Perl v. IU Intern. Corp.
| Decision Date | 06 March 1980 |
| Docket Number | No. 7300,7300 |
| Citation | 61 Haw. 622,607 P.2d 1036 |
| Court | Hawaii Supreme Court |
| Parties | Dr. R. Eastwood PERL, and all others similarly situated, Plaintiffs-Appellees, v. IU INTERNATIONAL CORPORATION, IUH Corporation, C. Brewer & Company, Limited, John M. Seabrook, Alden S. Bennett, John W. A. Buyers, Robert M. Fujimoto, John T. Jackson, Dudley C. Lewis, Fujio Matsuda, Robert L. Muller, James C. Stopford, Anson W. H. Taylor, Jr., and the First Boston Corporation, Defendants-Appellants. |
Syllabus by the Court
1. Neither our laws nor our corporate administrative regulations prohibit the use of a reverse triangular merger procedure to merge a wholly-owned Hawaii subsidiary of a foreign corporation with a Hawaii corporation.
2. The primary purpose of the de facto merger doctrine has been to afford dissenting shareholders rights of appraisal which would be available under a statutory merger but of which they have been deprived simply because the merger is called something else.
3. Where by a merger agreement each share of the surviving corporation issued and outstanding immediately prior to the merger was cancelled and in lieu thereof a share in the parent of the merging corporation was distributed, that transaction constituted a discretionary distribution of "assets" permissible under HRS § 417-3, paragraph 2.
4. The clause "actions to test the sufficiency or regularity of the votes of the stockholders" in HRS § 417-29 means actions to test whether the number of shares required to authorize or approve the proposed merger have been legally voted in favor of the proposed action of any constituent corporation.
5. A merger effected for the sole purpose of freezing out the minority interest is in violation of fiduciary principles governing the relationship between controlling and minority shareholders. In that event, appraisal is not the exclusive remedy available to plaintiff.
6. It makes little sense to condemn cash out mergers on the one hand, and yet to permit mergers using preferred securities redeemable at the option of the majority on the other if the minority may be just as effectively eliminated from the corporation by the redemption of the stock as by the straight cash out method.
Rodney N. Fujiyama, Honolulu (Wallace S. Fujiyama, Honolulu, on the briefs; Fujiyama, Duffy & Fujiyama, Honolulu, of counsel), for defendants-appellants.
Sidney H. Silverman, New York City (Silverman & Harnes and Bernstein & Obstfeld, P. C., New York City, of counsel; Emmet White, Jr., Honolulu, on the brief, Mau, White & Yee, Honolulu, of counsel), for plaintiffs-appellees.
Chun, Kerr & Dodd, Honolulu, for defendant-appellant, The First Boston Corp.
Before RICHARDSON, C. J., OGATA and MENOR, JJ., and MARUMOTO and KOBAYASHI, Retired Justices, assigned by reason of vacancies.
This is an interlocutory appeal from the judgment of the trial court setting aside the corporate merger of IUH Corporation (IUH) and C. Brewer and Company, Limited (Brewer), both Hawaii corporations.
The basic issue is whether the merger which was concluded herein was between two Hawaii corporations, or between a Hawaii corporation and a foreign corporation.
Dr. R. Eastwood Perl (Perl), a resident of the State of New York and a minority shareholder of common stock of Brewer, filed a complaint, on behalf of herself and all other minority stockholders of Brewer who are similarly situated, against IU International Corporation, a Maryland Corporation (IU), IUH, Brewer, the individual directors of Brewer, certain directors and officers of IU and the First Boston Corporation (appellants).
Perl sought to enjoin and/or set aside the merger between IUH and Brewer, alleging misrepresentations and false statements in the merger proxy statement. Perl further alleged that the Directors of Brewer breached their fiduciary duties in the formulation and presentation of the merger, and by not seeking alternative action or greater benefits than the proposed merger. On appeal, Perl contended that the merger was effected for the sole purpose of freezing out the minority shareholders.
The relevant facts are as follows:
On July 28, 1977, IUH was incorporated under the laws of Hawaii. One hundred percent of the stock of IUH (1,000 shares) was issued to IU Investment Corporation (IUI), a Delaware corporation wholly-owned by IU.
On August 14, 1978, IUH merged with Brewer.
Prior to the merger, Brewer had issued and outstanding approximately 4,571,800 shares of common stock. About fifty-four percent of the Brewer stock was owned by IUI; approximately two million shares were held by minority stockholders. Perl was the beneficial owner of 1,000 shares of Brewer common stock.
The Brewer stockholders' vote on the merger was 3,634,257 shares in favor (80%); 222,494 shares against (5%); and 694,349 shares not voted (15%).
