EFiled: Feb 8 2007 4:10PM EST
Transaction ID 13747372
Case No. Multi-case
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
GEORGE PERLEGOS and
GEORGE PERLEGOS and
ATMEL CORPORATION, a Delaware
corporation, DAVID SUGISHITA,
STEVEN LAUB, PIERRE FOUGERE,
T. PETER THOMAS and CHAIHO KIM,
C.A. No. 2320-N
C.A. No. 2321-N
Date Submitted: December 11, 2006
Date Decided: February 8, 2007
Stephen C. Norman, Esquire, Kevin R. Shannon, Esquire, Matthew E. Fischer,
Esquire, Timothy R. Dudderar, Esquire, Kirsten A. Lynch, Esquire and Melony R.
Anderson, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware,
Attorneys for Plaintiffs.
Jesse A. Finkelstein, Esquire, Raymond J. DiCamillo, Esquire, Brock E. Czeschin,
Esquire, and Daniel M. Silver, Esquire of Richards, Layton & Finger, P.A.,
Wilmington, Delaware, Eugene Illovsky, Esquire of Morrison & Foerster, LLP,
Walnut Creek, California, and Kenneth A. Kuwayti, Esquire and Darryl P. Rains,
Esquire, of Morrison & Foerster, LLP, Palo Alto, California, Attorneys for
NOBLE, Vice Chancellor
A company’s audit committee investigated travel-related expenses following
the discovery that the head of its travel department had engaged in fraudulent
practices relating to the procurement of airline tickets. The investigation eventually
focused on several high-level managers, including two of the company’s founders
and directors: its chairman, president, and chief executive officer, and its executive
vice president. The audit committee retained independent and experienced counsel to
investigate the matter.
While the investigation was progressing, the company’s
board, at a specially called meeting, established a special committee comprised of
five non-management directors. The special committee was authorized to take any
action it deemed appropriate on behalf of the company with respect to travel-related
expenses. Immediately thereafter, the special committee met with the company’s
chairman, president and chief executive officer. Dissatisfied with his responses, as
well as those of the executive vice president, the special committee, after obtaining
separate counsel to review the investigation, voted unanimously to terminate the pair
for cause. Before the board convened to remove the chairman, however, he called a
special meeting of the company’s stockholders for the purpose of removing those
directors who served on the special committee. The next day, the board elected a
new chairman and gave him the authority to cancel the attempted call of a special
stockholders meeting, which he did. The ousted officers then brought this action
against the company and those directors who voted to cancel the special stockholders
meeting. They seek to recover their jobs with the company and an order compelling
the holding of the cancelled stockholders meeting.
This Memorandum Opinion sets forth the Court’s post-trial findings of fact and
conclusions of law.
I. FINDINGS OF FACT1
Defendant Atmel Corporation (“Atmel” or the “Company”) is a Delaware
corporation headquartered in San Jose, California.
With production facilities in
North America, Europe, and Asia, Atmel designs, develops, manufactures, and sells a
range of semiconductor integrated circuit products, including microcontrollers and
advanced logic, mixed-signal, non-volatile memory and radio frequency chips, which
are used principally in cell phones, disk drives, car alarms, camcorders, and electronic
Plaintiff George Perlegos and Plaintiff Gust Perlegos (collectively, the
“Plaintiffs” or the “Perlegoses”), with backgrounds in electrical engineering, founded
the Company in 1984.2 They were officers of Atmel—George Perlegos as Chairman,
Not all of the Court’s findings of fact are presented herein. For convenience, some findings of fact
are set forth in Part III, infra.
T.C. Wu was also a co-founder of Atmel. Trial Transcript (“Tr.”) 5 (George Perlegos); Tr. 190
President, and Chief Executive Officer; Gust Perlegos as Executive Vice President—
until their termination in August 2006. They were members of Atmel’s Board of
Directors (the “Board”) until they resigned in September 2006.
At all times relevant to this action, the Board consisted of David Sugishita,
Steven A. Laub, Pierre Fougere, T. Peter Thomas, Chaiho Kim (collectively, the
“Director Defendants”), T.C. Wu, also an Executive Vice President, and Plaintiffs
George Perlegos and Gust Perlegos.
Two committees of the Board, the Audit
Committee and a Special Committee, were involved in the investigation of, and
corporate response to, abuses of the Company’s travel policies. At various times, the
committees were advised by Daniel Bergeson, of Bergeson, LLP; James E. Boddy
and other representatives of Morrison & Foerster, LLP; Harish Khanna of
PricewaterhouseCoopers; and Mark A. Bertelsen, Corporate Secretary and Atmel’s
outside counsel at Wilson Sonsini Goodrich & Rosati, P.C.
Other principal Atmel employees in this case include: Mike Ross, Vice
President, General Counsel and Assistant Secretary; Mikes Sisois, Chief Information
Officer and Vice President for Planning and Information Technology; Julie MarSpinola, Chief Litigation and Intellectual Property Counsel; and Shahram Davani,
who was Atmel’s Global Travel Manager.
Trouble in the Travel Department: The Genesis of Investigating
Breaches of Atmel’s Travel Policy
Atmel’s Travel Policy
In November 2003, Atmel adopted a comprehensive Travel and Expense
Policy (the “Travel Policy”) for all of its employees in the United States.3 Its stated
purposes were (i) to provide employees with a clear and consistent understanding of
Atmel’s travel policies and procedures, (ii) to provide employee-travelers with a
reasonable level of service at the lowest available cost, and (iii) to aid the Company
in securing lower costs through negotiated discount arrangements with suppliers.
Principally, the Travel Policy contained information on booking guidelines (e.g.,
travel authorization forms, preferred airlines, use and distribution of upgrades,
personal travel of spouse and family members) and expense reporting requirements.
Where There Are Rules, There Will Be Those Who
Break Them—Davani’s Fraudulent Scheme
Davani served as the head of Atmel’s travel department. During his time at
Atmel, Davani had developed a reputation for obtaining unusually low-cost tickets
for employees.4 Not surprisingly, it would come to light that this was attributable not
to skill but to a fraudulent scheme involving a vast array of “debit memos,” “zeroexchange tickets,” and direct payments to Davani.
Joint Trial Exhibit (“JX”) 256.
E.g., Tr. 548-49 (Kim); Tr. 104-05 (George Perlegos); Tr. 322 (Bergeson, recalling Wu interview);
JX 370 at ATMEL 101866.
With debit memos, a ticket recipient would pay a portion, sometimes a nominal
one, of the total ticket cost and the airline, sometimes months or even a year later,
would issue a “debit memo” to TQ3 Navigant (“Navigant”), a third-party provider of
travel services to Atmel, as a charge for the shortfall.5 In turn, Navigant would pass
along the charge to Atmel as “management fees,” as Davani had requested.6 In
contrast, with a zero-exchange ticket, Atmel would pay the entire cost upfront. The
ticket would be issued in the name of one person (e.g., Atmel employees and their
families, non-employees, fictitious persons) and then exchanged for another ticket in
the name of the person who was actually traveling.7 The recipient would pay nothing
and would not necessarily know whether the ticket was a “zero-exchange ticket.”
A clearer method of Davani’s fraud can be found in how he sometimes charged
for personal tickets. In charging an Atmel employee, or a friend or relative of an
Atmel employee, Davani would first charge the ticket to Atmel’s Diners Club card
and then “resell” it to the traveler, sometimes for a lesser price.
travelers—and many did—would pay Davani directly with a personal check or cash.
The amounts Davani received through this subterfuge were never remitted.
In early July 2005, Navigant provided Atmel with information implicating
Davani in fraudulent practices in connection with the Company’s purchase of airline
JX 254; Tr. 42 (George Perlegos); McCaman Dep. 30.
JX 254 at ATMEL 72333.
Tr. 373 (Bergeson); JX 254.
tickets and travel upgrades. George Perlegos fired Davani on July 11, 2005. Four
days later, the Board was advised of the controversy surrounding Davani’s booking
practices and the Company sought more information from Navigant and other parties.
On October 14, 2005, after three months of investigation, the Board learned that
Davani had profited personally by more than $500,000 and that the total impact on
Atmel from his improper booking practices exceeded $2 million.
The Audit Committee Initiates an Independent Investigation into Travel
Expenses and Retains Bergeson for Assistance
After Davani’s termination on July 11, 2005, questions surrounding abuses of
Atmel’s Travel Policy continued, and they did not stop with Davani.
Atmel turned first to its principal law firm, Wilson Sonsini Goodrich &
Rosati, P.C. (“Wilson Sonsini”), for an investigation into Davani’s conduct.
Sometime during its investigation, George Perlegos contacted Zoila Neves to conduct
an investigation and prepare a report on how Davani was able to defraud the
Company. Neves had been George Perlegos’s long-time secretary and, despite her
lack of any formal accounting background, was familiar with travel billing and
accounting practices. Her retirement led to the Company’s hiring of Davani.8 In late
September 2005, Neves submitted an “Audit Overview” report to George Perlegos
and Ross. Two key findings in her report were that the total misappropriation of
Tr. 22-25, 113-14 (George Perlegos).
funds by Davani was approximately $540,000 and that the total financial impact on
Atmel was approximately $2.5 million.9 Because Neves’s report focused on Davani,
it did not offer information about others who may also benefited from Davini’s
Two months after Neves’s report, Sugishita, Chairman of Atmel’s Audit
Committee, sought an independent investigation into travel expenses.11 Bertelsen,
Atmel’s Secretary and outside counsel at Wilson Sonsini, agreed, not least of all
because of concerns raised by PricewaterhouseCoopers (“PwC”), Atmel’s auditors.12
Bertelsen recommended Bergeson and his law firm, Bergeson, LLP (also “Bergeson”
or “Bergeson’s firm”), which had experience in audit committee investigations.13
After some inquiry, Sugishita went ahead, and with the Audit Committee’s blessing,
retained Bergeson’s firm in late November 2005 to determine whether others at
Atmel had personally benefited from Davani’s scheme.14
Bergeson received a copy of Neves’s internal report and noted the last page of
her report which identified almost $2.5 million in damages to Atmel, yet only
JX 254 at ATMEL 72339.
Tr. 117-18 (George Perlegos).
Tr. 654-55 (Sugishita).
Id.; JX 11.
Tr. 657-58 (Sugishita); Tr. 810 (Thomas).
JX 113 (Nov. 29, 2005); Tr. 356 (Bergeson).
