

447 A.2d 17 (Del.Ch. 1982)

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Nature of the Case

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Facts

P challenged the propriety of a loan from Texas International to Jet Capital (D). D owned 35% of Texas and held an effective veto power over a proposed merger between Texas and Texas Air and had threatened to block it because of adverse tax consequences to D unless D could exercise its warrants it held in Texas prior to the merger. D claimed that it lacked the necessary funds to exercise the warrants and that borrowing funds from a third-party lender was too expensive. Because of common directors, a special committee was formed to look into Texas loaning D money. The committee looked at the issues and found that the merger was in the best interests and the best way to solve the problem with D was to loan the money. A loan was arranged for $3,335,000 at 5% interest per annum for up to 1982, the original date the warrants were to expire. After that time the interest would float with prime. The 5% interest rate was necessary to reimburse Texas for any dividends it paid out during that period. With the dividends and immediate payback, the loan had virtually no impact on Texas' cash position. Shareholders voted in favor of this plan. There was no allegation by P that the proxy was misleading. D was not permitted to vote on the matter. P essentially claims that this was merely vote buying.