Delaware Business Litigation Report

Court of Chancery Holds Series B Director Has Immediate Right To Sit On Board

FGC Holdings Ltd. v. Teltronics, Inc., C.A. No. 883-N, 2005 WL 2334357 (Del. Ch. Sept. 14, 2005). Plaintiff FGC Holdings Limited, owner of Series B Preferred Convertible Stock in Defendant Teltronics, Inc. sought declaratory judgment that its Series B Director designee had an immediate right to sit on Teltronics' board of directors. Plaintiff purchased Series B stock of Defendant. The Certificate of Designations for the Series B stock gave its holder the right to elect a Series B director. The Series B Certificate of Designations also limited the size of the board to five directors. Defendant argued that because five directors currently sat on the board, Plaintiff's designee could not become a board member until the next annual stockholders meeting. Defendant also argued that Plaintiff waived its right to elect a Series B director by failing to do so or to object to the election of five directors at the last annual meeting. The Court rejected both of the Defendant's arguments. Applying contract principles, the Court concluded that the Series B Certificate of Designations: (1) limited the size of the board to five directors; (2) created one Series B directorship along with four common directorships; and (3) allowed the common stockholders to elect a fifth director, if the Series B stockholders chose not to elect a Series B director, subject to the Series B stockholders' right to elect a Series B director at any time. The Court also held that Defendant failed to satisfy its burden of proving its affirmative defense of waiver. Share