$540,000 attributable to Davani. Bergeson and his team “wanted to find out where
[the difference] went.”15
The Bergeson Investigation
During an eight-month investigation, Bergeson and his colleagues spent more
than one thousand hours reviewing e-mails; conducting forensic analyses of computer
hard drives; and interviewing more than two dozen individuals, including George
Perlegos and Gust Perlegos.16 Bergeson’s findings would come forth in two reports:
(i) the Preliminary Report to the Audit Committee on February 7, 2006,17 and (ii) the
Final Report on July 18, 2006.18
Bergeson’s Preliminary Report of February 7, 2006
A little more than two months into his investigation, Bergeson provided the
Audit Committee with the Preliminary Report on February 7, 2006.19
individuals were identified as having benefited from zero-exchange tickets and debit
memos for either personal- or business-related travel.20 Among other initial findings,
Tr. 364-65 (Bergeson).
JX 50 at ATMEL 75074-77; Tr. 434 (Bergeson).
JX 314 (Feb. 7, 2006).
JX 50 (July 18, 2006).
The report gave an overview of, among other things, the scope of the investigation, a chronology
of key events, the investigation’s methodology, the quantity and dollar amounts from zero exchange
tickets and debit memos, the value of personal travel received, and the amounts paid to Davani. At
trial, Bergeson testified that, by the time the Preliminary Report had been issued, he and his team
had interviewed at least everyone he had listed in his report as having been interviewed, but that the
ongoing nature of the investigation meant that more interviews would be needed. Tr. 317-19
JX 314 at ATMEL 21241, 21251-53.
Bergeson reported: George Perlegos had received fourteen tickets for personal travel,
with no evidence that he paid for eight of them; Gust Perlegos had received nine
tickets for personal travel, with no evidence that he paid for one of them; Ross, had
received 80 tickets for personal travel, with no evidence that he paid for most of
them; Sisois had received 31 tickets for personal travel, with no evidence that he paid
for any of them; Wu had received nineteen tickets for personal travel, with no
evidence that he paid for five of them; and Mar-Spinola had received fourteen tickets
for personal travel, with no evidence that she paid for any of them.21 When Bergeson
presented the Preliminary Report to the Audit Committee, he held the view that there
was no evidence of individual wrongdoing and that his preliminary findings did not
support terminating anyone.22
Still, around this time, George Perlegos, perhaps sensing that the Audit
Committee’s attention was turning increasingly to those in management, was not
without an opinion as to the investigation’s focus. On February 8, a day after
Bergeson’s Preliminary Report, George Perlegos e-mailed Sugishita, as chair of the
Company’s Audit Committee, and advised, “We should not fight among ourselves[;]
we should concentrate on how we get our money back from [Davani].”23 Two days
later, on February 10, George Perlegos met with the Audit Committee, a meeting he
JX 314 at ATMEL 21244-47.
See JX 118 (Feb. 7, 2006); Tr. 325 (Bergeson); see also Tr. 844 (Thomas); Tr. 922 (Fougere).
described as an “interrogation,” and was asked specifically about certain findings in
the Preliminary Report.24
Atmel Executes a Settlement Agreement with Davani and the
Bergeson Investigation Continues
After the Preliminary Report, the Audit Committee continued to monitor
Bergeson’s investigation.25 During this period, Bergeson and his colleagues reviewed
e-mails and other documents uncovered during the investigation.
conducted approximately a dozen more interviews. One of these interviews was with
Davani’s participation was secured through a settlement agreement with
Atmel.27 The Audit Committee considered the issue of entering into a settlement
agreement with Davani at its meeting on March 21, 2006.28 Bergeson stated that
Davani’s lawyer had indicated that his client had documentary evidence relevant to
the investigation and that a settlement agreement was a condition to Davani’s
Tr. 53 (George Perlegos).
JX 119 (Feb. 10, 2006); JX 121 (Mar. 21, 2006); JX 122 (June 5, 2006); JX 123 (June 13, 2006).
Tr. 405-07 (Bergeson); JX 156 (June 28, 2006 interview); JX 154 (May 30, 2006 interview).
JX 305. It should also be noted that both Sugishita and George Perlegos played some role in
securing or setting the parameters of Atmel’s agreement with Davani. About a week before the
Audit Committee’s meeting of March 21, Sugishita e-mailed Thomas, Kim, Fougere, Laub, and
Bertelsen about the need to gain access to documents that Davani could provide and argued that
George Perlegos, Gust Perlegos, Wu, and Kim should not be involved in settlement negotiations
because they were “subjects in [the] investigation.” JX 103. George Perlegos, who ultimately
approved and signed the settlement agreement, deleted language that Bergeson had drafted which
would have required Davani to be “available for depositions, provide affidavits and truthful
testimony.” Tr. 405-06 (Bergeson).
JX 121 (Mar. 21, 2006).
cooperation and willingness to be interviewed. Bergeson believed that “interviewing
Davani was important to a complete investigation in light of his central role.”29 For
Davani, the practical significance of the settlement agreement was that he would
receive a release from claims by Atmel.30
Davani was eventually interviewed by Bergeson and his team on May 30,
2006, the same day the settlement agreement was executed.31 Shortly thereafter,
Bergeson met with the Audit Committee on June 5, 2006, to apprise members of the
investigation and reported that, “although Davani had engaged in improper and
possibly illegal activities, his answers to questions related to travel expenses and
personal travel at Company expense were generally credible and consistent with the
facts developed in the special investigation.”32
Tr. 332-33 (Bergeson); JX 305.
Tr. 472 (Bergeson). Hours before Davani’s scheduled interview appointment on May 30,
Sugishita had expressed his frustration to other members of the Audit Committee that, days before,
George Perlegos had twice given assurances that he would promptly sign the settlement agreement
and have it couriered to Bergeson’s office. Perlegos was apparently late in doing so. Sugishita saw
this as part of a larger “behavior pattern towards independent director[s’] requests” and that his
actions were “crossing the line into subordination.” Further, he noted that Thomas “ha[d] given
George several counseling sessions with regards to this topic but the results [were] always the
same . . . no change!” JX 105. Another director, Fougere, responded that he “[did] not understand
this attitude” and recommended that two of the non-management directors meet with George
Perlegos to communicate their concerns to him gently. Id. (“I suggest to have a face to face
discussion with George but I fear that being in front of five of us . . . he may feel [like he is] facing
a court so it might be better that we have two of us . . . maybe a lunch meeting outside in a quiet
JX 122 (June 5, 2006).
Bergeson’s Final Report of July 18, 2006
If the Preliminary Report did not provide Audit Committee members with a
basis for terminating certain Atmel employees, Bergeson’s Final Report apparently
On July 18, 2006, Bergeson and two of his colleagues attended a special
meeting of the Audit Committee to present the findings of their investigation into
travel expenses that the Company may have paid on behalf of certain employees or
their family members from 2002 to 2005. The Final Report revealed several things: a
lack of separation between travel booking and approval functions; how a labyrinth of
zero exchange tickets and debit memos was used to create the appearance of
unusually low-priced tickets for Atmel employees, and to defraud Atmel in the
process; and the frequent use of Atmel’s travel service for personal and family travel
by top-level employees of the Company. More specifically, there was evidence that,
with respect to:
George Perlegos, there were 338 tickets for personal travel
attributable to him, with $280 in checks to Davani and a total cost of
about $170,000 to Atmel for travel by him and his immediate family;
Mike Ross, there were at least 203 tickets for personal travel
attributable to him, with $4,849 in personal checks to Davani and a
total cost of about $158,000 to Atmel for travel by him and his
Mikes Sisois, there were 99 tickets for personal travel attributable to
him, with $2,224 in personal checks to Davani and a total cost of
about $72,000 to Atmel for travel by him and his immediate family;
Tr. 427 (Bergeson).
Gust Perlegos, there were 146 tickets for personal travel attributable
to him, with $2,22434 in personal checks to Davani and a total cost of
about $67,000 to Atmel for travel by him and his immediate family;
T.C. Wu, there were 175 tickets for personal travel attributable to him,
with $29,190 in personal checks to Davani and a total cost of about
$56,000 to Atmel for travel by him and his immediate family; and
Julie Mar-Spinola, there were 62 tickets for personal travel
attributable to her, with $10,867 in personal checks to Davani, and a
total cost of about $36,000 to Atmel for travel by her and her
The Final Report also indicated that there were serious internal control failures with
respect to personal travel and accounting for travel expenses, and that George
Perlegos and Ross knew of this.36
At some point during the Audit Committee’s discussion of Bergeson’s
findings, Khanna, Atmel’s auditor at PwC, commented that Atmel’s auditors were
looking for an effective and timely response to the breaches of Atmel’s travel policies
and recommended that the Audit Committee start thinking about how to proceed.37
Bergeson was later asked whether the evidence as of that date supported termination
of certain Atmel employees.38 He responded that there was enough evidence to
terminate all six of the individuals who were discussed at the meeting.39 All of the
It would later come to light that Gust Perlegos had paid more, bringing the total he paid to Davani
JX 50 at ATMEL 75132-33, 75138-39.
JX 50 at ATMEL 75115, 75117.
JX 124 (July 18, 2006); Tr. 428 (Bergeson); Tr. 673-74 (Sugishita); Tr. 760 (Laub); Tr. 814
Tr. 759 (Laub); Tr. 815 (Thomas).
Tr. 427 (Bergeson). Those individuals were George Perlegos, Gust Perlegos, T.C. Wu, Julie
Mar-Spinola, Mike Ross, and Mikes Sisois. Id.; JX 124 (July 18, 2006).
directors at the July 18 meeting testified that they relied, at least in part, on
Bergeson’s assessment in forming their opinions.40
The Audit Committee’s meeting on July 18 was, in many ways, the beginning
of the end for the Perlegoses. At trial, one director at the meeting described the mood
as “somber.”41 Another director, one of the earliest investors in Atmel who had
served on its Board for twenty years and who admired the Perlegos family and
respected the rise of George Perlegos to become the head of a billion dollar company,
expressed disappointment with how the Perlegoses had received personal travel
benefits at the Company’s expense; it was after Bergeson’s presentation that he “was
starting to understand that the situation [the Company] had with both Gust and
George was very, very serious.”42
Ultimately, the Audit Committee unanimously resolved to do three things: (i)
to meet with George Perlegos to review Bergeson’s findings with him and hear his
response, (ii) to retain independent counsel to review the investigation and findings of
Bergeson and his staff for fairness and thoroughness, and (iii) to call a special
meeting of the full Board to consider creating a special committee comprised of all
Tr. 683 (Sugishita); Tr. 759 (Laub); Tr. 815 (Thomas); Tr. 560-61 (Kim); Tr. 863-65 (Fougere).
Tr. 764 (Laub).
