HARITON V. ARCO ELECTRONICS, INC.
41 Del.Ch. 74, 188 A.2d 123 (1963)
NATURE OF THE CASE: This case involves the sale of assets under Sec. 271 of the corporation law, 8 Del.C. Hariton (P), shareholder, appealed a grant of summary judgment for Arco (D), corporation, and dismissal of P's complaint, arguing sale of assets under Del. Code Ann. tit 8, 271, dissolution and distribution of shares, a de facto merger, was illegal.
FACTS: In the summer of 1961, Arco and Loral Electronics Corp. (D) negotiated for an amalgamation of the companies. As of October 27, 1961, they entered into a 'Reorganization Agreement and Plan'. The provisions of this Plan pertinent here are in substance as follows: 1. Arco agrees to sell all its assets to Loral in consideration (inter alia) of the issuance to it of 283,000 shares of Loral; 2. Arco agrees to call a stockholders meeting for the purpose of approving the Plan and the voluntary dissolution; 3. Arco agrees to distribute to its stockholders all the Loral shares received by it as a part of the complete liquidation of Arco. At the Arco meeting all the stockholders voting (80%) approved the Plan. It was thereafter consummated. P contended that the sale of assets and dissolution statutes could not be legally combined, and that the plan constituted a de facto merger without affording shareholders rights provided in the merger statute. P contends that the several steps taken here accomplish the same result as a merger of D into Loral. In a 'true' sale of assets, the stockholder of the seller retains the right to elect whether the selling company shall continue as a holding company; The stockholder of the selling company is forced to accept an investment in a new enterprise without the right of appraisal granted under the merger statute. 271 cannot therefore be legally combined with a dissolution proceeding under 275 and a consequent distribution of the purchaser's stock. Such a proceeding is a misuse of the power granted under 271, and a de facto merger results. P who did not vote at the meeting sued to enjoin the consummation of the Plan on the grounds that (1) that it was illegal; (2) that it was unfair. The second ground was abandoned. Affidavits and documentary evidence were filed, and D moved for summary judgment and dismissal of the complaint. The Vice Chancellor granted the motion and P appealed.
ISSUE:
RULE OF LAW:
HOLDING AND
DECISION:
LEGAL ANALYSIS:
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