the business judgment rule in the takeover context as follows:
"Despite the nuances which have developed in the decisions applying the business judgment rule in takeover situations, I conclude that the presumption continues to afford protection to directors in preplanned strategies as well as reactive devices adopted on an ad hoc basis and a showing of a 'motive to retain control' is not the equivalent of bad faith sufficient to remove the presumption. Johnson v. Trueblood, supra at 293. Where, however, the takeover defensive device is itself calculated to alter the structure of the corporation, apart from the question of motive, and results in a fundamental transfer of the power from one constituency (shareholders) to another (the directors) the business judgment rule will not foreclose inquiry into the directors' action.
"Because the Rights Plan permits the Household Board to act as the prime negotiator for partial tender offers through the power of redemption, the resulting allocation of authority affects the structural relationship between the Board and the shareholders. It is this fundamental result, rather than a mere conflict of interest, which requires the Board to present evidence, the business judgment rule notwithstanding, that its approval of the Plan was not motivated primarily by a desire to retain control but by a reasonable belief that the Plan was necessary to protect the corporation from a perceived threat to corporate policy and effectiveness. Cheff v. Mathes, supra, 41 Del. Ch. 494, 199 A.2d 548 at 555 (1964). Household is not required, however, to demonstrate the intrinsic fairness of the Plan. The Cheff standard requires the defendant directors to show that their adoption of the Plan was 'remarkable at the time' (199 A.2d at 555). The burden thus placed may be viewed as the burden of going forward on a showing of reasonableness rather than a burden of persuasion. Because of the protection afforded directors by the business judgment rule the latter burden does not shift and remains with the plaintiffs". 490 A.2d at 1076.
In the present case the defensive device, the Series C Preferred Stock, is calculated to alter the structure of the corporation, removing decisions in takeover matters from individual stockholders and reposing them in the Board. Thus under Moran the directors have the burden of articulating the reasonableness of their plan, but the burden of persuasion remains with Weeks.
Weeks has advanced strong arguments why stockholders would be better off if it were possible for prospective purchasers of Asarco stock to make a variety of tender offers -- including two-tiered offers. In support of these arguments Weeks has presented the affidavit of Michael C. Jensen, one of the key witnesses in the Moran case. The directors espoused a contrary view, citing past history of Holmes A Court acquisitions and noting their reliance on reputable investment counselors. At this point in the litigation I cannot say that Weeks has overcome the limited protection afforded Asarco and its directors by the business judgment rule insofar as it concerns the decision to take steps which would ensure that a takeover could be carried out only in very limited circumstances.
However, it does not necessarily follow that the particular means which Asarco seeks to pursue to achieve its goals, that is to say, the issuance of a Series C Preferred Stock, is lawful under the provisions of the New Jersey Business Corporation Act.
2. Validity Under the Corporation Act :
The starting point for any inquiry concerning the validity of the corporate action is the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq. The Act, which became effective on January 1, 1969, is to be "Liberally construed and applied to promote its underlying purposes and policies." Its underlying purposes and policies are stated, among others, "(a) to simplify, clarify and modernize the law governing corporations." And "(b) to provide a general corporate form for the conduct of lawful business with such variations and modifications from the form so provided as the interested parties in any corporation may agree upon, subject only to overriding interests of this state and of third parties." N.J.S.A. 14A:1-1(3).
There was a time when the New Jersey courts limited severely the extent to which legislation could permit directors and stockholders to alter or readjust the rights and powers of stockholders inter sese or to expand the powers of the Board of Directors. This limitation on legislative power, and thus on corporate power, was forcefully espoused in the ancient and now unlamented case of Zabriskie v. Hackensack and New York Railroad Co., 18 N.J. Eq. 178 (Ch. 1867). Unanimous stockholder consent was required to effect substantial changes in the corporate structure and relationships, and the Legislature was held powerless to decree otherwise, for to do so would impinge upon the basic contractual rights of stockholders.
This doctrine eroded over the years, and Zabriskie was finally laid to rest in Brundage v. New Jersey Zinc Co., 48 N.J. 450, 226 A.2d 585 (1967); see also A.P. Smith Manufacturing Co. v. Barlow, 13 N.J. 145, 98 A.2d 581, appeal dismissed, 346 U.S. 861, 98 L. Ed. 373, 74 S. Ct. 107 (1953). After Brundage it was clear that under New Jersey law the power which the state had reserved over corporations was a part of a tripartite arrangement between the State, the corporation and its stockholders, permitting the Legislature to expand and modify the powers of corporations as the needs of society or sound corporate governance dictated. The Legislature has wide powers to change and expand the power of corporations. A corporation may exercise fully the powers conferred by the Business Corporation Act, and is in no way inhibited by the rejected principles set forth in Zabriskie.
With respect to voting rights of shareholders, N.J.S.A. 14A:5-10 provides that "each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, unless otherwise permitted in the certificate of incorporation." Thus differing voting rights are contemplated.
The power to issue shares is provided for in N.J.S.A. 14A:7-1(1):
". . . Such shares may consist of one class or may be divided into two or more classes and one class may be divided into one or more series. Each class and series may have such designation and such relative voting, dividend, liquidation and other rights, preferences, and limitations as shall be stated in the certificate of incorporation . . . ."
N.J.S.A. 14A:7-1(2) provides:
"In particular, and without limitation upon the general power granted by subsection 14A:7-1(1), a corporation, when so authorized in its certificate of incorporation, may issue classes of shares and series of shares of any class . . .