Tr. 806-09, 814-19 (Thomas).
five non-management directors to act on behalf of the Board on all issues with respect
to travel-related expenses.43
Atmel’s Board Forms a Special Committee
The day after the Audit Committee met on July 18, 2006, Sugishita sent an e-
mail message in the afternoon to every member of the Board providing formal notice
of a special meeting of the Board for July 21, 2006, at 8:00 a.m.44 He also followed
up with Teddie Cazier, who was the personal assistant to George Perlegos, Gust
Perlegos, and Wu. He both telephoned and e-mailed Cazier later that afternoon to ask
that she relay the message to each of them that a special meeting had been called.45
About forty minutes after Sugishita’s follow-up e-mail and shortly before the close of
business, Cazier replied, “Gust and T.C. are traveling in Europe. I will contact them
tomorrow (Thursday 7/20).”
As planned, the special meeting of Atmel’s Board was held on July 21 to
consider the establishment of a Special Committee. Present were Kim, Thomas,
Laub, Fougere, George Perlegos, and Sugishita, who was both chairman and
secretary at the meeting.46
Gust Perlegos and Wu, however, were not.47
JX 124 (July 18, 2006).
JX 71 (July 19, 2006).
Tr. 690-91 (Sugishita); JX 71 at P000002.
Although the minutes reflect that Sugishita presided as chair of the meeting, the record does not
disclose how he was able to do so in the presence of George Perlegos, who was, of course,
Chairman of the Board at the time.
JX 126 (July 21, 2006). Neither Wu nor Cazier was deposed or testified at trial.
Perlegos testified that he did not know the meeting happened: he did not check e-mail
while traveling in Greece; he did not receive any calls or phone messages from
Cazier; and he did not learn of the meeting from anyone else.48
Still, the Director Defendants achieved the singular purpose of the meeting: the
Board approved a resolution creating the Special Committee consisting of nonmanagement directors Kim, Thomas, Fougere, Laub, and Sugishita, giving it the “full
power and authority of the Board of Directors to take any action it deem[ed] to be
appropriate on behalf of the Company with respect to the travel related expenses and
other issues . . . .”49 Of those present, only George Perlegos voted against the
The Newly Formed Special Committee Meets with George Perlegos
On July 21, 2006, the Director Defendants took their first action as the newly
formed Special Committee by meeting with George Perlegos to discuss and update
him on the travel investigation. At no time, however, was he informed that the
Special Committee was considering terminating or taking disciplinary action against
any officers of Atmel.50
At the meeting, which he also described as an unfair “interrogation,” George
Perlegos was shown for the first time Bergeson’s Final Report, which took the form
Tr. 210-11 (Gust Perlegos).
JX 126 (July 21, 2006).
Tr. 621 (Sugishita).
of PowerPoint slides.51 He was not, however, provided a copy of Bergeson’s report
or with a list of tickets, which he viewed as essential to responding adequately to the
Special Committee and to bringing the travel investigation to a prompt close.52 A
more detailed list than the PowerPoint slides George Perlegos had been shown was
apparently available.53 Bergeson admitted at trial that he had one in his possession at
the meeting, but was unable to show it to Perlegos who had walked out of the hourlong meeting before its conclusion to head to a doctor’s appointment.54
The Special Committee Receives an Independent Review
of Bergeson’s Findings and Takes a Straw Vote
At the end of its July 18 meeting, the Audit Committee resolved to have an
independent review—a “second opinion,” as one director put it55—of Bergeson’s
Soon thereafter, Boddy, an experienced labor and employment
JX 6. George Perlegos requested, without success, a copy of Bergeson’s Final Report both at the
July 21 meeting with the Special Committee and later that afternoon in an e-mail to its members.
He also urged the Special Committee of the “need to bring [the] investigation to a close ASAP.” Id.
Tr. 350 (Bergeson); JX 63.
Tr. 350 (Bergeson); Tr. 58-59 (George Perlegos). Bergeson, however, made no effort to schedule
a more convenient time for Perlegos and did not forward a copy of the report to his office. In fact,
George Perlegos did not receive a copy of the list of tickets attributed to him before he was
terminated. Tr. 351 (Bergeson). At trial, it became apparent that some directors were unaware of
this when they made their decisions to terminate. Tr. 533 (Kim); Tr. 779, 802 (Laub). Those same
directors, however, suggested at trial that, had they known at the time, they still would have voted to
terminate. Tr. 537-38 (Kim); Tr. 802-03 (Laub). In addition, Boddy, who later reviewed
Bergeson’s work for fairness and thoroughness, testified that it had been disclosed to him when he
began his work that unabbreviated lists of tickets had not been shown to the Perlegoses and, yet, his
review still concluded that the investigation had been fair. Tr. 927-28 (Boddy).
Tr. 697 (Sugishita).
attorney at Morrison & Foerster, LLP, was retained. His charge was to review
Bergeson’s findings for fairness and thoroughness.56
On August 1, 2006, the Special Committee met to receive Boddy’s assessment.
He explained that his methodology was, first, to understand the nature and scope of
the investigation that Bergeson’s firm had conducted; then to examine whether the
evidence provided grounds for termination of certain Atmel employees; and, finally,
to consider whether evidence supported opposite conclusions.57 His analysis was
based on a review of interviews that had been conducted by Bergeson and his two
colleagues, Elizabeth Lear and Marc van Niekerk, as well as a review of materials
that Bergeson had provided in a binder. In addition, Boddy examined documents that
had not been provided to him directly, namely file memoranda of interviews, written
employment agreements, and supporting documentation that was referenced or used
in the Final Report, but not included in it or provided to Boddy.58
Boddy concluded that: (i) the investigation, in his opinion, had been fairly and
thoroughly conducted, and (ii) Bergeson’s Final Report provided a good faith basis to
terminate George Perlegos, Gust Perlegos, Ross, Sisois, and, although a “closer
JX 124 (July 18, 2006); Tr. 899 (Boddy).
Tr. 911 (Boddy).
Tr. 917, 929 (Boddy).
JX 127 (Aug. 1, 2006); Tr. 900-02, 905-06 (Boddy).
Boddy’s report was followed by two others: Darryl Rains, also of Morrison &
Foerster, LLP, and special counsel to the Special Committee, advised the directors of
the need to consider their fiduciary duties in light of Bergeson’s findings and the
potential for investigations by the Securities and Exchange Commission and the
United States Department of Justice if the Special Committee chose to take no action;
and Khanna advised that auditors were looking to the Special Committee to take
“prompt and appropriate remedial action.”60
In light of all of this advice, the members of the Special Committee took a
“straw vote” with respect to each of the Atmel employees under review (i.e., George
Perlegos, Gust Perlegos, Sisois, Ross, Wu, and Mar-Spinola), and agreed tentatively
to terminate George Perlegos and Gust Perlegos.61
The Special Committee Terminates the Perlegoses for Cause
On August 3, 2006, the Special Committee convened a 6:00 a.m. conference
call to formalize the tentative determinations it had made two days earlier.
Unanimously, the Special Committee resolved to terminate George Perlegos,62 Gust
Perlegos, Ross, and Sisois for cause (i.e., for their conduct in obtaining personal
travel at Atmel’s expense); to reprimand Wu; and to meet further with Mar-Spinola
JX 127 (Aug. 1, 2006).
Id.; Tr. 560-62 (Kim); Tr. 703 (Sugishita); Tr. 826-27 (Thomas); Tr. 864-65 (Fougere).
Laub abstained from voting with respect to George Perlegos.
and ask that she provide additional information.63
The Special Committee also
resolved to request that George Perlegos, Gust Perlegos, and Wu resign from Atmel’s
Board on August 5, 2006.64
The Special Committee planned to inform George Perlegos and Gust Perlegos
on August 5, a Saturday, of their respective terminations: first at 9:30 a.m. with Gust
Perlegos in person; then with George Perlegos at 10:00 a.m. by conference call.65
That was not to be. When Sugishita and Fougere, who were to communicate the
Special Committee’s decision,66 commenced a meeting with Gust Perlegos at Atmel’s
headquarters, Gust Perlegos almost immediately ended it.
He directed all
communications to his personal attorney, Paul Alexander, and abruptly left the
conference room.67 Passing word to George Perlegos proved even more difficult.
A conference call among Sugishita, Fougere, and George Perlegos was
scheduled for 10:00 a.m., with Perlegos agreeing to initiate the call.68 Both Sugishita
JX 130 (Aug. 3, 2006); JX 132 (Aug. 14, 2006). Ultimately, Mar-Spinola was not terminated.
JX 130 (Aug. 3, 2006). Curiously, despite the Board’s resolution to request that the Perlegoses
and Wu resign from the Board, Sugishita later took it upon himself to instruct Boddy, who was
drafting letters to those whom the Special Committee had terminated or reprimanded, to change the
word “request” to “recommend” in the letter to Wu. JX 75 at ATMEL 22764.
JX 56; JX 57.
Before the meeting of the Special Committee on August 3, Sugishita had arranged that both he
and Fougere would act behalf of the Special Committee in communicating the termination decisions
with respect to those affected. JX 75 at ATMEL 77995. Fougere would participate by conference
call for all of the scheduled meetings.
Tr. 260 (Gust Perlegos). Sugishita, acting on behalf of the Special Committee, later e-mailed
Paul Alexander an employment termination letter for Gust Perlegos, a list summarizing personal
airline travel attributable to Gust Perlegos and his immediate family, and a draft board resignation
letter. JX 56.
JX 57; Tr. 712 (Sugishita).
and Fougere testified that George Perlegos did not call and, after waiting some time,
Sugishita forwarded by e-mail to Alexander, his personal attorney, a copy of the
employment termination letter, a list of personal airline travel attributable to George
Perlegos and his immediate family, and a draft board resignation letter.69 George
Perlegos testified that, although he was aware of the scheduled call, he was unable to
call in from the island in Greece where he was staying and had not received word
from anyone that he had been terminated.70 He testified that, then, all of a sudden, he
received many calls about how “armed security ha[d] taken over Atmel; they [were]
laying off people.”71 George Perlegos recalled talking to Bob Avery, Atmel’s chief
financial officer; Leo Rodrigues, Atmel’s head of security; and Ross and Sisois, both
of whom had been terminated.72 Surprisingly, no one, according to George Perlegos,
informed him that he had been fired. He testified that Gust Perlegos did not. He
testified that Alexander, his attorney, had not when he instructed Alexander to call a
shareholders meeting, telling him, “I want . . . to remove all these directors, because
nobody informed me of anything that is going on.”73
JX 57; Tr. 713 (Sugishita).
Tr. 175-76 (George Perlegos).
Tr. 177 (George Perlegos).
Tr. 178-79, 181 (George Perlegos).
Tr. 177 (George Perlegos).
