[VOL. 3 Unreported Cases - The Delaware Journal of ... CASES CUMULATIVE CASE INDEX All Issues to Date (Continued) DIVERSIFIED INDUSTRIES, FIXMAN v., No. 4721 (Del. Ch. …

[VOL. 3

Unreported Cases

INTRODUCTIONUNREPORTED CASES is a continuing feature of THE DELA-

WARE JOURNAL OF CORPORATE LAw. Significant unreported casesthat have not been published by a reporter system will be included.The courts' opinions are printed in their entirety, exactly as received.

To expedite the attorney's research, all cases are headnotedaccording to the NATIONAL REPORTER key number classificationsystem.* Indices are provided for case names, statutes construed,rules of court, and key numbers and classifcations for this issue.

(126)

* The NATIONAL REPORTER key number classification system is used with the permis.sion of the West Publishing Co., St. Paul, Minnesota 55102.

UNREPORTED CASES

CASE INDEXThis Issue

BARON v. WOLF, No. 4972 (Del. Ch. January 15, 1976).BROWN, Vice-Chancellor ...........................................................

KRAMEDOS v. KRAMEDOS, No. 518 (Del. Ch. February 13,1977). BROWN, Vice-Chancellor ...............................................

NEELY v. OKLAHOMA PUBLISHING COMPANY, No. 5293(Del. Ch. August 15, 1977). BROWN, Vice-Chancellor ........

SIMKINS INDUSTRIES, INC. v. FIBREBOARD CORP., No.5369 (Del. Ch. July 28, 1977). MARVEL, Chancellor ...........

STATUTES CONSTRUEDThis Issue

DELAWARE CODE

8 Del. C. § 151(b) ............................... 1368 Del. C. § 154 .................................... 1368 Del. C. § 160 .................................... 1368 Del. C. § 160(a)(1) ........................... 1368 Del. C. §170 .................................... 136

8 D el. C. §220 .................................... 1398 D el. C. § 243 .................................... 1368 D el. C. §244 .................................... 1368 D el. C. § 271 ............................ 144. 1498 D el. C. § 291 .................................... 149

KEY NUMBER INDEXThis Issue

CORPORtATIONS

181(1) .................................................... 139181(2) .................................................... 139182.4(1) ................................................. 144182.4(2) ................................................. 144182.4(3) ................................................. 149482/2 ..................................................... 136553(1) .................................................... 149553(2) .................................................... 149553(5) .................................................... 149585 ........................................................ 136

73 .......................................................... 144

INJUNCTION

72 .......................................................... 144132 ........................................................ 149137(4) .................................................... 144151 ........................................................ 149

CUMULATIVE CASE INDEXAll Issues to Date

ACADEMIC SYSTEMS MANAGEMENT CORP., ZLOTNICKv., No. 3344 (Del. Ch. October 5, 1971) 2 DEL. J. CORP. L.

AEROSONIC CORP., TUCKMAN v., No. 4094 (Del. Ch.January 14, 1975) .................................... 1 DEL J. CORP. L.

EVIDENCE

19771

DELAWARE JOURNAL OF CORPORATE LAW


(Continued)AEROCONIC CORP., TUCKMAN v., No. 4094 (Del. Ch.

October 21, 1975) ..................................... 1 DEL. J. CORP. L. 463

A. J. INDUSTRIES, INC., TANNETICS, INC. v., No. 4592(Del. Ch. September 4, 1974) ................. 2 DEL. J. CORP. L. 348

ALLEN, LIBOFF v., No. 2669 (Del. Ch. January 14, 1975)2 DEL. J. CORP. L. 350

AMERICAN RESEARCH & DEVELOPMENT, SCIENCEACCESSORIES CORP. v., No. 4324 (Del. Ch. June 6, 1975)

1 DEL. J. CORP. L. 446

ARTESIAN WATER CO. v. SMALLEYS D.V., INC., No. 4818(Del. Ch. July 1, 1975) ............................ 1 DEL. J. CORP. L. 448

BANK OF AMERICA v. GAC PROPERTIES, INC., No. 4914(Del. Ch. November 12, 1975) ............... 1 DEL. J. CORP. L. 467

BARON v. WOLF, No. 4972 (Del. Ch. January 15, 1976)3 DEL. J. CORP. L. 136

BARRY v. FULL MOLD PROCESS, INC., No. 4740 (Del. Ch.June 16, 1975) ........................................... 1 DEL. J. CORP. L. 202

BON AMI CO., STRYKER & BROWN v., No. 1945 (Del. Ch.March 16, 1964) ........................................ 2 DEL. J. CORP. L. 157

BONNEVILLE, LTD., BOWLING v., No. 1688 (Del. Ch.January 14, 1963) .................................... 2 DEL. J. CORP. L. 162

BOWLING v. BONNEVILLE, LTD., No. 1688 (Del. Ch.January 14, 1963) .................................... 2 DEL. J. CORP. L. 162

BUSINESS CAPITAL CORP. v. INTERPHOTO CORP., No.3613 (Del. Ch. July 23, 1971) ................ 2 DEL. J. CORP. L. 340

COUNCIL 81, AMERICAN FEDERATION OF STATE,COUNTY, AND MUNICIPAL EMPLOYEES v. STATEPERSONNEL COMMISSION, No. 4665 (Del. Ch. July 30,1975) ........................................................... 1 DEL. J. CORP. L. 456

[VOL. 3

UNREPORTED CASES


(Continued)DIVERSIFIED INDUSTRIES, FIXMAN v., No. 4721 (Del. Ch.

May 5, 1975) ............................................. 1 DEL. J. CORP. L. 171

DPF INC. v. INTERSTATE BRANDS CORP., No. 4876 (Del.Ch. October 2, 1975) ................................ 1 DEL J. CORP. L. 458

EAST COAST RESORTS, INC. v. LYNCH, No. 553 (Del. Ch.July 17, 1975) ........................................... 1 DEL. J. CORP. L. 452

FARLAND v. WILLS, No. 4888 (Del. Ch. November 12, 1975)1 DEL. J. CORP. L. 467

FIBREBOARD CORP., SIMKINS INDUS., INC. v., No. 5369(Del. Ch. July 28, 1977) .......................... 3 DEL. J. CORP. L. 144

FIXMAN v. DIVERSIFIED INDUSTRIES, No. 4721 (Del. Ch.May 5, 1975) ............................................. 1 DEL J. CORP. L. 171

FLIEGLER v. LAWRENCE, No. 3647 (Del. Ch. December 10,1974) ........................................................... 1 DEL J. CORP. L. 145

FULL MOLD PROCESS, INC., BARRY v., No. 4740 (Del. Ch.June 16, 1975) ........................................... 1 DEL. J. CORP. L. 202

GAC PROPERTIES, INC., BANK OF AMERICA v., No. 4914(Del. Ch. November 12, 1975) ............... 1 DEL. J. CORP. L. 467

GOTTLIEB v. LESTOIL PRODUCTS, INC., No. 1947 (Del.Ch. March 16, 1964) ................................ 2 DEL J. CORP. L. 157

GREYHOUND CORP., HEITNER v., No. 4514 (Del. Ch. May12, 1975) ..................................................... 1 DEL. J. CORP. L. 188

HEITNER v. GREYHOUND CORP., No. 4514 (Del. Ch. May12, 1975) ..................................................... 1 DEL J. CORP. L. 188

INTERNATIONAL GENERAL INDUSTRIES, INC.,TANZER v., No. 4945 (Del. Ch. December 23, 1975)

1 DEL J. CORP. L. 444

INTERPHOTO CORP., BUSINESS CAPITAL CORP. v., No.3613 (Del. Ch. July 23, 1971) ................ 2 DEL. J. CORP. L. 340

1977]



(Continued)INTERSTATE BRANDS CORP., DPF INC. v., No. 4876 (Del.

