431 A.2d 1274 (Del. Ch. 1981)
Hyman Katz allegedly being the owner of approximately 170,000 shares of common stock of the defendant Plant Industries, Inc., on whose behalf he has brought this action, suing not only for his own benefit as a stockholder but for the alleged benefit of all other record owners of common stock of the defendant Plant Industries, Inc. However, it is contended by defendants that Mr. Katz having been a former chief executive officer of Plant Industries, Inc. and allegedly involved in litigation with present management of the corporate defendant is accordingly disqualified to sue derivatively or for a class.1
During the last six months of 1980 the board of directors of Plant Industries, Inc., under the guidance of the individual defendant Robert B. Bregman, the present chief executive officer of such corporation, embarked on a course of action which resulted in the disposal of several unprofitable subsidiaries of the corporate defendant located in the United States, namely Louisiana Foliage Inc., a horticultural business, Sunaid Food Products, Inc., a Florida packaging business, and Plant Industries (Texas), Inc., a business concerned with the manufacture of woven synthetic cloth.2 As a result of these sales Plant Industries, Inc. by the end of 1980 had disposed of a significant part of its unprofitable assets.3
Mr. Bregman thereupon proceeded on a course of action designed to dispose of a subsidiary of the corporate defendant known as Plant National (Quebec) Ltd., a business which constitutes Plant Industries, Inc.’s entire business operation in Canada and has allegedly constituted Plant’s only income producing facility during the past four years.4 Interest in purchasing the corporate defendant’s Canadian plant was thereafter evinced not only by Vulcan Industrial Packaging, Ltd. but also by Universal Drum Reconditioning Co., which latter corporation originally undertook to match or approximate and recently to top Vulcan’s bid. A formal contract was entered into between Plant Industries, Inc. and Vulcan on April 2,1981 for the purchase and sale of Plant National (Quebec) despite the constantly increasing bids for the same property being made by Universal.5
According to Plant’s 1980 10K form, it appears that at the end of 1980, Plant’s Canadian operations represented 51% of Plant’s remaining assets. Defendants also concede that National represents 44.9% of Plant’s sales’ revenues and 52.4% of its pretax net operating income.6 In 1980, while the Canadian business profit was $5,300,000, the corporate loss in the United States was $4,500,000.7 Defendants concede that National accounted for 34.9% of Plant’s pretax income in 1976, 36.9% in 1977, 42% in 1978, 51% in 1979 and 52.4% in 1980.8
Historically the principal business of Plant Industries, Inc. has not been to buy and sell industrial facilities but rather to manufacture steel drums for use in bulk shipping as well as for the storage of petroleum products, chemicals, food, paint, adhesives and cleaning agents, a business which has been profitably performed by National of Quebec.9 The proposal, after the sale of National, to embark on the manufacture of plastic drums represents a radical departure from Plant’s historically successful line of business, namely steel drums.10
The complaint herein seeks the entry of an order preliminarily enjoining the proposed sale of the Canadian assets of Plant Industries, Inc. to Vulcan Industrial Packaging, Ltd. The matter was heard by Chancellor Marvel in the Court of Chancery of Delaware.11
Whether the proposed sale of Plant National (Quebec) Ltd. constitutes a sale of substantially all of the assets of Plant Industries, Inc.?12
Delaware law requires stockholder approval for the sale of all or substantially all of a corporation's assets. Specifically, 8 Del.C. § 271 mandates that such a sale receive not only board approval but also a resolution adopted by a majority of the outstanding stockholders at a meeting called on at least twenty days' notice.13 The guiding principle for determining whether a sale meets this threshold, as set forth in Gimbel v. Signal Companies, Inc., holds that if the sale is of assets quantitatively vital to the operation of the corporation and is out of the ordinary and substantially affects the existence and purpose of the corporation then it is beyond the power of the Board of Directors.14
Yes. The Canadian operations represented over 51% of Plant’s total assets and generated approximately 45% of Plant’s 1980 net sales, while also serving as the only income producing facility over the prior four years.15 Historically Plant Industries has manufactured steel drums, a business successfully conducted by the Quebec subsidiary, yet the post-sale plan to produce plastic drums constitutes a radical departure from that established and profitable line of operations.16 These quantitative and qualitative elements demonstrate that the transaction is vital to the corporation, deviates from ordinary business, and substantially impacts its core existence and purpose under the Gimbel v. Signal Companies, Inc. standard.17
Because the proposed sale meets the criteria for substantially all assets, it may not proceed without the required stockholder vote, and a preliminary injunction is appropriate to maintain the status quo pending such approval.18