A Special Meeting of Stockholders is Called—And Then Cancelled
Also on August 5, 2006, George Perlegos, in his capacity as Chairman of the
Board, called a special meeting of the Company’s stockholders for the purpose of
voting to remove the Director Defendants.74
He directed Bertelsen, as Atmel’s
Secretary, pursuant to Section 5.9 of the Bylaws, to provide prompt written notice to
stockholders that the meeting would be held on October 5. Incidentally, George
Perlegos’s letter was sent hours after Sugishita had e-mailed Alexander regarding the
termination of George Perlegos and Gust Perlegos.75
The next day, August 6, the Board met to consider several resolutions.76
Without voting expressly to remove George Perlegos as Chairman, the Board elected
Sugishita as its “non-executive Chairman,” and also elected Laub as President and
Chief Executive Officer.77 Perhaps most significant to George Perlegos was the
Board’s final decision that day: its authorization of, and order to, Sugishita to rescind
and revoke George Perlegos’s attempted notice of a special meeting of
stockholders.78 The stated reasons for the Board’s cancellation of this meeting were
threefold: the Director Defendants had been elected at Atmel’s annual meeting just
three months earlier; the time and expense of calling a special meeting could detract
Tr. 179-80 (George Perlegos).
JX 75 at ATMEL 77995, 22903
JX 131 (Aug. 6, 2006) at ATMEL 100032-34.
from the management of Atmel’s business; and the meeting could cause confusion
among stockholders and employees of Atmel.79 Certainly driving their decision to
cancel, however, was what most of the Director Defendants considered a retaliatory,
vindictive, and maybe even desperate move on the part of a co-founder who had been
one of Atmel’s most important figures, George Perlegos.80
The Perlegoses Bring Suit Against Atmel and the Director Defendants
On August 7, 2006, George Perlegos and Gust Perlegos brought suit: (i) against
Atmel under Section 220(d) of the Delaware General Corporation Law (“DGCL”) to
inspect its books and records; (ii) against Atmel under Section 225 to reinstate
George Perlegos and Gust Perlegos as President and Chief Executive Officer, and
Executive Vice President, respectively; and (iii) against Atmel and the Director
Defendants under Section 211 to hold a special meeting of stockholders.
September 8, their action under Section 220 was dismissed, pursuant to a stipulation,
after they resigned from the Board. The remaining actions under Sections 211 and
225 are now before the Court.
First, in their action under Section 225 of the DGCL, George Perlegos and
Gust Perlegos contend that their terminations purportedly for cause were based on
Tr. 565-66 (Kim); Tr. 606-07, 716 (Sugishita); Tr. 772 (Laub); Tr. 833-34 (Thomas).
an orchestrated and fatally flawed investigation which was relied upon by the
Special Committee comprised of conflicted directors. Their threshold argument,
however, is that the Special Committee itself was invalid because the meeting of the
Board during which it was created was improperly noticed and, even if it was
validly convened, the resolution creating the Special Committee did not empower it
to terminate the Plaintiffs or other Atmel executives. Not surprisingly, Atmel sees it
much differently. It counters that the Special Committee was properly formed and
that its decision is shielded from second-guessing because it, in good faith,
reasonably relied on the advice of competent and qualified advisors and because the
evidence from an eight-month investigation into travel expenses supported
termination of the Plaintiffs for cause.
Second, in their action under Section 211, the Plaintiffs contend that on
August 6, 2006, the Board improperly directed Sugishita to cancel a special meeting
of stockholders that had been validly called the day before by George Perlegos as
Chairman, and that the individual Director Defendants’ actions amounted to an
impermissible breach of Atmel’s Bylaws and an improper use of the corporate
machinery both to entrench themselves as directors and to impede Atmel
stockholders in the exercise of their voting rights.
Atmel and the Director
Defendants, however, argue that injunctive relief should be denied because George
Perlegos’s purpose in calling for the special meeting was retaliatory in nature (i.e.,
made after he knew he had been terminated) and, thus, improper. Moreover, the
Defendants maintain that the Board’s new Chairman had full authority to cancel the
meeting and that the Board had a legitimate basis for authorizing and directing the
Chairman to do so.
Termination of the Perlegoses for Cause
The Perlegoses bring their challenge to their termination as officers of Atmel
for cause under Section 225 of the DGCL.81 Often recognized as “summary” in
character, Section 225 proceedings are designed to provide quick relief with respect
to the validity of an election, appointment, or removal of an officer or director in
order to ensure that a corporation is not “immobilized by controversies as to who are
its proper officers or directors.”82 If the utility of Section 225 is to be realized,
however, the contours of a proceeding brought under it must, correspondingly, be
narrow and limited.83 Thus, this Court has traditionally avoided those collateral
Section 225(a) of the DGCL states that, “[u]pon application of any stockholder or director, or any
officer whose title to office is contested, . . . the Court of Chancery may hear and determine the
validity of any election, appointment, removal or resignation of any director, member of the
governing body, or officer of any corporation, and the right of any person to hold or continue to
hold such office.”
Bossier v. Connell, 1986 WL 11534, at *2 (Del. Ch. Oct. 7, 1986).
See, e.g., Box v. Box, 697 A.2d 395, 398 (Del. 1997); B.F. Rich Co., Inc. v. Gray, 2006
WL 3337163, at *4 (Del. Ch. Nov. 9, 2006); Frankino v. Gleason, 1999 WL 1032773, at *3 (Del.
Ch. Nov. 5, 1999), aff’d, 744 A.2d 988 (Del. 1999) (TABLE); Bossier, 1986 WL 11534, at *3.
issues, such as breaches of fiduciary duty or disputes over contractual obligations,
which go beyond “merely deciding rightful title to [an] office.”84
Analysis of whether the Special Committee’s termination decisions should be
invalidated necessarily centers on two themes: (i) whether the Special Committee was
validly formed and properly authorized to terminate Atmel officers; and (ii) whether
the Special Committee’s composition and process effectively rebuts the Perlegoses’
arguments that the Special Committee’s conduct was merely a pretext to mask its
members’ true motives.
The Special Committee’s Formation and Authorization
Notice of the July 21 Board Meeting Forming the
The Perlegoses allege that the Special Committee was invalid because neither
Gust Perlegos nor Wu was ever notified that a special meeting of the Board had been
scheduled to consider the Special Committee’s creation. The special meeting of the
full Board was held at 8:00 a.m. on July 21, 2006 just three days after Bergeson’s
DONALD J. WOLFE, JR. & MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN
DELAWARE COURT OF CHANCERY § 8–8(a), at 8–118 (2006); see id. § 8–8(c), at 8–129 (“[T]he
Court of Chancery has traditionally regarded with reluctance the attempt to inject into a proceeding
under Section 225 any issue collateral to and therefore potentially obstructive of the an expeditious
determination . . . . The essence of such a proceeding therefore remains in rem in nature, designed
to provide relief to the corporation, not to individual claimants. Nor is the statute properly
employed as a vehicle for definitive resolution of such potentially sprawling controversies as those
centering upon breach of fiduciary duties.”).
Final Report and two days after Sugishita e-mailed Board members of the meeting.
Thirteen days into its life, the Special Committee terminated two of the Company’s
A determination that the Special Committee was the product of an
improperly noticed meeting would have at least one critical consequence: the actions
taken by it would be void.85
Notice of the July 21 special meeting of the Board was governed by
Section 3.9 of Atmel’s Bylaws, which provides, in pertinent part:
Special Meetings; Notice. . . . Notice of the time and place of
special meetings shall be delivered personally or by telephone to each
director or sent by first-class mail, telecopy or telegram, or other
electronic or wireless means, charges prepaid, addressed to each director
at that director’s address as it is shown on the records of the corporation.
If the notice is mailed, it shall be deposited in the United States
mail at least four (4) days before the time of the holding of the meeting.
If the notice is delivered personally or by telephone, telecopy or
telegram, it shall be delivered personally or by telephone or to the
telegraph company at least twenty-four (24) hours before the time of the
holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at
the office of the director who the person giving the notice has reason to
believe will promptly communicate it to the director.86
The Defendants claim two successful methods for providing notice:
(i) Sugishita’s e-mail to Board members on July 19,87 and (ii) Sugishita’s telephone
See Schroder v. Scotten, Dillon Co., 299 A.2d 431, 435 (Del. Ch. 1972) (“A special meeting held
without due notice to all directors as required by the by-laws is not lawful and all acts done at such
a meeting are void.”).
See JX 71 (July 19, 2006).
call to Cazier later that day to request that she inform Gust Perlegos and Wu.88
Although the special meeting may have scheduled with unnecessary haste,89 the
Court concludes that all Board members were sufficiently, though not ideally,
notified. Sugishita’s first method of notice provides the Court with a sufficient
foundation to conclude that adequate notice was given, but the second method,
telephoning Cazier, is reviewed because it shows that Sugishita attempted a second
method for complying with Section 3.9 of the Bylaws and that his efforts, at least
technically, satisfied its literal requirements.
The first method was an e-mail sent by Sugishita to the full Board on July 19
at 3:41 p.m., approximately 40 hours before the scheduled meeting. Notably absent
from Section 3.9 is any reference to “e-mail,” which is not surprising for bylaws
adopted in the 1980s.90
The Plaintiffs cite the absence of any express reference to
e-mail and further note that Section 3.9 does not address how and when an e-mail
would have to be sent to constitute delivery. Although the Plaintiffs are correct in
stating that “e-mail” is not mentioned in Section 3.9, the phrase “other electronic or
See Tr. 690-91 (Sugishita); JX 71 at P000002.
The manner in which Sugishita scheduled the July 21 special meeting was in stark contrast to
how the July 18 Audit Committee meeting had been handled. The Audit Committee’s meeting was
finally scheduled for July 18, about a month after the meeting had first been contemplated, and only
after several e-mails had been exchanged between Sugishita and other Audit Committee members
as to a date that was convenient to everyone. In contrast, notice of the July 21 meeting, arguably
one of the most important events, not only in the travel investigation but also in the Company’s
history, was given only two days beforehand.
The Bylaws were last amended in 2004.
wireless means” reasonably subsumes it. Indeed, it is difficult to contemplate how it
Judging from the number of e-mails listed as joint exhibits in this case, it is
obvious and not surprising that e-mail use at Atmel is widespread, including regular
use by the Plaintiffs.92 Moreover, e-mail has been used routinely to notify directors
of meetings,93 and the Plaintiffs appear to be late in complaining that it is now an
improper method of notice under Atmel’s Bylaws.
As to when an e-mail must be sent to satisfy Section 3.9, the Court concludes
that an e-mail would fall in the time frame established for those means other than
traditional United States mail.