Ch. October 2, 1975) ................................ 1 DEL. J. CORP. L. 458

KRAMEDOS v. KRAMEDOS, No. 518 (Del. Ch. February 13,1977) ........................................................... 3 DEL. J. CORP. L. 149

LAMBERT, WARD FOODS, INC. v., No. 2691 (Del. Ch.August 18, 1972) ...................................... 1 DEL. J. CORP. L. 137

LASKER v. McDONNELL & CO., No. 4740 (Del. Ch. July 9,1975) ........................................................... 1 DEL. J. CORP. L. 208

LAWRENCE, FLIEGLER v., No. 3647 (Del. Ch. December 10,1974) ........................................................... 1 DEL. J. CORP. L. 145

LESTOIL PRODUCTS, INC., GOTTLIEB v., No. 1947 (Del.Ch. March 16, 1964) ................................ 2 DEL. J. CORP. L. 157

LEVIEN v. SINCLAIR OIL CORP., No. 1883 (Del. Ch. August12, 1975) ..................................................... 1 DEL. J. CORP. L. 230

LIBOFF v. ALLEN, No. 2669 (Del. Ch. January 14, 1975)2 DEL. J. CORP. L. 350

LYNCH, EAST COAST RESORTS, INC. v., No. 553 (Del. Ch.July 17, 1975) ........................................... 1 DEL. J. CORP. L. 452

McDONNELL & CO., LASKER v., No. 4740 (Del. Ch. July 9,1975) ........................................................... 1 DEL. J. CORP. L. 208

M.A. GERETT, INC., TASSETTE, INC. v., No. 2722 (Del. Ch.February 5, 1971) ..................................... 2 DEL. J. CORP. L. 152

MILFORD ATHLETIC ASSOCIATION, INC., IN RE, No. 487(Del. Ch. January 28, 1975) ................... 1 DEL. J. CORP. L. 166

NEELY v. OKLAHOMA PUBLISHING CO., No. 5293 (Del.Ch. August 15, 1977) ............................... 3 DEL. J. CORP. L. 139

OKLAHOMA PUBLISHING CO., NEELY v., No. 5293 (Del.Ch. August 15, 1977) ............................... 3 DEL. J. CORP. L. 139

[VOL. 3

UNREPORTED CASES


(Continued)ORMAND INDUSTRIES, INC., SKOGLUND v., No. 5144

(Del. Ch. December 3, 1976) .................. 2 DEL. J. CORP. L. 359

PENNSYLVANIA MUTUAL FUND, INC. v. TODHUNTERINTERNATIONAL, INC., No. 4845 (Del. Ch. August 5,1975) ........................................................... 1 DEL. J. CORP. L. 229

SCIENCE ACCESSORIES CORP. v. AMERICAN RE-SEARCH & DEVELOPMENT, No. 4324 (Del. Ch. June 6,1975) ........................................................... 1 DEL. J. CORP. L. 446

SIMKINS INDUS., INC. v. FIBREBOARD CORP., No. 5369(Del. Ch. July 28, 1977) .......................... 3 DEL. J. CORP. L. 144

SINCLAIR OIL CORP., LEVIEN v., No. 1883 (Del. Ch.August 12, 1975) ...................................... 1 DEL. J. CORP. L. 230

SKOGLUND v. ORMAND INDUSTRIES, INC., No. 5144 (Del.Ch. December 3, 1976) ............................ 2 DEL. J. CORP. L. 359

SMALLEYS D.V., INC., ARTESIAN WATER CO. v., No. 4818(Del. Ch. July 1, 1975) ............................ 1 DEL. J. CORP. L. 448

STATE PERSONNEL COMMISSION, COUNCIL 81, AMER-ICAN FEDERATION OF STATE, COUNTY AND MU-NICIPAL EMPLOYEES v., No. 4665 (Del. Ch. July 30,1975) ........................................................... 1 DEL. J. CORP. L. 456

STRYKER & BROWN v. BON AMI COMPANY, No. 1945(Del. Ch. March 16, 1964) ...................... 2 DEL. J. CORP. L. 157

TANNETICS, INC. v. A.J. INDUSTRIES, INC., No. 4592 (Del.Ch. September 4, 1974) ........................... 2 DEL. J. CORP. L. 348

TANZER v. INTERNATIONAL GENERAL INDUSTRIES,INC., No. 4945 (Del. Ch. December 23, 1975)

1 DEL. J. CORP. L. 444

TASSETTE, INC. v. MA. GERETT, INC., No. 2722 (Del. Ch.February 5, 1971) ..................................... 2 DEL. J. CORP. L. 152

1977]



(Continued)

[VOL. 3

TODHUNTER INTERNATIONAL, INC., PENNSYLVANIAMUTUAL FUND, INC., No. 4845 (Del. Ch. August 5, 1975)

1 DEL. J. CORP. L.

TUCKMAN v. AEROSONIC CORP., No. 4094 (Del. Ch.January 14, 1975) .................................... 1 DEL. J. CORP. L.

TUCKMAN v. AEROSONIC CORP., No. 4094 (Del. Ch.October 21, 1975) ..................................... 1 DEL. J. CORP. L.

WARDS FOODS, INC. v. LAMBERT, No. 2691 (Del. Ch.August 18, 1972) ...................................... 1 DEL. J. CORP. L.

WILLS v. FARLAND, No. 4888 (Del. Ch. November 12, 1975)1 DEL. J. CORP. L.

WOLF, BARON v., No. 4972 (Del. Ch. January 15, 1976)3 DEL. J. CORP. L.

ZLOTNICK v. ACADEMIC SYSTEMS MANAGEMENTCORP., No. 3344 (Del. Ch. October 5, 1971)

2 DEL. J. CORP. L.

229

157

463

137

467

136

343

CUMULATIVE STATUTES CONSTRUEDAll Issues to Date

DELAWARE CODE

5A Del. C. § 8-102 Volume 1: Page 1995A Del. C. § 8-105 .......................... 1:1995A Del. C. §8-301 .......................... 1:1995A Del. C. §8-317 ............... 1:189,1:190

1:193, 1:200, 1:2015A Del. C. §8-401 ............... 1:190,1:200

1:2025A Del. C. §8-403 ............... 1:190,1:2026 Del. C. § 1302(a) ............... 1:468, 1:4756 Del. C. § 1304 ............................... 1:4746 Del. C. § 1307 .................... 1:469, 1:474

1:4788 Del. C. § 102(b)(2) ........................ 1:4748 Del. C. § 144(a) ............................ 1:1438 Del. C. § 144(a)(2) ............. 1:137, 1:143

1:147, 1:1578 Del. C. § 151(b) ............................ 3:1368 Del. C. § 154 ................................. 3:1368 Del. C. § 160 ...................... 1:469, 1:474

1:475, 1:4763:136

8 Del. C. § 160(a)(1) ........................ 3:1368 Del. C. § 169 ...................... 1:190, 1:192

1:193,1:2011:475

8 Del. C. §170 ................................. 3:1368 Del. C. §202 ...................... 1:172,1:1828 Del. C. § 211(c) .................. 2:343,2:3448 Del. C. § 212(a) ............................ 2:3468 Del. C. § 212(c) .................. 2:343,2:3468 Del. C. §218 ...................... 1:172,1:176

1:177, 1:1798 Del. C. §220 ...................... 1:458,1:459

1:461,2:3402:341, 2:3422:348,2:3492:359, 2:3612:362,2:3662:370,3:139

UNREPORTED CASES

CUMULATIVE STATUTES CONSTRUEDAll Issues to Date

(Continued)8 Del. C. § 220(a) ............................ 1:4598 Del. C. § 220(b) ................... Volume 1:

Page 459,2:3492:350,2:360

2:3628 Del. C. § 220(c) .................. 1:458,1:460

2:359,2:3602:362,2:372

8 Del. C. §225 ................................. 2:3448 Del. C. § 226 ...................... 1:203,1:204

1:2058 Del. C. § 243 ................................. 3:1368 Del. C. §244 ................................. 3:1368 Del. C. §251 ................................. 1:2298 Del. C. § 253 ................................. 1:2298 Del. C. §262 ................................. 2:3428 Del. C. § 271 ...................... 2:162,2:164

2:165,3:144,3:149

8 Del. C. §275 ................................. 1:1698 Del. C. § 279 ...................... 1:166,1:167

1:1688 Del. C. § 281 ...................... 1:166,1:167

1:1688 Del. C. § 291 ...................... 1:211,3:1498 Del. C. § 296(b) ............................ 1:2118 Del. C. § 302(b) ............................ 1:4748 Del. C. § 341(a) ................. 1:203,1:204

1:2058 Del. C. §342 ................................. 1:2038 Del. C. § 353 ...................... 1:203,1:2048 Del. C. §366 ................................. 1:189

