Law School Case Brief
Benihana of Tokyo, Inc. v. Benihana, Inc. - 906 A.2d 114 (Del. 2006)
Del. Code Ann. tit. 8, § 144(a)(1) provides a safe harbor for interested transactions if the material facts as to a director's relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors, and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors.
Rocky Aoki founded Benihana of Tokyo, Inc. (BOT), and its subsidiary, Benihana, which own and operate Benihana restaurants in the United States and other countries. Due to financial problems and a change of corporate control, three of the members of Benihana’s board of directors considered the issuance of convertible stock and its sale to BFC Financial Corporation (BFC). Ultimately, the entire board approved resolutions ratifying the execution of a stock purchase agreement with BFC and authorizing the stock issuance. Thereafter, the company filed an action against all but one of the subsidiary's directors, alleging breach of fiduciary duties.
Was Benihana, Inc. authorized to issue $20 million in preferred stock and did Benihana's board of directors act properly in approving the transaction?
Yes and Yes
The Delaware Supreme Court found that Benihana’s certificate of incorporation did not prohibit the issuance of preferred stock with preemptive rights. The record clearly established that the board possessed all of the material information when it approved the transaction. Consequently, the trial court properly concluded that the board's approval of the transaction was a valid exercise of its business judgment under Del. Code Ann. tit. 8, §§ 144(a)(1), 102(b)(3) for a proper corporate purpose.
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