Section 3.9 divides the timing of the notice
requirement into two periods: a four-day minimum for traditional post; a twenty-four
hour minimum for personal notice or notice by telephone, telecopy, or telegram. That
Section 3.9 permits oral or telephonic notice to someone other than the recipient who
the notifier has reason to believe will promptly communicate the notice suggests that
telecopy or telegram messages are also expected to reach their recipients in like
E-mail has been commonly defined as “a means or system for transmitting messages
http://www.m-w.com/cgibin/dictionary?e-mail (last visited Feb. 8, 2007), and as a “communication exchange between
people by computer, either through a local area network or the Internet.” BLACK’S LAW
DICTIONARY 539 (7th ed. 1999).
See, e.g., JX 6 (communicating to full Board); JX 16, JX 100, JX 165, JX 199 (other e-mails by
George Perlegos); JX 288, JX 289, JX 291 (e-mails by Gust Perlegos). Furthermore, Gust Perlegos
testified at trial that he reads his e-mails. His assistant, Cazier, would read and print out the
“important ones.” He acknowledged that, when he is in Greece, “she probably reads them,” too.
Tr. 254-55 (Gust Perlegos).
See Tr. 690 (Sugishita) (noting e-mail was a “traditional means of setting board meetings”).
fashion—promptly (and sooner than the four-day notification period established for
United States mail).94 In sum, it is reasonable to conclude that e-mail notice is
governed by the latter (direct personal) notice period under Section 3.9 and that
Sugishita’s e-mail on July 19 constituted proper notice for the for July 21 meeting.
The second method of notice was a telephone call to Cazier in which Sugishita
asked her to notify George Perlegos, Gust Perlegos, and Wu of the special meeting.95
Under the plain language of Section 3.9, this telephonic oral notice to Cazier will
constitute proper notice, but only if (1) Cazier can be considered a “person at the
office of the director[s] and (2) Sugishita had “reason to believe [that she would]
promptly communicate it to [Gust Perlegos and Wu].” Sugishita’s second method of
notice carries certain difficulties because after his call, he e-mailed her at 4:07 p.m. to
ask “per our telephonic conversation,” that she “relay the special board meeting
Ultimately, however, an inquiry into whether an e-mail notice was timely given focuses on when
the e-mail was sent, not when the recipient actually received or read the e-mail. Section 3.9 sets a
“notice” requirement, not a requirement that directors actually receive notice or be “informed.”
Otherwise, an intended recipient’s strategic avoidance could effectively prevent a meeting from
ever (or timely) occurring. The Plaintiffs have argued that the transmission of an e-mail “to
someone who is traveling and does not have [e-mail] access . . . cannot constitute proper
delivery . . . [and] . . . the equivalent of mailing a notice by letter to someone’s home when you
know they are on vacation.” Pls.’ Post-Trial Opening Br. at 48. Notwithstanding that Sugishita
sought reasonably to notify Gust Perlegos and Wu through alternative means, the Plaintiffs have not
provided any evidence that the e-mail did not reach the inboxes of either Gust Perlegos or Wu. Wu
was not deposed and did not testify at trial.
It should be said that Sugishita promptly sought an alternative method in which to notify Gust
Perlegos (i.e., telephoning Cazier). The total time between Sugishita’s e-mail to the full Board on
July 19 and his telephone call to Cazier later that day was well under an hour. Compare JX 71 at
P000001 (July 19, 2006, 3:41 p.m.) (Sugishita e-mail to full Board) with JX 71 at P000002 (July 19,
2006, 4:07 p.m.) (Sugishita e-mail to Cazier referencing telephonic communication with Cazier
about special board meeting).
message to each [Gust Perlegos and Wu] at [her] earliest convenience and [to] get
back to [him] confirming their respective participation.” By e-mail, she replied that
both Gust Perlegos and Wu were traveling in Europe and that she would “contact
them tomorrow.” Cazier never confirmed to Mr. Sugishita that she had conveyed the
The Court finds that the first requirement for a valid, oral telephonic notice
under Section 3.9 is satisfied. Cazier was precisely the type of person contemplated
by Section 3.9 to serve as the “contact person” at the office of Gust Perlegos and Wu.
She was the personal assistant of both of them and had served a considerable period
in that role. As for Gust Perlegos, she regularly handled his correspondence,96 and he
conceded that she knew how to contact him when he was in Greece, where he had
been in late July.97
The more difficult question, however, is whether the second criterion for the
alternate method of notice was satisfied, i.e., whether Sugishita had reason to believe
that she would promptly communicate the meeting’s notice. Less than an hour after
Sugishita had called Cazier and sent his follow-up e-mail, Cazier responded that both
Gust Perlegos and Wu were traveling in Europe. She also wrote, unequivocally, “I
will contact them tomorrow (Thursday 7/20).”98
See Tr. 255-57 (Gust Perlegos); see also JX 287 (e-mail from Cazier on behalf of Gust Perlegos).
See Tr. 257 (Gust Perlegos). She performed similar functions for Wu.
JX 71 at P000002.
Sugishita may well have known that it was highly unlikely that Gust Perlegos
and Wu would get a full twenty-four hours notice of the Board meeting, but that is
not what Section 3.9 requires. It requires only that the director communicating the
message have reason to believe that the intended recipient would be notified
“promptly.” Cazier responded that she would do as Sugishita asked her to do—and
that this contact would occur the day before the July 21 meeting. In short, the
twenty-four hour notice requirement applies to Sugishita’s contacting Cazier—not to
Cazier’s passing the information on to Gust Perlegos and Wu. Sugishita, thus, had
reason to believe that the two directors traveling in Europe would be notified
“promptly” and, more importantly, that they would have a reasonable opportunity to
participate in the meeting.
It is not surprising that Cazier refrained from contacting Gust Perlegos and Wu
immediately after receiving Sugishita’s call, which probably was made between the
time he e-mailed all the directors at 3:41 p.m. and when he e-mailed Cazier at
4:07 p.m. After all, the time difference between California and Greece,99 was ten
hours; in other words, it was about 2:00 a.m. in Greece when Cazier received
Sugishita’s call and, shortly thereafter, his e-mail. If, however, Cazier had contacted
Gust Perlegos at 8:00 a.m. the next day, he would have been received notice at
6:00 p.m. on July 20. The Special Meeting was, of course, scheduled for 8:00 a.m.
Tr. 255 (Gust Perlegos).
on July 21, or at 6:00 p.m. for Gust Perlegos in Greece. The significance of this
observation is that had Cazier contacted Perlegos promptly when she began her
workday in California, he might have received twenty-four hours notice.100
Unfortunately, the record does establish when or if Cazier reached Gust Perlegos or
The timing is extremely tight, and maybe even harsh, but it was reasonable for
Sugishita to rely upon Cazier’s assurance that she would promptly contact Perlegos
the next day. Perlegos certainly would not have been given substantial notice of the
opportunity to participate in the Special Meeting on July 21, but he would have
nonetheless been sufficiently notified under Section 3.9.
Authority of the Special Committee
The minutes of the July 21 special meeting reflect that the Board resolved to
confer upon the Special Committee “the full power and authority of the Board of
Directors to take any action it deem[ed] appropriate on behalf of the Company with
respect to the travel related expenses and other issues.”101 Of those in attendance, all
but George Perlegos voted for the resolution.
The Perlegoses have raised two main objections: (i) even if the July 21 meeting
was valid, the resolution creating the Special Committee did not grant it the authority
Although Wu’s whereabouts in Europe at the time are not apparent in the record, a similar
timeline would govern.
JX 126 (July 21, 2006) (emphasis added).
which has been claimed by Atmel and the Director Defendants; and (ii) even if it did,
such a broad grant of authority is invalid under Delaware law.
First, the Perlegoses challenge the scope of the authority purportedly conferred
upon the Special Committee by arguing that the resolution was ambiguous and that
the Director Defendants intentionally concealed from them the material fact that the
actual purpose of the resolution was to delegate the Board’s power over officers to
the Special Committee. Both of these arguments, however, fail.
The Board granted the Special Committee the authority to take “any action”
relating to the eight-month travel investigation. The Board’s use of the term “any
action” is not ambiguous; it is a broad delegation of power, and employee termination
is presumably a possible outcome of any fraud investigation. The circumstances
surrounding the adoption of the resolution are certainly instructive in ascertaining the
Director Defendants’ intent.102
Before considering the resolution, the Director
Defendants had been aware of Bergeson’s Preliminary and Final Reports and their
references to “personnel actions” as a possible remedial action.103 Indeed, several of
the Director Defendants at trial testified that it was their understanding that the
See Centaur Partners, IV v. Nat’l Intergroup, Inc., 582 A.2d 923, 928-29 (Del. 1990).
JX 314 (Feb. 7, 2006) at ATMEL 21267; JX 50 (July 18, 2006) at ATMEL 75127.
Special Committee was designed to consider remedial actions, such as
Still, George Perlegos argues that the resolution is invalid because he was
never expressly informed of the resolution’s actual aim: to give the Special
Committee the power to terminate officers.
It appears, however, that George
Perlegos did not leave the special meeting ignorant as to the purpose of the Special
Committee. There was discussion on July 21 of the resolution’s purpose.105 The
accounts, as one might expect, differ. George Perlegos contends that he was told that
the Special Committee would determine “how much each person [was] going to
[have to] pay” for airline tickets that had been charged to Atmel.106 No other director
who testified, however, was able to recall this.107 Moreover, George Perlegos’s
account did not square with the testimony of Sugishita, Laub, and Thomas, all three
of whom either told or recalled George Perlegos being told of why a Special
Committee was being proposed. Sugishita, for example, testified that he explained to
George Perlegos that the Special Committee was to “move into the remediation phase
See, e.g., Tr. 758-59 (Laub); Tr. 821-22 (Thomas) (“I knew the purpose of the meeting was to
take whatever actions that were needed, not just to figure out if somebody needed to pay some
Although George Perlegos did not preside as chairman at the July 21 special meeting, he
attended the meeting in full and, by several accounts, was engaged, asking many questions. Tr. 56
(George Perlegos); Tr. 822 (Thomas). Moreover, communications from him to members of the
Special Committee later that day do not indicate that, when he left either the special meeting or the
later meeting with Bergeson and the independent directors, he was confused as to the function and
purpose of the Special Committee. See JX 6.
Tr. 56-57 (George Perlegos).