8 Del. C. §393 ................................. 1:1438 Del. C. § 1302(a) .......................... 1:4758 Del. C. § 1307 ............................... 1:4758 Del. C. § 5291 .................... 1:463,1:47310 Del. C. §366 .................... 1:158,1:159

1:162, 1:1631:189,1:1901:191, 1:1921:193,1:1941:197,1".201

10 Del. C. § 3701 ............................. 1:16210 Del. C. §4734 ......... 1.231,1:23610 Del. C. §5704 .................. 1:171,1:17410 Del. C. §8106 ............................. 1:46419 Del. C. § 3302(10XH) Volume 1: Page

453,1:45529 Del. C. §5914 .................. 1:456,1:45729 Del. C. § 5938(e) .............. 1:456,1:457

OTHER STATE STATUTES

FLA. STATUTES §726.01 ........ Volume 1:Page 469

UNITED STATES CODE

26 U.S.C. §61 ....... Volume 1: Page 2081:209,1:211,1:216,1:217

26 U.S.C. § 172 ................................ 1:21126 U.S.C. § 6020(b)(2) .......... 1.20826 U.S.C. § 6323(i)(1) ...................... 1"21026 U.S.C. § 6681(a)(c)[d) ................ 1:21026 U.S.C. §7454 .............................. 1-210

CUMULATIVE RULES OF COURTAll Issues to Date

Del. Court of Chancery Rule 4(db) ........ Volume 1: Page 158Del. Court of Chancery Rule 4(db)(1)(b)(4) ..................... 1:165Del. Court of Chancery Rule 17(a) ................................... 1:162DeL Court of Chancery Rule 25 ....................................... 1:162Del. Court of Chancery Rule 62(d) .............................. 1:25Del. Court of Chancery Rule 149 ..................................... 1:473Del. Supreme Court Rule 22(4)(c) ...................................... 235

CUMULATIVE KEY NUMBER INDEXAll Issues to Date

APPEAL AND ERROR CONSTITUTIONAL LAW

460 .......................... Volume 1: Page 230 278(1) ...................... Volume 1: Page 183464 ..................................................... 1:230 312 ..................................................... 1:1881237 ................................................... 1:230

1977]



(Continued)

CONTRACTS

116(2) ...................... Volume 1: Page 452117(2) ................................................. 1:452193 ..................................................... 2:152211 ..................................................... 2:152215(1) ................................................. 1:452290 ..................................................... 2:152

CORPORATIONS

114 .......................... V olum e 1: Page 467118 ..................................................... 2:152121(1) ................................................. 2:152121(7) ................................................. 2:152130 ..................................................... 1:188149 ..................................................... 1:188152 ..................................................... 1:467180 ..................................................... 2:350181 ..................................................... 2:340181(1) ........................... 1:458,2:359,3:139181(2) ........................... 2:340,2:359,3:139181(3) ...................................... 2:348,2:359181(5) ........................... 2:340,2:348,2:359181(6) ........................... 2:340,2:348,2:359181(7) ................................................. 1:467181(8) ........................... 1:458, 2:340,2:359182.3 .................................................. 2:350182.4(1) .............................................. 3:144182.4(2) .............................................. 3:144182.4(3) ................................... 2:162,3:149186 ..................................................... 2:350189(1) ................................................. 1:230189(4) ................................................. 1:229190 ..................................................... 2:350198(2) ...................... Volume 2: Page 343198(3) ................................................. 2:162198(4) ................................................. 2:162198(5) ................................................. 2:343198(6) ................................................. 2:343198.1 .................................................. 1:171198.1(2) .............................................. 1:171198.1(3) .............................................. 1:171198.1(5) .............................................. 1:171210 ..................................................... 2:343212 .......................................... 1:137, 1:145214 .......................................... 1:230,2:157227 ..................................................... 1:137298(6) ................................................. 2:162307 ..................................................... 2:162

308(3) ................................................. 1:446308(5) ................................................. 1:202310 ..................................................... 2:162310(1) ................................................. 2:157312(5) ................................................. 2:162312(7) ................................................. 1:145313 .......................................... 1:446,2:162314(1) ...................................... 1:171,1:446315 .......................................... 1:145,1:446316(1) ................................................. 1:145316(4) ................................................. 1:145316(5) ................................................. 1:171319 ..................................................... 1:171319(7) ................................................. 1:145337(3) ................................................. 1:467376 ..................................................... 1:467393 ..................................................... 2:350422(2) ................................................. 2:348482.5 .................................................. 3:136499 ..................................................... 2:359519 ..................................................... 2:359519(1) ................................................. 2:157540 ..................................................... 1:467553 ..................................................... 1:202553(1) ................................................. 3:149553(2) ........................... 1:202, 1:467,3:149553(5) ...................................... 1:202,3:149553(6) ................................................. 1:202553(8) ................................................. 1:202581 ..................................................... 1:444584 .......................................... 1:444, 2:350585 ..................................................... 3:136586 ..................................................... 2:157

EQUITY

10 ............................ V olum e 1: Page 46723 ....................................................... 2:15225 ....................................................... 1:46765(1) ................................................... 2:35965(3) ................................................... 2:35967 ....................................................... 1:16687(1) ................................................... 1:463

EVIDENCE

53 ............................ Volum e 1: Page 20873 ............................................ 1:145,3:144486 ..................................................... 2:157

[VOL. 3

1977]

189 .......................... Volume 1: Page 230

FRAUDULENT CONVEYANCES

61 ............................ Volume 1: Page 467116 ..................................................... 1:467

INJUNCTIONS

61(2) ........................ Volume 1: Page 45263 ....................................................... 1:45272 ....................................................... 3:144132 ..................................................... 3:149137(4) ...................................... 1:452,3:144151 ..................................................... 3:149

INTERNAL REVENUE

121 .......................... Volume 1: Page 208304 ..................................................... 1:208311 ..................................................... 1:208341 ..................................................... 1:208343 ..................................................... 1:208440 ..................................................... 1:208504 ..................................................... 1:208517 ..................................................... 1:208574 ..................................................... 1:208594 ................... 1:208595 ..................................................... 1:2081202 ................................................... 1:2081471 ................................................... 1:2081513 ................................................... 1:2082368 ................................................... 1:208

JUDGAMENT

185(2) ...................... Volume 2: Page 350

LABOR RELATIONS

117 .......................... Volume 1: Page 456

LImITATIONS OF ACTIONS

5(2) .......................... Volume 1: Page 46355(3) ................................................... 1:46399(1) ................................................... 1:463100(7) ................................................. 1:463

2 .............................. V olum e 1: Page 4486 ......................................................... 1:4486.2 ...................................................... 1:4486.7 ...................................................... 1:4486.12 .................................................... 1:448

RECEIVERS

16 ............................ Volume 1: Page 46744 ....................................................... 1:467

SECURITIES REGULATION

50 ............................ Volume 2. Page 162

SEQUESTRATION

1 .............................. Volum e 1: Page 1886 .............................................. 1:157,1:1888 ......................................................... 1:18810 ....................................................... 1:18811 ............................................ 1:157,1:18812 ....................................................... 1:15715 ............................................ 1:157,1:18816 ....................................................... 1:15717 ....................................................... 1:157

SoCAL SECURITY

361 .......................... Volume 1: Page 452

SPECIFIC PERFORMANCE

16 ............................ Volume 2: Page 15270 ....................................................... 2:152

TRUSTS

1 .............................. V olum e 1: Page 17124 ....................................................... 1:17126 ....................................................... 1:17138 ....................................................... 1:17145 ....................................................... 1:17151 ....................................................... 1:17152 ....................................................... 1:171112 ..................................................... 1:171127 ..................................................... 1:171179 ..................................................... 1:171270 ..................................................... 1:171

UNREPORTED CASES


(Continued)

EXECUTION PUBLIC SERVICE COMMSSION


BARON v. WOLF

No. 4972

Court of Chancery of the State of Delaware, Kent

January 15, 1976

In this derivative action, plaintiff stockholders sought a temporaryrestraining order to prevent the corporation from making an irrevocabledeposit pursuant to the planned redemption of preferred stock amounting tothe redemption price plus an amount equal to all accumulated but unpaiddividends on such stock. The plaintiffs claimed that this amounted to anillegal dividend payment. The court, in denying the temporary restrainingorder, held that no illegal unpaid dividends were provided for as thistransaction was merely a redemption at a price with some adjustments.

