Stanley Stahl v. Apple Bancorp, et al.

Court of Chancery of Delaware May 17, 1990 Decided by: Chancellor Allen By: Emil Martinez Doctrine: When the board of directors perceive a reasonable threat to the corporation and the interests of its shareholders, it may employ mechanisms to avert such threat, such as in this case, where the board postponed the annual stockholders meeting to prevent the sale of the company through a proxy voting in favor of a majority stockholder. FACTS: Bancorp (incorp. in Delware, based in NY) was formerly the holding company of Apple Bank. Bancorp eventuallu acquired all the outstanding common shares of Apple Bank. Stanley Stahl, the largest shareholder of Bancorp (owning 20%-30% of the total shares), keeps on gaining majority stakes in the company. The board of directors, concerned with Stahls stock accumulation, proposed 2 solutions to address it: (1) a standstill agreement with Stahl; or (2) a stock purchase rights plan (intended to prevent Stahl from gaining more shares). The board later on adopted the stock purchase rights plan. In response, Stahl submitted his counter-proposal. He proposed a tender offer to purchase the entire common shares of Bancorp, and elect 13 nominees (nominated by Stahl) as stockholders. The objective of Stahl is to control the majority of the board (through proxy voting) so that the board (under his control) can decide to sell the corporation (which is precisely the plan of Stahl). To effectuate all these, the annual stockholders meeting must be hel d (so that the stockholders can vote and elect). The board set a record date for the meeting, as provided in the Gen. Corp. Law of Delaware. The board, being advised that Stahls proposal is inadequate, decided to withdraw the record date for the meeting (in effect, postponing the meeting). The purpose of the postponement is to allow the board to come up with other alternatives to Stahls takeover proposal. Stahl, in response, filed an action against the board, claiming that the postponement of the meeting deprived the stockholders their right to vote. The Bancorp board, as a retort, claimed that it merely delayed their right to vote, and that it was a reasonable response to threats against the interest of the corp. and the stockholders. ISSUE: Whether the decision of the Bancorp board to postpone the stockholders meeting was a reasonable response to the threat against the company (i.e. Stahls takeover and sale plan).

HOLDING: Yes. The business judgment standard of review under the case of Unocal was satisfied. RATIO: In order to evaluate whether the decision of Bancorp.s board was reasonable, test in Unocal v. Mesa Petroleum must be present: (1) was there a reasonable perception [by the board] of a threat to the corp. and the stakeholders; and (2) was the response of the board reasonable in relation to the threat? Chancellor Allen ruled that these elements are present. The threat in this case is Stahls tender offer and the proxy votes to be taken in the meeting. As stated, Stahl plans to put his nominees to the board in order to control the board. Hence, the meeting will practically determine whether the company will be sold or not. Again, Stahl wishes to sell the company by buying out all the common shares. Allen rules that in these cases, the stockholders require adequate information in deciding, especially when sale is involved. Misinformation will threaten their voting interests. Therefore, the postponement of the meeting, which was for the purpose of gathering information to come up with better alternatives to Stahls proposal, was reasonable under Unocal. DISPOSITIVE: Stahls appeal is DENIED.