Page 152 - מיזוגים ורכישות - פרופ' אהוד קמר 2022
P. 152
Th[e] defensive action by the Director Defendants compromised the
essential role of corporate democracy in maintaining the proper allocation
of power between the shareholders and the Board, because that action
was taken in the context of a contested election for successor directors.
Since the Director Defendants did not demonstrate a compelling
justification for that defensive action, the bylaw amendment that
expanded the size of the Liquid Audio Board, and permitted the
appointment of two new members on the eve of a contested election,
should have been invalidated by the Court of Chancery. . . . [T]he
incumbent Board timed its utilization of these otherwise valid powers to
expand the size and composition of the Liquid Audio Board for the primary
purpose of impeding and interfering with the efforts of the stockholders’
power to effectively exercise their voting rights in a contested election for
directors.
Accordingly, the stockholder’s effort to obtain the influence inherent in obtaining
two of five seats, including the ability to deadlock that board in the face of a resignation,
or to control the board in the face of two resignations, could not be interfered with by
director action once the stockholders had properly set that process in motion.
Thus, while the Chancery Court had narrowly defined the goal of the proxy contest
— to obtain a two-seat minority — the Supreme Court, in order to protect the corporate
allocation of power, considered the broader purpose of the contest, examined all of the
possible ramifications of the election’s outcome, and determined that the stockholder
vote had, in fact, been frustrated. The court’s emphasis on the importance of the policy
underlying Blasius does not create a bright-line test as to when Blasius applies, but the
focus on the distinction between stockholder franchise principles and fiduciary principles
should nevertheless provide significant guidance.
148
essential role of corporate democracy in maintaining the proper allocation
of power between the shareholders and the Board, because that action
was taken in the context of a contested election for successor directors.
Since the Director Defendants did not demonstrate a compelling
justification for that defensive action, the bylaw amendment that
expanded the size of the Liquid Audio Board, and permitted the
appointment of two new members on the eve of a contested election,
should have been invalidated by the Court of Chancery. . . . [T]he
incumbent Board timed its utilization of these otherwise valid powers to
expand the size and composition of the Liquid Audio Board for the primary
purpose of impeding and interfering with the efforts of the stockholders’
power to effectively exercise their voting rights in a contested election for
directors.
Accordingly, the stockholder’s effort to obtain the influence inherent in obtaining
two of five seats, including the ability to deadlock that board in the face of a resignation,
or to control the board in the face of two resignations, could not be interfered with by
director action once the stockholders had properly set that process in motion.
Thus, while the Chancery Court had narrowly defined the goal of the proxy contest
— to obtain a two-seat minority — the Supreme Court, in order to protect the corporate
allocation of power, considered the broader purpose of the contest, examined all of the
possible ramifications of the election’s outcome, and determined that the stockholder
vote had, in fact, been frustrated. The court’s emphasis on the importance of the policy
underlying Blasius does not create a bright-line test as to when Blasius applies, but the
focus on the distinction between stockholder franchise principles and fiduciary principles
should nevertheless provide significant guidance.
148