To effectuate the merger, IUH and Brewer, among other defendants, executed two documents entitled "Agreement" and "Merger Agreement."
The "Agreement," in relevant part, states as follows:
AGREEMENT by and among IU INTERNATIONAL CORPORATION, IU
INVESTMENT CORPORATION, IUH CORPORATION and C.
AGREEMENT, dated the ____ day of _____, 1978, by and among IU International Corporation, a Maryland corporation ("IU"), with its principal office at 1105 North Market Street, Wilmington, Delaware 19801; IU Investment Corporation, a Delaware corporation ("IUI"), with its principal office at 1105 North Market Street, Wilmington, Delaware 19801; IUH Corporation ("IUH"), a Hawaii corporation, with its principal office at """""", and C. Brewer and Company, Limited, a Hawaii corporation ("Brewer"), with its principal office at 827 Fort Street, Honolulu, Hawaii 96801.
IUI, a wholly-owned subsidiary of IU, owns 2,435,162 shares or approximately 54% of the outstanding and issued capital stock of Brewer. IUH is a wholly-owned subsidiary of IUI which has been formed for the purpose of consummating the transactions contemplated by this Agreement. IU, IUI, IUH and Brewer have agreed that it is advisable for IUH to merge into Brewer upon the terms and conditions hereinafter set forth, whereby the issued and outstanding capital stock of Brewer, owned by stockholders other than IUI, would be exchanged for $1.36 Convertible Preferred Stock of IU.
NOW, THEREFORE, the parties to this Agreement (the "Agreement"), in consideration of the mutual covenants herein contained, do hereby agree as follows:
1.01 Merger. Subject to the terms and conditions herein set forth, the parties hereto agree to effect a merger of IUH with and into Brewer as the surviving corporation in accordance with the Agreement of Merger attached hereto as Annex 1 (the "Merger Agreement").
1.02 Prior to the Closing Date, as defined in Section 6.01 hereof, IU shall take the necessary corporate action to authorize the $1.36 Convertible Preferred Stock of IU with the designations, preferences, rights, voting powers, restrictions or qualifications and dividend, redemption or conversion, provisions as set forth in Annex 2 hereto . . . . 1 IU shall, on the Closing Date, issue to IUH a sufficient number of shares of $1.36 Convertible Preferred Stock to effect the merger in the manner provided for in the Merger Agreement.
2.01 Conversion of Shares. The manner of converting the shares of Brewer and IUH into shares of the surviving corporation and of distributing shares of $1.36 Convertible Preferred Stock of IU in lieu of shares of the surviving corporation shall be as set forth in Article III of the Merger Agreement.
6.01 Closing Date. Within ten business days after obtaining (i) the requisite approvals of the stockholders and directors of Brewer, (ii) the requisite tax ruling, and (iii) a determination of the number of shares of Brewer Common Stock, if any, as to which dissenters' rights are being exercised, (if necessary pursuant to Sections 5.01(j) and 5.02(i)), a meeting (the "Closing") shall take place at the offices of Brewer in Honolulu, Hawaii, at which the parties to this Agreement will exchange certificates, opinions and other documents in order to determine whether any condition exists which would permit any of the parties to this Agreement to terminate this Agreement. If no such condition then exists, or if no party elects to exercise any right it may have to terminate this Agreement, the parties shall certify, execute and acknowledge the Merger Agreement to comply with applicable filing and recording requirements. The date of such certification, execution and acknowledgment shall be the Closing Date.
6.02 Effective Date.
On the Closing Date, an executed counterpart of the Merger Agreement shall be filed with the Director of Regulatory Agencies of the State of Hawaii and the merger shall become effective upon the completion of such filing. The date of such completion of filing shall be the Effective Date.
The "Merger Agreement," in relevant part, states as follows:
MERGER AGREEMENT of IUH CORPORATION (a Hawaii corporation)
into C. BREWER AND COMPANY, LIMITED (a Hawaii corporation)
AGREEMENT OF MERGER dated this """" day of """"", 1978 by and between C. Brewer and Company, Limited ("Brewer") a Hawaii corporation, and IUH Corporation ("IUH"), a Hawaii corporation (the two corporate parties hereto being sometimes collectively referred to as the "Constituent Corporations").
Brewer is a corporation organized under the laws of the Kingdom of Hawaii and existing under the laws of the State of Hawaii, with its principal office at 827 Fort Street, Honolulu, Hawaii 96801. Brewer's authorized capital stock consists of 1,000,000 shares of Preferred Stock, without par value, and 6,000,000 shares of Common Stock, without par value, of which shares of Common Stock, and no shares of Preferred Stock, are issued and outstanding.
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