James Burton Carey

“ At this meeting, Cheff was informed that Motor Products then owned approximately 100,000 shares of Holland stock. Maremont then made a demand that he be named to the board of directors, but Cheff refused to consider it. Since considerable controversy has been generated by Maremont's alleged threat to liquidate the company or substantially alter the sales force of Holland, we believe it desirable to set forth the testimony of Cheff on this point: "Now we have 8500 men, direct employees, so the problem is entirely different. ”

“ Plaintiffs urge that the sale price was unfair in view of the fact that the price was in excess of that prevailing on the open market. However, as conceded by all parties, a substantial block of stock will normally sell at a higher price than that prevailing on the open market, the increment being attributable to a "control premium". Plaintiffs argue that it is inappropriate to require the defendant corporation to pay a control premium, since control is meaningless to an acquisition by a corporation of its own shares. ”

“ Holland Furnace Company, a corporation of the State of Delaware, manufactures warm air furnaces, air conditioning equipment, and other home heating equipment. At the time of the relevant transactions, the board of directors was composed of the seven individual defendants. Mr. Cheff had been Holland's Chief Executive Officer since 1933, received an annual salary of $ 77,400, and personally owned 6,000 shares of the company. ”

“ Cheff and Holland.
The question then presented is whether or not defendants satisfied the burdenof proof of showing reasonable grounds to believe a danger to corporate policy and effectiveness existed by the presence of the Maremont stock ownership. It is important to remember that the directors satisfy their burden by showing good faith and reasonable investigation; the directors will not be penalized for an honest mistake of judgment, if the judgment appeared reasonable at the time the decision was made. ”

“ Cheff, the market price rose. On September 13, 1957, Maremont wrote to each of the directors of Holland and requested a broad engineering survey to be made for the benefit of all stockholders. During September, Motor Products released its annual report, which indicated that the investment in Holland was "special situation" as opposed to the normal policy of placing the funds of Motor Products into "an active company". On September 4th, Maremont proposed to sell his current holdings of Holland to the corporation for $ 14.00 a share. ”

“ Similarly, if the actions of the board were motivated by a sincere belief that the buying out of the dissident stockholder was necessary to maintain what the board believed to be proper business practices, the board will not be held liable for such decision, even though hindsight indicates the decision was not the wisest course. See Kors v. Carey, 39 Del. Ch. 47, 158 A.2d 136. On the other hand, if the board has acted solely or primarily because of the desire to perpetuate themselves in office, the use of corporate funds for such purposes is improper. ”

“ Trenkamp arranged for a meeting with Maremont, which occurred on October 14 -- 15, 1957, in Chicago. Prior to this meeting, Trenkamp was aware of the intentions of Hazelbank and Mrs. Cheff to purchase all or portions of the stock then owned by Motor Products if Holland did not so act. As a result of the meeting, there was a tentative agreement on the part of Motor Products to sell [D502] its 155,000 shares at $ 14.40 per share. On October 23, 1957, at a special meeting of the Holland board, the purchase was considered. All directors, except Spatta, were present. ”

“ The defendants were also supplied with an income statement of Motor Products, Inc., showing a loss of $ 336,121.00 for the period in 1957.
On August 30, 1957, the board was informed by Cheff of Maremont's demand to be placed upon the board and of Maremont's belief that the retail sales organization of Holland was obsolete. The board [D501] was also informed of the results of the investigation by Cheff and Staal. Predicated upon this information, the board authorized the purchase of company stock on the market with corporate funds, ostensibly for use in a stock option plan. ”

“ Staal and Cheff had made informal personal investigations from contacts in the business and financial community and had reported to the board of the alleged poor reputation of Maremont. The board was within its rights in relying upon that investigation, since 8 Del. C. § 141 (f) allows the directors to reasonably rely upon a report provided by corporate officers. ”