Opinion ID: 1497598
Heading Depth: 1
Heading Rank: 12

Heading: Unanimity Requirement Technicolor Charter Satisfied

Text: The Court of Chancery next addressed the effect of the unanimity requirement in Technicolor's charter on the duty of loyalty standard controlling this case. In Cede II, this Court found a further significant issue that neither the parties nor the court below ha[d] addressed; that is, the relevance of Technicolor's charter requirement of director unanimity to the consequence of a finding of director self-interest. Cede II, 634 A.2d at 365. This Court posed the following questions on remand: If unanimity is required, will one director's self-interest or lack of independence violate the requirement? Do the provisions of Section 144 override a charter requirement of unanimity? Does full disclosure of a director's interest to an otherwise disinterested board satisfy Technicolor's unanimity requirement? Id. at 366 (footnotes omitted). After answering the first question in the negative, the Court of Chancery found the remaining questions to be moot. Cinerama argues that the Technicolor merger is voidable because allegedly interested directors participated in the unanimous vote to recommend the repeal of Technicolor's supermajority provision. The Technicolor certificate of incorporation included a supermajority provision that required a ninety-five percent stockholder vote to approve a merger with any entity holding twenty percent or more of Technicolor's stock on the record date for the merger vote. The certificate further provided that the supermajority provision could not be repealed or amended by a less-than-ninety-five percent stockholder vote unless the Continuing Directors, by a unanimous vote, recommended the repeal or amendment to the stockholders. The language governing the repeal of that supermajority vote provision reads as follows: No amendment to the Restated Certificate of Incorporation of the Corporation shall amend, alter, change or repeal any of the provisions of this Article Tenth, unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of the holders of at least ninety-five percent (95%) of the outstanding shares of capital stock of the Corporation entitled to vote in elections of directors, considered for the purposes of this Article Tenth as one class; provided that this paragraph 5 shall not apply to, and such ninety-five percent (95%) vote or consent shall not be required for, any amendment, alteration, change or repeal unanimously recommended to the stockholders by the Board of Directors of the Corporation if all of such directors are persons who would be eligible to serve as Continuing Directors within the meaning of paragraph (3) of this Article Tenth. The Court of Chancery observed that the Technicolor charter's only express criterion for the qualification of directors to participate in the required unanimous board action was that they be persons who would be eligible to serve as Continuing Directors. Paragraph 3 of Article Tenth defined the term Continuing Directors as follows: The term Continuing Director shall mean a person who was a member of the Board of Directors of the Corporation elected by the stockholders prior to the time that [the merger partner] acquired in excess of ten percent (10%) of the stock of the Corporation entitled to vote in the election of directors, or a person recommended to succeed a Continuing Director by a majority of Continuing Directors then serving on the Board of Directors. The Court of Chancery concluded that the unanimity provision in the Technicolor charter should not be construed to include an implied exclusion of interested directors from eligibility to participate in the unanimous vote. In reaching that conclusion, it relied upon this Court's decision in Berlin v. Emerald Partners, Del.Supr., 552 A.2d 482, 488 (1989). See also Hibbert v. Hollywood Park, Inc., Del.Supr., 457 A.2d 339, 343 (1983). The Court of Chancery held: Plainly a literal interpretation of the unanimity requirement shows that it was satisfied in this instance. No director voting at the October 1981 meeting had been elected after MAF acquired in excess of ten percent (10%) of the stock of the Corporation. Provisions in a corporate charter should receive a literal and technical interpretation in most instances. They are customarily drafted by experts who count on them being respected in a precise and literal way. The issue to which the Supreme Court directs our attention  whether one who meets the technical requirement of a continuing director should nevertheless be regarded as a non-continuing director because he has a (disclosed) conflicting interest in the transaction, is fully answered I believe by the requirement that, absent fraud or mutual mistake, courts respect and enforce the literal language of the constitutional documents of a corporation. Cinerama, 663 A.2d at 1154-1155 (footnote omitted). We find the Court of Chancery's reasoning to be persuasive and affirm its determination of the first question remanded concerning the Technicolor charter. The proper resolutions of the other two questions this Court raised regarding the Technicolor charter have been suggested in this opinion already. The second question, whether the provisions of Section 144 override the Technicolor charter requirement of unanimity, has been answered by the conclusion on remand that the unanimous director vote complied with the Technicolor charter. As to the third question, having approved the Court of Chancery's materiality formulation on remand, this Court concludes that full disclosure of a director's self-interest to an otherwise disinterested and independent board would also satisfy the Technicolor charter's unanimity requirement, i.e., a unanimous vote of the qualified disinterested and independent directors. In this case, Sullivan's interest, the only one found to exist, was disclosed to such a board of directors. Compare 8 Del.C. § 144(a)(1).