Tr. 692-93 (Sugishita); Tr. 767-68 (Laub); Tr. 822 (Thomas).
of the travel investigation . . . [without having] . . . the three inside directors who are
implicated in this investigation . . . in discussions with regards to their own
Thomas also recalled how, after George Perlegos “kept asking
questions,” he interceded and explained, “George, we need to have this resolution
approved. The independent directors need to have the authority to [act with the
power of the board]. This is important in resolving the travel situation. And we need
to move on.”109 In any event, George Perlegos was apparently not convinced of his
fellow directors’ reasons for creating the Special Committee: he voted against the
Although it appears that no director expressly informed George Perlegos that
the “remediation phase” could include disciplinary or termination actions against
officers, the resolution was nevertheless clear on its face: the Special Committee was
to be given “the full power and authority of the Board of Directors to take any action
it deem[ed] to be appropriate on behalf of the Company with respect to the travel
[investigation].”110 Despite the Perlegoses’ protestations, appropriate action with
Tr. 693 (Sugishita). See also Sugishita Dep. at 235-36 (“. . . [We] needed a special committee
because of the fact we had three inside directors who were involved in this travel
[investigation] . . . . [I]t was explained to George [Perlegos] that we had this conflict and that they
wanted a special committee who were [without] the conflicts.”).
Tr. 822 (Thomas).
JX 126 (July 21, 2006). See also Tr. 821-22 (Thomas) (“We presented the resolution exactly as
it is written here, as a resolution that had been given to us specifically by our Delaware counsel. It
was read very to the word.”).
respect to misconduct that costs the Company hundreds of thousands of dollars
reasonably could be expected to include termination as a possible sanction.
Second, the Perlegoses challenge the legality of the scope of authority claimed
by the Special Committee. Relying singularly upon a ninety-year old decision in
which a New York court was applying Delaware law, the Plaintiffs argue that, in
order for a delegation of a board’s authority to remove statutory officers to be valid,
the resolution “should make an explicit grant of such authority.”111 The court in
Fensterer v. Pressure Lighting Co.112 invalidated a board committee’s decision to
remove from office the company’s vice president and general manager. Among other
reasons, the court held that, although the committee may have been authorized by a
resolution or under a bylaw to exercise the powers of the board in the “management
of the business and affairs of the company,” the committee lacked the express
authority to remove a statutory officer.113 The Court declines to follow Fensterer for
the purposes cited by the Plaintiffs. They may be correct in observing that the
resolution creating the Special Committee made no reference to terminating
employees or officers, but such silence, however, does not necessarily operate as a
restriction under Delaware law.
Pls.’ Opening Br. at 51.
149 N.Y.S. 49 (N.Y. City Ct. 1914).
The facts in Fensterer are also distinguishable from those before the Court because, in that case,
the board was restrained by a specific provision in the company’s bylaws that “required an
affirmative vote of a majority of the whole board of directors” in order to remove an officer. Id.
at 625 (emphasis in original). Atmel has no such bylaw.
The parties do not dispute that the removal of directors is expressly within the
power of Atmel’s Board. Section 5.4 of Atmel’s Bylaws provides:
Removal and Resignation of Officers. . . . any Corporate Officer
may be removed, either with or without cause, by the board of directors
at any regular or special meeting of the board . . . .
What is disputed, however, is whether the Special Committee had the legal
authority to terminate officers of the Company.
Section 141(c) of the DGCL grants boards “the power to designate committees
of the board to exercise certain of the broad powers and authority of the board in the
management of the business and affairs of a corporation.”114 Section 4.1 of Atmel’s
Bylaws recognizes, and limits, this power, stating in pertinent part:
Committees of Directors. . . . Any committee, to the extent
provided in the resolution of the board, shall have and may exercise all
the powers and authority of the board, but no such committee shall have
the power or authority to (i) approve or adopt or recommend to the
stockholders any action or matter that requires the approval of the
stockholders or (ii) adopt, amend or repeal any Bylaw of the
In other words, Atmel’s Bylaws neither require Board approval for removal of
officers nor impose any particular limitation on the Board’s authority to delegate that
task to a committee. Because Atmel’s Bylaws confer authority upon the Board to
R. FRANKLIN BALOTTI & JESSE A. FINKELSTEIN, THE DELAWARE LAW OF CORPORATIONS AND
BUSINESS ORGANIZATIONS § 4.14, at 4–25 (2002).
The parties have not addressed whether Atmel’s Bylaws are to be viewed through the lens of
Section 141(c)(1) of the DGCL, as adopted before 1996 and not thereafter amended in relevant part,
or of Section 141(c)(2) if adopted or revised after 1996. The language of Section 4.1 of Atmel’s
Bylaws tracks precisely the words chosen by the drafters of Section 141(c)(2).
remove officers of the Company and because there is no bylaw prohibiting the
delegation of this removal power to a committee of the Board, the Board could confer
on the Special Committee, as it did, the power to “take any action” relating to the
travel investigation. “Any action” reasonably includes those actions, such as the
removal of officers, which are not otherwise proscribed by Atmel’s Bylaws.
Therefore, the Court concludes that the Board properly authorized the Special
Committee to take action with respect to the travel investigation and that the
subsequent terminations of the Plaintiffs fell within that grant.
Analysis of the Special Committee’s Composition and Process:
A Search for Conflict and Pretext
The Perlegoses lodge two broad challenges against the workings of the Special
First, they contend that the Special Committee did not satisfy its
mandate that its members be non-management directors “who have no potential
conflict of interest.”116 When a special committee is established, it must satisfy, in
order to carry out its functions, the conditions imposed by the formative resolution.
Although not framed as a fiduciary duty challenge, the Perlegoses look to those
standards routinely applied to assess the loyalty, and thus the independence, of
directors of Delaware corporations.
Second, they contend that the Special
Committee’s entire endeavor was nothing more than a pretext to get rid of them.
Analysis of this contention implicates the principles developed to determine whether
JX 126 (July 21, 2006).
directors exercised due care in the performance of their duties because an
improvidently authorized and implemented investigation would support the
Perlegoses’ claim. On the other hand, a careful investigation by competent and
independent professionals who support the termination decision would severely
undercut the Perlegoses’ argument that the Special Committee’s actions were merely
The Special Committee’s Composition
Delaware law presumes that directors of a corporation act loyally in their
management of its affairs.117 Sometimes, however, loyalty is questioned, particularly
in the context of an extraordinary transaction or decision. The facts differ from case
to case, but the question of directors’ loyalty almost universally centers on whether
they were interested or lacked the independence relative to the matter before them.
To avoid doubts or questions of loyalty, boards of directors have appointed
special committees comprised of independent directors to insulate certain decisions
from more exacting judicial review.118 As one might expect, the composition of such
committees is “of central importance.”119 The inquiry into a special committee’s
See, e.g., Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).
See, e.g., Gesoff v. IIC Indus. Inc., 902 A.2d 1130, 1146 (Del. Ch. 2006); Teachers’ Ret. Sys. of
La. v. Aidinoff, 900 A.2d 654, 669 (Del. Ch. 2006).
Gesoff, 902 A.2d at 1145-46. Much of the case law on special committees, not surprisingly,
relates to their conduct within a transactional context. In those cases, special committees have not
been viewed as “independent” where, for example, they lacked any negotiating power, where
members’ independence was materially affected because they stood to benefit in some form, or
where they were so dominated or manipulated by self-interested fiduciaries that their independence
independence is a fact-intensive one, “turn[ing] not simply upon formality but upon
the reality of the interests and incentives affecting the independent directors.”120
As noted previously, the Special Committee consisted of Sugishita, Laub, Kim,
Fougere, and Thomas. The Plaintiffs argue that, even if the Special Committee was
properly formed and authorized, it should nonetheless be disregarded, and its
termination decisions invalidated, because all but Thomas were conflicted.
Under our case law, the indicia of conflict may include whether a director has
engaged in self-dealing, acted primarily in his own interests, appeared on both sides
of a transaction, or received a substantial personal financial benefit.121 Regardless of
form, the effect is the same: a director is conflicted because he is disabled from
serving with the loyalty that his position requires. Thus, what guides this Court is not
simply an invocation that a director is conflicted, but a finding that the director labors
under a debilitating, disabling conflict.
The resolution forming and authorizing the Special Committee in this case
contained a recital that the Special Committee be comprised “exclusively of non-
was mere fiction. See, e.g., Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1267-68 (Del.
1988); Teachers’ Ret. Sys., 900 A.2d at 670 n.19; In re Tele-Commc’ns, Inc. S’holders Litig., 2005
WL 3642727, at *8 (Del. Ch. Dec. 21, 2005) (citation omitted); Rabkin v. Olin Corp., 1990 WL
47648, at *6 (Del. Ch. Apr. 17, 1990).
Krasner v. Moffett, 826 A.2d 277, 286 (Del. 2003) (quoting Kahn v. Tremont Corp., 1992
WL 205637, at *3 (Del. Ch. Aug. 21, 1992), rev’d on other grounds, 694 A.2d 422 (Del. 1997)).
See, e.g., Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 362 (Del. 1993); Orman v. Cullman,
794 A.2d 5, 23 (Del. Ch. 2002).
management directors who have no potential conflict of interest.” The sentiment
contained in that recital may be more aspirational than operational. Although it is
true that recitals have often been accorded weight by Delaware courts in ascertaining
the intended meaning between parties in the face of ambiguity, it is also true that
recitals are generally not considered necessary parts of a contract or, in this case, a
formative resolution.122 That observation is particularly apposite in a context such as
this one, where the loyalty of nearly all of the members of the Special Committee has
been questioned. A broad recital such as the one here could have a paralyzing effect
on directorial action. It is laudable that a board seeks to have directors free from
potential conflicts of interest, but such a sentiment does not necessarily restrict a
board from taking personnel action it deems to be the greater interests of the
Directors are not conflicted simply because they have the potential to be
conflicted; they are conflicted because their loyalties are divided in such a way that
they are unable to serve in the best interests of the corporation. Thus, to declare a
director to have a disabling, disqualifying conflict of interest requires a finding that
the nature of the director interest is “substantial” or “material,” but not “merely
incidental” or, in this case, “potential.”123
See, e.g., Beckrich Holdings, LLC v. Bishop, 2005 WL 1413305, at *6 (Del. Ch. June 9, 2005).
McGowan v. Ferro, 859 A.2d 1012, 1029 (Del. Ch. 2004) (citing Cinerama, Inc. v. Technicolor,
Inc., 663 A.2d 1156, 1169 (Del. 1995)). In other words, to rebut the presumption of director
The Court now analyzes whether the Director Defendants of the Special
Committee had disabling conflicts of interest that would preclude their service based
on the terms of the enabling resolution.