1. Corporations '6- 482/ 2

A corporation may redeem preferred stock out of capital provided theshares so redeemed will be thereafter retired pursuant to 8 Del. C. § 243 andthe capital of the corporation reduced in accordance with 8 Del. C. § 244. 8Del. C. § 160(a)(1).

2. Corporations O= 585

The mere fact that the result of actions taken under one section may bethe same as the result of action taken under another section does not requirethat the legality of the result must be tested by the requirements of thesecond section.

3. Corporations '= 4821

Preferred stock can be redeemed in cash, at "such price or prices, or suchrate or rates, and with such adjustments, as shall be stated in the certificateof incorporation or in the resolution. providing for the issue of such stock. . .. " 8 Del. C. § 151(b).

4. Corporations 'c- 482/2The plaintiffs have not demonstrated a probability of ultimate success

simply by showing that what Allied Artists is purporting to do under theauthority of 8 Del. C. §§ 160 and 151(b) in redeeming the stock it could not dounder 8 Del. C. § 170 if it was not redeeming the stock.

BROWN, Vice-Chancellor

In this derivative action, plaintiff stockholders, in addition to seekingdamages and other permanent relief, ask the Court initially to issue a

[VOL. 3

UNREPORTED CASES

temporary restraining order on behalf of Allied Artists Pictures Corporationto prevent the planned redemption of the preferred stock of the corporationnow set for January 20, 1976. Also set for this same date is a vote ofshareholders on a proposed merger of Allied Artists with Kalvex, Inc., thepresent owner of 52 per cent of the preferred stock of Allied Artists which,because of a delinquency in the payment of cumulative dividends on thepreferred stock, has resulted in the control of Allied Artists by Kalvex. SeeBaron v. Allied Artists Pictures Corporation, Del. Ch., 337 A.2d 653 (1975).Technically, it is the intention of the management of Allied Artists andKalvex, which to all intents and purposes is identical, to make anirrevocable deposit pursuant to the terms of the preferred stock Certificate ofDesignation of some $778,000, which would constitute the full amount of thestated redemption price of the preferred stock (that being $11.00 per share)as well as an amount equal to all accumulated but unpaid dividends on suchstock. It is this irrevocable deposit which plaintiffs seek to enjoin and, atpresent, this forms the sole basis for determining whether or not arestraining order should issue, as I see it.

[1] Plaintiffs point out that according to the latest corporate financialinformation available to them, Allied Artists has no surplus, as defined by 8Del. C. § 154, and had no net profits for either of the past two fiscal years.Accordingly, they argue that under 8 Del. C. § 170, it is illegal for AlliedArtists to pay a dividend on any of its stock, including the preferred. Theyfurther contend that by intending to deposit an amount to pay both theredemption price as well as the amount equal to the unpaid preferreddividends, Allied Artists is, in fact, about to pay an illegal dividend, andthus, the irrevocable deposit must be enjoined if the status quo is to bemaintained and irreparable harm to the corporation avoided.

As further authority plaintiffs rely on dicta of the Delaware SupremeCourt in Pennington v. Commonwealth Hotel Const. Corporation, Del.Supr., 155 A. 514, 518 (1931) where it was stated that where a corporation isa going concern as opposed to one redeeming preferred stock as part of aliquidation, "it is certain that the dividends to be paid the owners of thestock redeemed must be dividends declared from profits or surplus and notfrom capital." It is also the view of Professor Folk that this is the status ofDelaware law. See Folk, The Delaware General Corporation Law, pp. 185,186.

The defendant corporations do not dispute this as a general principle (atleast not at this point). However, it is their position that from a legalstandpoint Allied Artists is not paying "dividends" as such as part of theredemption. They say that § 170 has no application here, but rather 8 Del. C.§ 160 controls. This latter statute, particularly at § 160(a)(1), specificallyauthorizes a corporation to redeem preference stock out of capital providedthe shares so redeemed will be thereafter retired pursuant to § 243 and thecapital of the corporation reduced in accordance with § 244. And while § 160makes no mention of accumulated dividends, defendants turn to thelanguage of the Certificate of Designation to illustrate that this is of noconsequence. The critical language is as follows:

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"[t]he redemption price for the shares of Convertible Preferred Stock(except in the case of shares redeemed through the operation of theSinking Fund provided in Subdivision D hereof) shall be eleven dollars($11) per share, together with a sum in the case of each share, computedat the annual dividend rate for such share from the date on whichdividends on such share became cumulative to and including the datefixed for redemption, less the aggregate of all dividends theretofore paidthereon."

Thus, technically, as defendants point out, there is no direction thatunpaid dividends, as such, be paid as part of the redemption price, butrather the redemption price is fixed at $11.00 per share plus an amountcomputed at the annual dividend rate from the date dividends becamecumulative to the date of redemption, less the amount of any dividendsactually paid during the interim. This, they say, is clearly a formula forarriving at the redemption price at any given time and, although it maycoincide with the method used to compute the amount of a preferreddividend arrearage while the stock remains unredeemed, it is nonetheless aformula to be used for redemption under § 160 and has nothing to do withpaying dividends under § 170. (Parenthetically, it should be noted that thelanguage in Pennington was "plus all unpaid, accrued or accumulateddividends thereon." [Emphasis added])

[2] Moreover, defendants assert that it is also of no consequence thatas a practical matter the formula for the redemption price under § 160 willhave the effect of satisfying unpaid dividends out of capital, which could notbe done under § 170. They point to case precedents which hold that differentsections of the Corporation Law have independent legal significance andthat the legality of action authorized by one section is not always dependentupon satisfaction of the requirements of another. Federal United Corp. v.Havender, Del. Supr., 11 A.2d 331 (1940); Hariton v. Arco Electronics, Inc.,Del. Supr., 188 A.2d 123 (1963); Orzeck v. Engelhart, Del. Supr., 195 A.2d 375(1963). As stated in Orzeck at 195 A.2d 377:

"The mere fact that the result of actions taken under one section may bethe same as the result of action taken under another section does notrequire that the legality of the result must be tested by the requirementsof the second section."

Thus, as I suggested during argument, the issue seems to boil down tothis at the present stage of the proceedings: Is there any precedent thatholds that what is a dividend under one section is, by any other name, adividend for the purpose of another section? Counsel have offered none sofar.

Turning to an analysis of the authorities that have been offered,Pennington held that a payment to stockholders as a return on theirinvestment is, in general, a dividend, and it further noted that any return tostockholders on account of money put into the corporation by them couldonly be paid from current or accumulated profits. 155 A. 517. As noted by

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defendants, however, the forerunner of § 160 which allows preferred sharesto be redeemed out of capital was enacted subsequent to Pennington.

[3, 4] Continuing on, § 151(b) provides that any preferred stock can beredeemed, in cash, at "such price or prices, or such rate or rates, and withsuch adjustments, as shall be stated in the certificate of incorporation or inthe resolution... providing for the issue of such stock ... ." (Emphasisadded.) This appears to be what the corporation is doing here. It isredeeming at a "price . . . with such adjustments" established by thedocument creating the preference and providing for the issue. In view of thisI cannot conclude that plaintiffs have demonstrated a probability ofultimate success, see Gimbel v. Signal Oil Companies, Del. Ch., 316 A.2d 599(1974), simply by showing that what Allied Artists is purporting to do underthe authority of §§ 160 and 151(b) in redeeming the stock it could not dounder § 170 if it was not redeeming the stock.

The application for the temporary restraining order is denied. IT IS SOORDERED. As to defendants' motion to dismiss, I do not consider it properfor decision at this time in the absence of an opportunity for plaintiffs toadequately respond, and consequently I offer no opinion thereon.

NEELY v. OKLAHOMA PUBLISHING COMPANY

No. 5293

Court of Chancery of the State of Delaware, Sussex

August 15, 1977

Plaintiff, an 8 percent stockholder of the defendant corporation, sued tocompel an inspection of the corporation's books and records pursuant to 8Del. C. § 220. Her stated purpose was to value her stock in order that shecould decide whether to sell it. The corporation contended that plaintiff hadfailed to establish that her true purpose was to enable her to sell her stock,that it had given plaintiff sufficient information to establish value, and thatthe information demanded was not essential to establish the value of thestock.

The court held that a stockholder's right of inspection extends only tothose records which are essential to establishing value and that hereplaintiff had already been given sufficient information.

