Delaware Supreme Court Affirms Chancery Court Ruling that Preferred Stock Was Properly Issued
Benihana of Tokyo, Inc. v. Benihana, Inc., No. 36, 2006, 2006 WL 2465412 (Del. Aug. 24, 2006).
The Delaware Supreme Court affirmed post-trial ruling by Court of Chancery that $20 million issuance of preferred stock to a third-party holding company was authorized by the corporate charter and that the directors acted properly in approving that transaction.
In doing so, the Delaware Supreme Court rejected appellant's argument that the charter prohibited preemptive rights. The Supreme Court also found that the board was aware of all material facts before it approved the transaction. Nor was there any record support for appellant's contention that a member of the board's executive committee breached his duty of loyalty by misusing confidential information. The Supreme Court further rejected the appellant's argument that the board's primary purpose in approving the transaction was to dilute appellant's voting control. Instead, the Court found ample record support for the Court of Chancery's conclusion that the transaction was primarily intended to provide what the directors subjectively believed to be the best financing vehicle available to effect a construction and renovation plan for the company's restaurants.