The Plaintiffs contend that Sugishita was conflicted because he benefited from
George Perlegos’s ouster as Chairman. Sugishita was elected as Atmel’s “nonexecutive Chairman” at the Board’s August 6 meeting,124 three days after the Special
Committee had voted to terminate the Perlegoses for cause. He was, however, being
considered to succeed George Perlegos as early as August 1. The minutes of the
Special Committee’s meeting on August 1 do not name Sugishita, but they note that,
following a tentative vote to terminate the Perlegoses, a vote from which no member
of the Special Committee abstained, Atmel’s outside counsel, Bertelsen, was asked to
confer with special counsel “on the appropriate steps to be taken to name a new
president and chief executive officer and non-executive chairman.”125 A reading of
Bertelsen’s handwritten notes from the meeting that day reveals that the Special
Committee did not look very far.
Bertelson wrote, “Dave [Sugishita] non-exec
chairman,” and noted the need to contact Delaware counsel on “naming Dave
disinterestedness and independence, one must demonstrate that directors’ self-interest “materially
affected their independence.” Id. (citing Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del.
JX 131 (Aug. 6, 2006). Sugishita abstained from the vote electing him Chairman.
JX 127 (Aug. 1, 2006) at ATMEL 100027.
[Sugishita]” to the position.126 These facts, alone, are not sufficient to support a
finding that Sugishita had disabling conflicts of interest. The Special Committee
looked to Sugishita as a possible replacement to George Perlegos as Chairman only
after it had voted tentatively to terminate the Perlegoses for cause, and it is not
surprising that the Special Committee also gave thought to succession issues shortly
thereafter. Moreover, the position of Chairman provided Sugishita with no financial
benefit. The lack of a financial benefit of course does not shield a director from
questions as to his loyalty. Directors can benefit in other ways.127 The chairmanship
of a company’s board of directors undoubtedly carries additional prestige; Sugishita
may very well have found this attractive. The question, however, is whether he was
motivated by the prospect of replacing George Perlegos in such a way that he
suffered from a debilitating conflict of interest. The facts do not suggest he was.
As with Sugishita, the Plaintiffs assert that Laub was conflicted because he also
was to benefit from George Perlegos’s termination by becoming President and Chief
Executive Officer of Atmel. Discussions with Laub as a possible replacement to
JX 35 at ATMEL 100648.
For example, directorships can offer professional and social prestige. But even a director’s
interest in continuing to serve as a director because of the prestige associated with the position does
not, itself, prove a material conflict of interest under Delaware law. See Benihana of Tokyo, Inc. v.
Benihana, Inc., 891 A.2d 150, 175 (Del. Ch. 2005), aff’d, 906 A.2d 114 (Del. 2006) (noting that
Delaware law “routinely rejects the notion that a director’s interest in maintaining his office, by
itself, is a debilitating factor”); Krim v. ProNet, Inc., 744 A.2d 523, 526-28 (Del. Ch. 1999)
(rejecting a claim that there was “substantial conflict” where certain directors retained “their
positions of prestige” by becoming directors of the merged entity).
George Perlegos started at least as early as July 24, 2006, when Sugishita called him
and asked if he would be interested in succeeding Perlegos if the Special Committee
chose to terminate him. Laub was noncommittal, but did indicate that he “was open
to having discussion[s].”128 About a week later, Sugishita approached Laub again.
He informed Laub that while he was away from the closed session portion of the
Special Committee’s meeting of August 1, 2006, the other directors had expressed a
desire for him to become the interim President and Chief Executive Officer following
George Perlegos’s termination. Laub, however, declined the overture.129 Two days
later, on August 3, the Special Committee formally voted to terminate George
Perlegos. It was after this meeting when Sugishita approached Laub and offered him
the position once again.130 These facts, which are largely undisputed by the parties,
do not demonstrate that Laub had a disabling conflict. In addition, Laub abstained
from the formal vote terminating George Perlegos on August 3. Although Laub did
not abstain from participating in the “straw vote” on August 1, the facts suggest that
the momentum for the Perlegoses’ termination had already been in place. As in the
case with Sugishita, it was understandable for the Special Committee to think about
replacements at the same time it was anticipating possible termination decisions.
Tr. 770, 794 (Laub); Tr. 637 (Sugishita).
Tr. 770-71 (Laub).
Tr. 771-72 (Laub). Laub was the only candidate the Board had approached. Tr. 638 (Sugishita).
Kim is alleged to have been conflicted because he, like the Perlegoses,
purchased tickets from Davani. Sometime in the spring of 2003, before Atmel’s
Travel Policy had been adopted, Kim was scheduled to present a paper at an
academic conference in Turkey. While having lunch with Sisois, a former student of
Kim and one of the Atmel employees eventually terminated because of travel abuses,
Kim mentioned that he was in the process of buying tickets for the trip and that his
wife and son were going to accompany him. Sisois recommended that he speak with
Davani.131 Kim initially was planning to purchase only tickets in coach.132 After
some prodding though from his son, who preferred business class, Kim and his wife
agreed to upgrade. To his chagrin, he later learned the tickets that he had purchased
were not, as he had been told by Davani, $1,800 each, but $3,200.133 Atmel had been
charged the difference.
Sometime in November 2005, when Bergeson’s investigation was beginning,
Kim disclosed to Sugishita that he probably should not be participating in Audit
Committee meetings because he, too, had purchased tickets from Davani.134
Sugishita agreed. In early 2006, Kim was interviewed by Bergeson’s associates, van
Niekerk and Lear, and informed of the difference in what he paid and what Atmel had
Tr. 548-49 (Kim).
Tr. 550 (Kim).
Tr. 412 (Bergeson); Tr. 661 (Sugishita).
Tr. 491-92 (Kim); Tr. 660 (Sugishita).
been charged.135 He “immediately offered to reimburse” Atmel, and he eventually
Kim lacked a disabling conflict. His purchase of tickets through Davani was a
one-time, isolated transaction and, upon learning of the amount that had been
absorbed by Atmel, he took three important steps: he stopped buying tickets from
Davani; he agreed to recuse himself from the Audit Committee’s meetings until the
matter was resolved; and he eventually repaid Atmel the difference between the price
he paid for the tickets and the price Atmel had been charged. These facts are enough
to allay any concern as to whether Kim had benefited in such a way that he had
divided loyalties or was personally biased on the question of whether the Perlegoses
should be terminated.137
Fougere and George Perlegos had known each other since 1993. Perlegos was
impressed with Fougere’s knowledge of the European semiconductor industry and
On January 31, 2006, Kim received an e-mail from van Niekerk requesting an interview. Within
an hour, Kim had met with both van Niekerk and Lear. Tr. 549 (Kim).
JX 369; Tr. 550-51 (Kim).
The Plaintiffs have also criticized Sugishita’s invitation to Kim to rejoin the Audit Committee,
which Kim did on March 21, 2006. Tr. 493 (Kim); JX 121 (Mar. 21, 2006). But the facts indicate
that Sugishita invited Kim only after seeking legal advice from Bergeson, who advised him that,
given the information obtained and Kim’s offer to repay, “[t]here should be no problem” in bringing
him back. Tr. 584 (Sugishita); Tr. 416 (Bergeson) (“I told [Sugishita], based on the information we
obtained, the interview that we had conducted and the review of the documents that had taken place,
and Dr. Kim’s offer to repay the money, I didn’t see any debilitating conflict that would preclude
him from sitting on the audit committee.”).
eventually asked him to join the Board in 2001.138 Although it was Atmel’s practice
to pay for directors’ travel-related expenses for Board meetings, Fougere and
Perlegos had an oral agreement under which Fougere, who lives in France, would
forego Atmel’s paying for his hotel accommodation, meals, and ground transportation
in exchange for Atmel’s allowing him to make the 12-hour flight from Paris to San
Francisco in business class, which he found more comfortable given a leg condition
he had. And because it essentially took three days out of Fougere’s schedule to
attend a one-day meeting, Perlegos also agreed to Fougere’s request for a stopover in
Boston so that he could attend to other business while in the United States. 139 At
first, Fougere sought reimbursement after he had booked tickets, but eventually he
began to go through Davani after Ross suggested he do so.140
It is alleged that Fougere, like Kim, was conflicted because he, too, violated the
Travel Policy and benefited from personal travel at Atmel’s expense. The facts do
not, however, prove Fougere had a disabling conflict. His trips, it should be noted,
were both quantitatively and qualitatively different from others who had Atmel pay
for travel. They amounted to approximately $15,000 in debit memos and cannot
reasonably be said to be personal in nature. They were related to Atmel Board
Tr. 856-57 (Fougere).
Tr. 858-59 (Fougere). Although the agreement between Fougere and Perlegos was an oral one,
George Perlegos did not attempt to refute it at trial. Moreover, Fougere and Perlegos did not
attempt to conceal it from others. Ross had also been aware of the arrangement that Fougere had as
a condition to his service on Atmel’s Board. Tr. 857 (Fougere).
Tr. 860 (Fougere); JX 370 at ATMEL 101866.
meetings and not one was for a relative or friend of Fougere. Although Fougere
should have been quicker in disclosing his particular arrangement with George
Perlegos, it is difficult to understand how Fougere could have violated Atmel’s
Travel Policy when it neither existed at the time he joined the Board nor applied to
anyone other than Atmel’s United States employees.141 Moreover, the extent of the
debit memos attributed to him had been fully disclosed by the time he was asked to
serve on the Special Committee.142
The Perlegoses do not allege that Thomas was conflicted, which is not
surprising given the close relationship that Thomas had with both Atmel and the
Perlegos family. Thomas was one of Atmel’s first investors and began his service on
the Board in 1986. At trial, he testified that he “still [thought] the world of George as
a person” and recalled fondly watching the Perlegos children grow. He also noted his
respect for George Perlegos’s accomplishments, namely the fact that he was more
than just a skilled engineer but also the head of a growing billion dollar company.143
Despite his relationship with, and deep respect for, the Perlegoses, Thomas voted in
favor of the terminations. It was evident at trial that he did not come to the decision
JX 256 at 3.
JX 50 at ATMEL 75112. The Perlegoses also complained that Fougere failed to report his trips
to the United States as personal income on a Form W-2. That ultimately, however, was Atmel’s
responsibility, not Fougere’s.
Tr. 806-09 (Thomas).
easily. His testimony revealed his initial hope that the investigation would begin and
end with individuals like Davani and Ross. That hope, however, began to dissipate as
the investigators probed further into the details. In particular, it “irked” him that
George Perlegos and Gust Perlegos failed to see the unacceptability of their conduct
and the message it conveyed.
The Court concludes that the directors who served on the Special Committee
did not suffer from disabling conflicts of interest.144
Therefore, the Special
Committee’s decision to terminate the Plaintiffs for cause cannot be overturned on
the basis that the members failed to satisfy the membership criteria prescribed in the
The Special Committee’s Process
The Plaintiffs assert that the travel investigation was merely a pretext for
orchestrating their dismissal.