1. Corporations = 181(1)

The valuation of stock to enable a stockholder to sell his shares or tomeet requirements of valuation imposed upon him by law is a properpurpose within the meaning of 8 Del. C. § 220.

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2. Corporations '6- 181(2)

Where inspection of corporate books and records is demanded for thepurpose of placing a value on the stock of a privately held corporation, theright extends only to such records which are "essential and sufficient" toenable the stockholder to establish value and stops short of including allbooks and records of a corporation and its subsidiaries.

3. Corporations 'c- 181(2)

Where there is no contention that management has done anythingwrong which might be concealed by not disclosing all the informationplaintiff demands and plaintiff has already been given sufficient informa-tion, the remaining records and information demanded are not essential toher effort to place a value on her stock.

BROWN, Vice-Chancellor

This is the decision after trial in a suit brought by Virginia G. Neely, an8 per cent stockholder of the defendant Oklahoma Publishing Company("OPUBCO"), to compel an inspection of the books and records of thecorporation pursuant to 8 Del. C. § 220. OPUBCO is a private corporationowned by fewer than 100 shareholders and its stock is not publicly traded.The remaining announced purpose of the plaintiff in seeking inspection is tovalue her shareholdings in order that she may give proper consideration toher present intention to sell them.

OPUBCO defends the action on several grounds. First, it contends thatplaintiffs statutory written demand for inspection failed to specify in anycomprehensible way which books and records were sought, and thatconsequently it failed to satisfy the requirements of § 220. Secondly, itargues that plaintiff has failed to establish that her true purpose is to enableher to sell her stock since she has had no negotiations with any prospectivepurchasers and admittedly is not certain at this point if she will sell it ornot. Third, OPUBCO asserts that it has voluntarily given to her over a two-year period sufficient information to establish the value of her stock even ifit is her true purpose to sell it. And finally, OPUBCO claims that the area ofinformation which it has not already provided and as to which plaintiff stillseeks inspection is not essential to establishing value.

I think it clear from the atmosphere and background of the proceedingthat a certain state of disharmony exists between plaintiff, whose late fatherwas apparently instrumental in organizing and establishing OPUBCO at itspresent position, and those who now control and manage the company. Inthis regard, however, there is no charge or insinuation of fraud ormismanagement. Plaintiff simply takes the position that in view of the factthat her stock has no established trading price in the market place, she isentitled to a thorough examination of any and all company records andminutes in order to ascertain that price which would be in her best interestto ask of a prospective buyer. And since plaintiff is the record owner of

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87,000 shares and since an Oklahoma court proceeding in 1976 relating toher mother's estate approved $200 per share as a proper value for OPUBCOstock at that time - a figure with which plaintiff was not content - itbecomes obvious that her interest is significant.

I think, however, that the right asserted under § 220 is being twistedbeyond its intended purpose under the facts of the case. To put the matter inperspective, it is not a case of a stockholder being denied the right to inspectin toto. Nor is it disputed that the valuation of stock interests in a privatelyheld corporation is a proper purpose justifying inspection under § 220. Whatthe dispute is really about is the degree to which such inspection may gowhen it is sought for the purpose of satisfying the voluntary, personalbusiness motivations of the stockholder and is unrelated to either thebusiness of the corporation or any notion of mismanagement, waste or otherimpropriety in the conduct of corporate affairs.

Factually, plaintiff, through her attorneys, first started demandinginformation in 1975 for the announced purpose of establishing a sellingprice for her stock. Counsel's letters expressly indicated that the informationwas needed for ongoing negotiations and that the prospective buyers wereasking for additional materials. Based upon this a considerable amount offinancial information was provided by OPUBCO. It was only shortly beforethe trial of this matter in the spring of 1977 that OPUBCO first learned thatactually there had been no such negotiations and that in fact there hadnever been any discussions with any buyers for plaintiffs stock. Thisunfortunate factual circumstance is laid to a misunderstanding betweenplaintiff and her Oklahoma counsel.

Be that as it may, by the time of trial plaintiff's counsel had beenprovided with audited financial statements of OPUBCO together withaccountants' notes for the years 1971 through 1976, audited financials foreach subsidiary for the years 1971 through 1976, combined balance sheetsand income statements for OPUBCO and all subsidiaries for 1976, theamount of oil and gas reserves of a petroleum subsidiary, the total salariesof all officers and directors and the percentage thereof of the gross income ofOPUBCO, information as to newspaper operations including circulationbreakdown, gross and net revenues for individual television and radioproperties, an explanation as to the source of "other revenues" appearing onfinancial statements, a description of the amount of common stockoutstanding, stock options, officer and director transactions with OPUBCO,a general description of pending litigation, recent sales for OPUBCO stock,and the method used and actual computations by OPUBCO in valuing itsstock.

Despite this, plaintiff contends that in order to make the best possibleevaluation of her stock she requires in addition financial statements on amonthly basis, the individual salaries of each officer and director ratherthan the gross amount of such salaries, audited financial statements of eachsubsidiary and each individual television and radio property, the personnelrecords of each officer and director, monthly projections, budgets and cash-flow analyses, an in-depth evaluation of all pending legal proceedings, the

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precise location of all oil and gas reserves, records as to the recent sale oracquisition of significant assets and the minutes of all directors' meetings.The expert witness employed by the plaintiff indicated that all of thesefactors would be essential to evaluating plaintiffs stock in the most accuratemanner possible.

OPUBCO's expert agreed that this might be true if preparation for apublic offering were being made pursuant to SEC requirements. With theprivate sale of an untraded stock, however, the transaction is normally anegotiated one depending on the needs and purposes of the seller and buyer,and consequently it was his opinion that information which wouldreasonably enable an expert to establish a range of values for negotiatingpurposes would be sufficient. Assuming that a prospective buyer would alsohave an opportunity to consult with top management before making adecision, OPUBCO's expert was of the opinion that the materials alreadyfurnished plaintiff were more than adequate.

[1] There is no question that the valuation of stock to enable astockholder to sell his shares or to meet requirements of valuation imposedupon him by law is a proper purpose within the meaning of § 220. Floto v.Industrial Energy Corp. (C.A. 4521 - letter opinion dated August 7, 1974);Everett v. Transnation Development Corp., Del. Ch., 267 A.2d 627 (1970);State ex rel Rogers v. Sherman Oil Co., Del. Super. 117 A. 122 (1922); Stateex rel National Bank of Delaware at Wilmington v. Jessup & Moore PaperCo., Del. Super., 88 A. 449 (1913); State ex rel Brumley v. Jessup & MoorePaper Co., Del. Super., 83 A. 30 (1912). These decisions are all relied upon byplaintiff. In all of these cases, however, (with the exception of Transnationwhere the fact was not reached) a specific circumstance was relied upon bythe stockholder in making the demand. In Floto it was clear that thepetitioner's stock was in the process of being sold to another. In Rogers theplaintiff had received his shares in the form of a fee from a client andclaimed a need for evaluation for income tax purposes. In National Bank ofDelaware at Wilmington the plaintiff bank had been compelled to acquirestock for its own protection and, as owner, was under edict from federalbank examiners to ascertain its value so as to permit a determination ofbank assets. In Brumley the petitioner was the executrix of the deceasedshareholders' estate, thus making the need for a prompt valuation obvious.Unlike these cases, plaintiff here has simply decided that she would like tosell her stock, but contends that she cannot begin to do so until she knowsprecisely what it is worth. While this may not be controlling on her right toinspect, it seems that it should have some bearing upon the depth to whichthe inspection may go.

[2] This element takes on significance because the earlier three of theforegoing precedents make it clear that where inspection of corporate booksand records is demanded for the purpose of placing a value on the stock of aprivately held corporation, the right extends only to such records which are"essential and sufficient" to enable the stockholder to establish value, andthat it is the function of the court to make that determination. State ex relRogers v. Sherman Oil Co., supra; State ex rel National Bank of Delaware at

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Wilmington v. Jessup & Moore Paper Co., supra. The business of thecompany should not be interfered with by the inspection of its affairs whichare not "essential" to task of establishing value. State ex rel Brumley v.Jessup & Moore Paper Co., supra. This latter case also specifically held thatthe minutes of the board of directors were not essential to a need to establishvalue.

If the standard is limited to that which is sufficient and essential, thenobviously it stops short of including all books and records of a corporationand its subsidiaries, or, stated another way, it stops short of all books andrecords which the petitioning stockholder, in his or her personal opinion,deems to be essential. The one thing that the opposing experts (both ablyqualified in their field) agreed upon is that there is no such thing as a precisemarket value of stock in a company whose stock is not publicly traded. Evenso, to attempt to reach the ultimate of near-precision, it can be assumed thatone can never get enough information unless he is given access toeverything. When this is measured against plaintiffs position that shewould like to sell if the right deal comes along even though she has nothingdefinite in mind now, her demand becomes one to be advised of all internalaffairs of the corporation and to be kept current on a monthly basishereafter just in case. To honor the extent of her demand under thesecircumstances would virtually transform her into an ex officio member ofthe board of directors simply because she has decided to rid herself of herstock.

Plaintiff's reliance on the recent case of Skoglund v. Ormand Industries,Inc., Del. Ch., 372 A.2d 204 (1976) is slightly misplaced. It is true that theSkoglund decision granted broad general inspection and in so doing rejectedthe position of the corporation that it could determine what records werepertinent to the stockholder's purpose. It is likewise true that in so doingcomparative reference was made to State ex rel National Bank of Delawareat Wilmington v. Jessup & Moore Paper Co., supra. But in the first place theinspection sought in Skoglund was premised on alleged corporate misman-agement and was based on factors which tended to support the allegations.Secondly, that decision was made after trial in which the evidenceestablished a sufficient indication of at least some wrongdoing. Thisconvinced the Court that management should not thereafter be the one todecide which materials might be relevant to the possible discovery of otherwrongdoings.

[3] Here there is no contention that management has done anythingwrong which might be concealed by honoring its reluctance to disclose allthe records and information that plaintiff demands. OPUBCO here simplysays that in view of the information plaintiff has already been given, theremaining records and information demanded are not essential to her effortto place a value on her stock so that she may thereafter seek a buyer for it.Having considered the evidence, I am in agreement with OPUBCO.

Judgment will be granted in favor of OPUBCO. I ask counsel, ifpossible, to agree upon and submit an appropriate form of order within 10days. Also, since I have placed no reliance on the matters in OPUBCO's

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brief which were the subject of plaintiffs post-briefing motion to strike, Iconsider the motion to be moot.

SIMKINS INDUSTRIES, INC. v. FIBREBOARD CORPORATION

No. 5369

Court of Chancery of the State of Delaware, New Castle

July 28, 1977

Plaintiff, a shareholder and potential buyer of a corporate facility,sought to enjoin the sale of corporate assets to a third party in an actionwhich was individual as well as derivative. The directors had accepted alower cash offer than the plaintiff's.

The court held that the action of the corporate directors was presumed tohave been made under their honest business judgment and could beapproved by the court where, as here, the choice involved something morethan the simple process of deciding between the flat offers of two sums ofmoney. The court held that the presumption could only be overcome by ashowing of a shocking disparity between the accepted bid and the actualvalue. Finding no indication of disregard for the best interests of thecorporation and thus a failure to demonstrate the probability of ultimatesuccess, the court declined to grant the motion for a preliminary injunction.

1. Evidence = 73

Corporations = 182.4(1)

There exists a presumption that the directors of a corporation act with abona fide regard for the interests of the corporation. Thus a sale of the assetsby the directors is assumed to have been secured on terms and conditionswhich were expedient and for the corporation's best interest.

2. Corporations 4' 182.4(2)

Judicial approval can be given to the acceptance of a lower cash offerfor the sale of corporate assets, where the choice involves something morethan the simple process of deciding between the flat offers of two sums ofmoney tendered by rival bidders.

3. Injunction =0 72Where there is nothing in the terms and conditions of the sale of

corporate assets which is so inexpedient or indicates such a disregard of thebest interests of the corporation as to justify the interference of the court, apreliminary injunction will be denied.

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4. Corporations <=' 182.4(2)

In order for the court to overturn the sale of corporate assets under 8 Del.Code Ann. 271, it is necessary to overcome the presumption of honestbusiness judgment on the part of the directors by a showing of a shockingdisparity between the price paid and the actual value of the assets inquestion.

5. Injunction 137(4)

Plaintiff shareholders who seek to enjoin the sale of corporate assets aredenied a preliminary injunction because of their failure to demonstrate thepossibility of ultimate success.

MARVEL, Chancellor

The complaint herein, which was filed on July 6, 1977, sought injunctiverelief requiring Fibreboard to make available to potential bidders for certainof its carton manufacturing properties relevant information designed tofacilitate competitive bidding for such properties and enjoining thedefendant from selling such, namely its carton manufacturing plants, forless than the best available prices obtainable. Such complaint was filed byplaintiffs individually as well as derivatively for the alleged benefit of thedefendant corporation, plaintiffs allegedly being the holders collectively offourteen percent of the issued and outstanding common stock of thedefendant corporation. Plaintiffs have been for some time one of theprospective buyers of one or more of the plants in issue which defendantproposes to sell as economically unprofitable.

Plaintiffs contend that the management of the defendant corporationhas for many months refused to deal fairly with plaintiffs in regard to theirefforts to buy one or more of the plants and equipment of the defendantwhich the latter proposes to sell and which have to do with the manufactureof cartons, and on the basis of the threat of possible injury to the defendantcorporation being caused by reason of its failure to receive the benefit of themost attractive bid for said assets, sought and obtained a restraining orderon July 14, 1977 against the consummation of any sale which might beapproved by the board of directors of the defendant at a meeting held onJuly 20, 1977 until further order of the Court. At the inception of this actioncarton plants offered for sale by defendant were The Vernon plant in LosAngeles, California, The Newark plant in Newark, New York, and theStockton plants in Stockton, California and in Portland Oregon.

Plaintiffs, in seeking injunctive relief, have asked that defendant berequired by this Court to conduct its proposed sales of its carton producingassets as if defendant were a government agency, namely on the basis ofsealed bids or by Court regulated competitive bidding and ask thatdefendant be enjoined"... from selling its carton group at less than thebest available prices."

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[1] However, in the area of the sale of corporate assets, including a saleof all or substantially all of a corporation's assets, the courts of this Statehave in general paid respect to the business judgment of corporate directors,refusing to disturb such judgment in the absence of a showing of fraud,gross unfairness of price Mitchell v. Highland-Western Glass Co., Del. Ch.,167 A. 831 (1933), or unwarranted personal interest in the form of a sharingin the proceeds of such a sale, Robinson v. Pittsburg Oil Refining Corpora-tion, Del. Ch., 126 A. 46 (1924). Significantly, in the case of Mitchell v.Highland-Western Glass Co., supra, the Chancellor declined to overturn atransfer of assets involving an arrangement under which three directors ofthe seller were to become directors and vice presidents of the buyer since"... there is no profit in the office of director," Folk, The Delaware GeneralCorporation Law, pp. 398-430, and cases cited. Thus, it has been held that:

"[T]he directors of the defendant corporation are clothed with thatpresumption which the law accords to them of being actuated in theirconduct by a bona fide regard for the interests of the corporation whoseaffairs the stockholders have committed to their charge. This being so,the sale in question must be examined with the presumption in its favorthat they were securing terms and conditions which were expedient andfor the corporation's best interest." Robinson v. Pittsburg Oil RefiningCo., supra.

On July 20, 1977, the' board of directors of defendant met in California,all directors other than Alexander M. Wilson being present. The board wasinformed that the only carton plants for which there were prospective buyerswere the Newark, New York plant, and the Vernon plant, any objection tothe sale of the latter having been withdrawn by plaintiffs, and the Court'sorder of July 14, 1977 having been amended accordingly, the sale of theVernon plant to the Pacific Coast Packaging Corp. (The David Eclundemployee group) was approved. In addition, no firm offer having beensubmitted for the Stockton properties, no consideration was given to theproposed sale of such properties by the board.

As to the Newark, New York plant, Mr. Ogle reported to the board that afirm written offer had been received from Fold-Pak Corporation (The DeMayemployee group) executed by its president committing such corporation tobuy the Newark plant for the sum of $4,622,912, the only adjustments to bemade as to such offer being those arising out of a numerical count ofinventory. It was further reported to the board that plaintiffs had submitteda bid for the Newark plant and equipment in the amount of $1,100,000, asum $100,000 higher than the Fold-Pak bid for the same items of property;

1. During argument on July 12, 1977, in response to a question by the Court,counsel for defendant stated that of a board of eleven members, nine were so-calledoutside directors. This was not disputed by counsel for plaintiffs. Defendantapparently also concedes that this case is not strictly controlled by 8 Del. C. § 271,Wingate v. Bercut (CA 9) 146 A.2d 725 (1945). Such statutory test will be nonethelessapplied here.

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that plaintiffs' offer insofar as it was concerned with inventory was for thelower of cost or market, a condition which might conceivably lead to adiscount from book value of up to 5% or more, a 5% discount being calculatedto amount to $175,000. And while I am satisfied that in making its bid,plaintiffs were handicapped by defendant's commitment to the DeMayemployee group not to disclose to other interested parties the terms of itsoffer for the Newark plant, I am also satisfied that plaintiffs vacillated intheir overtures to defendant (particularly when the loss of the Bordenaccount at Newark became evident) over the terms on which they werewilling to acquire such properties and declined to accept Mr. Ogle'ssuggestion that they submit a firm offer based on the terms of the contractfor the purchase and sale of the Vernon plant. Finally, I have no doubt butthat there was persisting bad feeling between the litigants arising out ofplaintiffs' leadership in a successful effort to prevent the adoption of anoption plan, which would have been advantageous to key members ofdefendant's management as well as out of plaintiffs' obvious efforts to strikea good bargain for themselves in acquiring one or more of defendant'scarton plants, while professing to sue for the benefit of fellow stockholders.In short, I am satisfied that plaintiffs were ready to jettison the professedinterests of such stockholders had their offer been accepted to dismiss thisaction as a condition precedent to an agreement to accept plaintiffs' bid forthe Newark plant framed in formal terms within three days.

The two offers for purchase of the Newark plant having been dulyconsidered by the board, a decision was reached to accept the Fold-Pak offerfor the following reasons, (a) it was the only definite offer before the board,(b) it contained terms favorable to defendant, such as the prompt payment ofa large amount of needed cash, (c) such offer was for property in an as iscondition, (d) the purchase price of $4,622,912 was in a precise amount, and(e) inventory had been accepted as a book value subject only to a numericalcount.

[2] In the case of Robinson v. Pittsburg Oil Refining Co., supra, inwhich the acceptance by a corporation of a lower cash offer was givenjudicial approval in the following language, which remains as appropriatenow as when written over fifty years ago, the Court stated:

"If the only difference between the terms of these two bids consistedin the fact that the one offered $16,000 more of cash than the other, therewould be no conceivable justification for accepting the smaller bid. Asbetween $487,946 in cash from Hood and $466,650 in cash fromKennedy-Poe & Davies for all the assets cum onere the liabilities, aninjunction ought to issue against an acceptance of the latter. Where thestandard of comparison is the absolute one of dollars in hand for thesame identical thing, a discretion which would choose the smalleramount would be so manifestly absurd as to convict itself of fraud. Butsuch is not the case here. The accepted bid contemplated the payment of$466,650 in cash for all the assets, the purchaser assuming all theliabilities. The rejected bid of Hood contemplated the payment of only$274,235 in cash for a portion of the assets, the defendant corporation

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retaining $312,517.02 of assets and continuing to assume all theliabilities. If all the assets retained by the seller were collected in fulland all the liabilities were paid, as they would of course have to be, thenthe complainant calculates that the seller would realize $213,711.67which added to the cash payment of $274,235 above mentioned wouldmake a total of $487,946.67, the amount represented as the Hood bid.(The defendants calculate the Hood bid as $5,000 less than this sum. Inview of the size of the total amount involved, it is not worth while todiscuss the controversy over this difference).

"This being the nature and character of the two bids the directorshad before them for consideration, it is apparent that a choice betweenthem involved something more than the simple process of decidingbetween the flat .offers of two sums of money tendered by rival biddersfor tlhe same identical thing. The directors justify their acceptance of theKennedy-Poe & Davies bid as against the Hood bid principally becauseof the fact that the former supplied a cash sum in hand for the entireassets subject to liabilities and relieved the defendant corporation fromthe delay and expense of collecting that portion of the assets whichunder the Hood bid it would retain. Among these assets appear twoitems of notes receivable and net accounts receivable, aggregating$169,770.58. The item of net accounts receivable is ascertained bydeducting from the gross accounts receivable (about $183,431.02) thesum of $23,356.01 as a reserve against uncollectible accounts. In orderfor the Hood bid to yield to the company a total of $487,946.67, thecompany would be required to collect every dollar of the notes receivableand the net accounts receivable. The directors in the exercise of theirjudgment conceived that the expense incurred in collecting theseaccounts would equal an amount sufficient at least to outweigh the$16,000 or $21,000 represented on paper as the amount by which theHood bid exceeded the Kennedy-Poe & Davies bid. It is unquestionablytrue that it would cost some money to collect these accounts receivable.Whether it would cost as much as $16,000, or $21,000, no one can say. Itwould seem to be true that if the directors are wrong in their judgmentas to what it would cost to collect the accounts, the amount by whichthey are in error can under no circumstances be so large as to argue theexistence of fraud. Their error, if any, when stated in percentage of thetotal amount involved, would in all probability appear to be slight.

* * *

"The bill is framed on the theory that the directors made animproper choice between two of three submitted offers. Reading the billin the light of the affidavits, it is impossible to escape the conclusionthat the real contest in this case is by an unsuccessful bidder against hismore fortunate rival."

[3] After considering other contentions of the complainant, the Courtconcluded:

"The result is that I find nothing in the terms and conditions of thissale which is so inexpedient or indicates such a disregard of the bestinterests of this corporation as to justify the interference of this courtwith its consummation.

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A preliminary injunction will, therefore, be denied and the ruledischarged."

[4] In order for a court to be persuaded to overturn a sale under 8 Del.C. See 271, it is necessary to overcome the presumption of honest businessjudgment on the part of directors by a showing of a shocking disparitybetween the price paid and the actual value of the assets in question of sogross a nature as to carry with it the badge of fraud, or undue personalinterest in the transaction on the part of members of the purchasingorganization, or other facts and circumstances which would serve to placethe transaction in such a light as to call for injunctive relief.

Turning to the transaction here in issue, I am satisfied that the directorsof the defendant corporation in the exercise of their business judgmentproperly reached a decision on the acceptance of the Fold-Pak offer by thestandards fixed under the Delaware decisions concerned with the responsi-bility of directors in approving the sale of all or substantially all of corporateassets, and the case of Thomas v. Kempner C.A. 4138 and 4174, March 22,1973, on which plaintiffs rely, is a unique case which was decided on arecord which indicated that corporate directors failed to give any considera-tion to a higher cash bid for corporate assets. See Folk, The DelawareCorporation Law, supra.

Finally, in the light of the foregoing, plaintiffs' application for an orderpermitting discovery on a time schedule other than that authorized by therule (except as to heretofore allowed) will be denied.

[5] Inasmuch as I am satisfied that plaintiffs have failed to demon-strate the probability of ultimate success after final hearing, I decline togrant their motion for a preliminary injunction against the consummationof the proposed sale of the Newark plant and inventory to Fold-Pak on orbefore August 1, 1977, and there being no imminent sale of the Stocktonproperties pending the restraining order of July 14, 1977, will accordingly bedissolved and the rule discharged.

IT IS SO ORDERED.

KRAMEDOS v. KRAMEDOSNo. 518

Court of Chancery of the State of Delaware, Kent

February 13, 1977

Plaintiff, minority stockholder in a closely held corporation, broughtsuit derivatively on behalf of the Lobby Restaurants, Inc., seeking atemporary restraining order and the appointment of a receiver pursuant to 8Del. C. § 291. Plaintiff contended that the corporation was insolvent andrequested that a temporary restraining order issue to prevent Lobby from

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consummating a lease agreement, to determine the fairness to Lobby of thelease, and to restrain Plaintiffs brother, the majority stockholder, fromclosing the business.

The court held that a corporation may lease all of its assets providedthat it is authorized by a majority of the stockholders entitled to vote at ameeting after complying with the statutory notice. It was further held thatwhere there is doubt as to the actual condition of insolvency, theappointment of a receiver shall be denied. Mere differences of opinionbetween minority and majority stockholders as to the desirability for thecorporation to continue business will not constitute a legitimate ground forthe appointment of a receiver.

1. Corporations :=" 182.4(3)

Upon such terms and conditions as the directors deem expedient, acorporation may sell or lease all, or substantially all, of its assets provided itis authorized by a majority of the outstanding stock of the corporationentitled to vote thereon, at a meeting called upon at least 20 days notice. 8Del. C. 271.

2. Injunction = 151

The test of whether to issue an injunction is the probability of ultimatesuccess on the merits plus the likelihood of irreparable harm to the corpora-tion if the injunction is not granted.

3. Injunction - 132

A temporary restraining order, being an extraordinary remedy, shouldnever be granted, particularly ex parte, unless the right is clearly estab-lished.


If insolvency of the corporation is shown, the appointment of a receiveris still within the discretion of the court.


If there is doubt as to the actual condition of insolvency, theappointment of a receiver should be denied.

6. Corporations ' = 553(5)

Mere differences of opinion between minority and majority stockholdersas to the desirability for the corporation to continue business, or the mannerin which it is being conducted, will not constitute a legitimate ground for theappointment of a receiver.

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BROWN, Vice-ChancellorThis suit is comprised of various counts and causes of action brought by

Gregory Kramedas, as plaintiff, against his brother, Thomas Kramedas,(hereafter 'Thomas"), and both derivatively on behalf of as well as againstThe Lobby Restaurants, Inc., (hereafter "Lobby"), a closely held Delawarecorporation as to which the brothers are the primary stockholders. At thisinitial stage, presumably from the derivative standpoint, plaintiff seeks atemporary restraining order and the appointment of a receiver pendente litepursuant to 8 Del. C. § 291. As best I can ascertain from the verifiedcomplaint, the exhibits and the counter affidavit of Thomas, the pertinentfacts upon which such a preliminary determination must be made are asfollows.

Plaintiff owns one-third of the outstanding stock of Lobby. Thomasowns seven-twelfths of the outstanding stock of Lobby and is thus themajority and controlling stockholder. Thomas is also one of the threedirectors of the corporation and appears to be its executive officer. In thiscapacity he apparently has heretofore and does now exercise dominationand control over corporate affairs.

Lobby is engaged in the business of operating The Hub Restaurant andCocktail Lounge in Dover. Lobby leases the land and premises of thebusiness from Kramedas Realty Corporation. Thomas owns all theoutstanding stock of Kramedas Realty Corporation. A large percentage ofthe fixtures on the premises, however, are owned by Lobby. The terms of thelease between Lobby and Kramedas Realty are alleged to be unknown byplaintiff and are not before the Court at this point.

The business condition of Lobby has deteriorated and over the pasL fewmonths it has been sustaining losses at the rate of $1,250 per week. Certainof its obligations to suppliers and others remain unpaid, not the least ofwhich are debts allegedly owed to Kramedas Realty as well as Thomaspersonally. Plaintiff questions the nature and validity of these latter debts,but lacks definite information to them as of this time. A current financialstatement, although in preparation, is not now available. However, theaffidavit of Thomas states that Lobby does not have sufficient workingcapital to continue doing business and preparation is being made to closethe business before the end of the month.

Under date of December 30, 1975, Thomas, as president and on behalf ofboth Kramedas Realty and Lobby, and apparently without first seekingapproval from the other stockholders of Lobby, executed a written lease withHorseless Carriage Company under the terms of which Horseless Carriagewould sublease the business from Lobby for a period of ten years. Rental isestablished at a minimum monthly amount plus a percentage of food andbeverage sales as warranted. This lease, however, is by its terms contingentas to its commencement date and binding nature on approval by theAlcoholic Beverage Control Commission of a transfer of Lobby's liquorlicense to Horseless Carriage. It is also contingent on the expiration withoutexercise of an option or right of first refusal held by one A. Gary Magness to

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purchase or lease the premises from Lobby. Neither the terms of this option,its duration or its triggering event is before the Court.

Pursuant to written notice, a meeting of stockholders and directors ofLobby was held on February 4, 1976. Election of directors was the first orderof business. This was accomplished with plaintiff being voted out as adirector and another being elected to take his place. Thereafter, the proposedlease was approved by a majority of the stockholders and unanimously bythe directors. On February 5, 1976 (it is orally represented by plaintiff andnot disputed by defendants) counsel for plaintiff appeared before theAlcoholic Beverage Control Commission to oppose the transfer of the liquorlicense, and as a consequence the application has been tabled and deferredby the Commission.

Based on this status of events, plaintiff asserts that Lobby is not in aposition to meet its financial obligations as they fall due and therefore islegally insolvent. Thus, he argues, there is justification for the immediateappointment of a receiver pendente lite under 8 Del. C. § 291. In addition, heasks that a temporary injunction issue forthwith to prevent Lobby fromconsummating the lease arrangement with Horseless Carriage until thefairness of its terms as to Lobby, and the financial ability of HorselessCarriage to comply with it, can be properly explored. He also asks thatThomas be restrained from closing the business and that the receiver beauthorized to continue it pending the outcome of this aspect of the litigation.

[1] By 8 Del. C. § 271, it is provided that upon such terms andconditions as the directors deem expedient a corporation may sell or leaseall, or substantially all, of its assets provided it is authorized by a majorityof the outstanding stock of the corporation entitled to vote thereon, at ameeting called upon at least 20 days notice. The notice to stockholders hereis dated January 12, 1976, which at least on its face meets this latterrequirement and (although the actual minutes are not before the Court) itseems clear that Thomas cast the majority vote of the stock in favor of thelease.

[2, 3, 4] In the face of apparent technical compliance with the statute, itseems that the area of complaint by the plaintiff must be weighed. And thiscauses a problem, at least at this stage of the proceedings. In short, thecomplaint does not seek to restrain the lease due to the unfairness of itsterms as to Lobby, nor due to any specific fraudulent benefit flowing toThomas if it is consummated. Rather it seems that plaintiff, as minoritystockholder, seeks to stop everything until such time as he can ascertainwhether the lease to Horseless Carriage is necessary or is the best dealLobby can get. His complaint, especially when the other counts areconsidered, if taken at face value, would cause anyone reading it to besuspicious of the true motivation of Thomas for causing the corporation toenter into the lease. However, suspicion, even on the part of a court, is not asufficient basis on which to grant preliminary injunctive relief. On thecontrary, probability of ultimate success on the merits plus the likelihood ofirreparable harm to the corporation if it is not granted is the test. Gimbel v.Signal Companies, Inc., Del. Ch. 316 A.2d 599, aff'd 316 A.2d 619 (1974). On

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the present record, I cannot conclude that the plaintiff has met that burdenhere, and a temporary restraining order, being extraordinary relief, shouldnever be granted, particularly on the pleadings of one side only, unless theright is clearly established.

[5] As to the appointment of a receiver, this is a matter which isaddressed to the discretion of the Court, even if insolvency of the corpora-tion is shown. Manning v. Middle States Oil Corp., Del. Ch., 137 A. 79 (1927);Kenny v. Allerton Corp., Del. Ch., 151 A. 257 (1930). Nor does delay or failureby management to furnish financial information mandate the appointmentof a receiver. Lichens Co. v. Standard Com. Tobacco Co., Del. Ch., 40 A.2d477 (1944).

[6] Here the corporation has debts, and management admits that itcannot continue to do business under present conditions. The record isunclear, however, as what effect the Horseless Carriage lease, if consum-mated, might have on its future ability to discharge present obligations. Andif there is doubt as to the actual condition of insolvency, the appointment ofa receiver should be denied. Banks v. Cristina Copper Mines, Del. Ch., 99A.2d 504 (1953). Moreover, mere differences of opinion between minority andmajority stockholders as to the desirability for the corporation to continuebusiness, or the manner in which it is being conducted, vl not constitute alegitimate ground for the appointment of a receiver. Banks v. CristinaCopper Mines, supra.

At present, I am of the opinion that the status of the record renders theplaintiffs applications premature. Discovery and development of the factsare obviously needed if such drastic relief is to be considered. Theapplication for a temporary restraining order and the appointment of areceiver are denied, without prejudice, of course, to the right of reapplicationupon an adequate showing. IT IS SO ORDERED.

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Documents

[VOL. 3 Unreported Cases - The Delaware Journal of ... CASES CUMULATIVE CASE INDEX All Issues to Date (Continued) DIVERSIFIED INDUSTRIES, FIXMAN v., No. 4721 (Del. Ch. …