Some of the Director Defendants had become
increasingly dissatisfied with the leadership of George Perlegos. As evidence, his
The Perlegoses suggest that the Director Defendants, who served as members of the Audit
Committee, should be precluded from passing on their conduct because those directors may be
liable for their failure to supervise properly the activities in Atmel’s travel department. If that were
the case, and it is not in this instance, the Perlegoses (or similarly situated officers engaging in
comparable or even far worse conduct) would likely be immune from effective discipline. More
importantly, there is nothing in the record suggesting that the Director Defendants were motivated
by a concern about personal liability for any failure to supervise; they were, of course,
understandably worried that the failure to act on the results of Bergeson’s investigation might cause
Even if one were to view Fougere as conflicted, a majority of the Special Committee,
nonetheless, supported the terminations.
bonus for 2005 was only $35,000,146 an amount which they correctly anticipated
would annoy him.
The Director Defendants perhaps could have terminated the
Plaintiffs without cause; they chose not to follow that route. The contention that the
termination decision was a sham, one without any legitimate basis, would be
supported by proof that the decisions were the product of a fundamentally flawed or
grossly negligent process,147 or “unintelligent or unadvised judgment” by the
directors.148 If, however, it is shown that the Special Committee carefully selected
and reasonably relied upon qualified and independent advisors in making those
decisions that were within the scope of their directorial power, it is more likely that
the terminations were for a proper purpose.149
The evidence presented at trial
Tr. 595 (Sugishita); JX 103.
See Brehm v. Eisner, 746 A.2d 244, 264 n.66 (Del. 2000) (“Thus, directors’ decisions will be
respected by courts unless the directors . . . reach[ed] their decision by a grossly negligent
process . . . .”); In re Holly Farms Corp. S’holders Litig., 1988 WL 143010, at *6 (Del. Ch. Dec. 30,
In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 748 (Del. Ch. Aug. 9, 2005), aff’d, 906 A.2d
27 (Del. 2006) (citing Mitchell v. Highland-Western Glass Co., 167 A. 831, 833 (Del. Ch. 1933)).
Cf. Citron v. E.I. du Pont de Nemours & Co., 584 A.2d 490, 510 (Del. Ch. 1990) (rejecting
claims that directors acted without due care where their actions were part of a deliberate process in
which they consulted and relied upon highly qualified legal and financial advisors over a period of
about three months); Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1175 (Del. 1995) (noting
the Court of Chancery properly considered a board’s reliance on experienced counsel as evidence of
good faith and overall fairness of process).
The principle that directors should be protected when they act with due care in reasonably
relying upon the competent advice of an expert is expressed in Section 141(e) of the DGCL, which
provides, in part, that:
[a] member of the board of directors, or a member of any committee designated by
the board of directors, shall, in the performance of such member’s duties, be fully
protected in relying in good faith . . . [on] any other person as to matters the member
reasonably believes are within such other person’s professional or expert competence
and who has been selected with reasonable care by or on behalf of the corporation.”
8 Del. C. § 141(e).
demonstrates that the Special Committee’s decisions were borne not of pretext but
out of a process in which the Special Committee could reasonably rely upon its
counsel as to whether the evidence supported, both factually and legally, the
decisions to terminate.
The Special Committee sought the advice of experienced and independent
In the fall of 2005, Sugishita, as head of the Audit Committee, turned to
Bergeson when questions remained after Neves, George Perlegos’s former secretary,
had investigated Davani’s travel practices and discovered that only approximately
$500,000 out of $2.5 million in losses could be attributed directly to Davani. The
focus shifted to whether others may have benefited from travel at Atmel’s expense.
The task for Bergeson was not simply to pick up where Neves had left off, but,
instead, to conduct a full investigation into travel practices at Atmel.
Bergeson’s firm was independent; it had never worked for either Atmel or its
Audit Committee.150 The firm was recommended to Sugishita by Atmel’s outside
The Plaintiffs, nonetheless, assert that Bergeson’s firm was not independent because on July 18,
2006, the same day during which it presented its Final Report, it was retained by Atmel for other
work. No doubt, the Bergeson firm benefited handsomely from its relationship with the Audit
Committee. The fees (approximately $500,000) it collected were, in Bergeson’s own word,
“substantial.” Tr. 263-64 (Bergeson). It cannot be said, however, that the Bergeson firm was
conflicted from when it was engaged in November 2005 to the time it had presented its Final Report
on July 18, 2006, merely because it was later retained by the Audit Committee for other work. The
work of Bergeson and his firm had been substantially performed by the time the Final Report—the
findings of which helped form the basis for the independent directors’ decisions in early August
2006—was issued. Moreover, no testimony at trial supported the claim that the independence of
Bergeson’s team during the investigation had been compromised by the prospect of future
engagements with the Audit Committee.
counsel at Wilson Sonsini.
Because Sugishita was not familiar with the firm,
however, he inquired into its background and consulted with another director on the
Audit Committee and with Atmel’s auditors. Thomas was positive of Bergeson’s
work, having observed the “good job” the firm did on another matter he was involved
with outside of Atmel,151 and Khanna of PwC noted that Bergeson’s firm was of
“very good quality” and that he was currently using Bergeson’s services on another
investigation.152 By late November, Bergeson had been retained.
No countervailing evidence was presented at trial to suggest that Bergeson was
unqualified. The travel investigation was certainly within Bergeson’s competence; he
had done investigations for special committees before and his firm had conducted
more than a dozen for public companies.153 Bergeson’s colleagues who worked on
the travel investigation were also qualified.154
The evidence at trial illustrated that that Bergeson’s work was adequately
monitored by the Special Committee and that members were frequently apprised of
the investigation’s progress. There was an active dynamic between Bergeson and the
independent directors. From the time his firm was retained until the presentation of
his Final Report in July 2006, Bergeson and his colleagues attended ten Audit
Tr. 810-11 (Thomas).
Tr. 659 (Sugishita).
Tr. 358 (Bergeson).
Lear had a background in forensic accounting with PwC. Both she and van Niekerk had
practiced with major national law firms before joining Bergeson’s firm. Tr. 358-60 (Bergeson);
Tr. 658 (Sugishita).
Committee meetings.155 In addition, Bergeson had regularly been in contact with
Sugishita as the head of the Audit Committee.
Sugishita regularly monitored
Bergeson’s work and even attended some of the interviews conducted by Bergeson as
part of the investigation.
Findings and recommendations were set forth in his
firm’s Final Report to the Audit Committee on July 18, 2006.
The Final Report informed the Audit Committee of the methodology used by
Bergeson and his staff in conducting the investigation; summarized travel-related
expense data and, in particular, with respect to certain Atmel employees; and
recommended remedial steps for the Audit Committee to consider.
First, the Audit Committee learned that the travel investigation conducted by
Bergeson and his staff spanned eight months and involved more than a thousand
hours of work. Documents relating to Neves’s report, airline contracts, Navigant
invoices and correspondence, and accounting records were collected and reviewed.
Of approximately 450,000 e-mails extracted from imaged hard drives of Atmel
employees, keyword searches resulted in a population of several thousand e-mails.
Bergeson’s team went through each one. Computer forensic analysis also resulted in
the recovery of about 2,000 deleted e-mails and documents.157 More than two dozen
JX 114 (Dec. 12, 2005); JX 115 (Dec. 19, 2005); JX 116 (Jan. 3, 2006); JX 117 (Jan. 23, 2006);
JX 118 (Feb. 7, 2006); JX 119 (Feb. 10, 2006); JX 121 (Mar. 21, 2006); JX 122 (June 5, 2006);
JX 123 (June 13, 2006); and JX 124 (July 18, 2006).
Tr. 574-76 (Sugishita).
JX 50 at ATMEL 75074-77; Tr. 407, 434 (Bergeson).
individuals were interviewed, and the Plaintiffs were each interviewed more than
Second, the Final Report detailed, among other things, the number and value of
airline tickets relating to personal travel of Atmel employees. Notably, members of
the Audit Committee learned that the total dollar amount paid by the Company for
personal air travel by senior Atmel executives and their families was approximately:
$170,000 for George Perlegos, $158,000 for Ross, $72,000 for Sisois, $68,000 for
Gust Perlegos, $56,000 for Wu, and $36,000 for Mar-Spinola. At trial, George
Perlegos objected to many of the trips attributed to him and his family as “personal.”
As an example, George Perlegos defended a trip taken by one of his sons in
September 2003 to Hong Kong. The business class ticket cost about $4,500 and
George Perlegos explained that his nineteen-year-old son, who was a non-employee
intern at Atmel, had gone to Asia and “visited many [Atmel] customers.”159
Bergeson also found at least two instances in which George Perlegos had
submitted false travel expense reimbursement requests and had requested Davani to
remove certain charges from his credit card.160
Bergeson concluded that, given
By the time of Bergeson’s Final Report, George Perlegos had been interviewed at least five
times. See JX 136; JX 139; JX 144; JX 155; JX 162. Gust Perlegos had been interviewed twice.
See JX 142; JX 143.
Tr. 157-59 (George Perlegos).
In early 2003, Perlegos submitted a charge of $1,583.15 on his personal credit card for his son’s
air transportation in 2002 to Asia, as part of the family’s annual trip there for Thanksgiving.
JX 260; JX 303; Tr. 155-57 (George Perlegos); Tr. 440-44 (Bergeson). The next year, he submitted
another charge of $1,293.65 for his son’s 2003 trip to Asia. When Atmel’s controller declined the
George Perlegos’s frequent contacts with Davani and his central role in reviewing
Atmel’s travel expenses, he had to have been aware of the travel-related internal
control failures at Atmel. More generally, Bergeson reported to the Audit Committee
that both George Perlegos and Gust Perlegos had been less than forthcoming during
Third, Bergeson’s Final Report outlined recommended remedial actions for the
Special Committee to consider. Among other things, Bergeson advised the Special
Committee to change the travel management and approval process, to prohibit all
personal travel arrangements through Atmel, and to request repayment from
individuals implicated in the investigation. The most significant recommendation,
however, was for the Special Committee to consider personnel actions.
Following the presentation of the Final Report, Bergeson was explicitly asked
by one director at the July 18 meeting whether the findings supported termination. In
short, Bergeson said they did.
At trial, Bergeson recalled telling the Special
Committee that “the facts we uncovered through our investigation . . . would form the
basis for a termination of the various individuals identified in this report.”161 Two of
reimbursement request, George Perlegos went to Davani directly, instructing him to get the charge
off of his credit card. JX 152 at ATMEL 101334; JX 154 at ATMEL 101246; JX 384; Tr. 454-56
(Bergeson); McCaman Dep. at 136-40. Davani apparently did, and George Perlegos received a
credit reimbursement. JX 384; Tr. 457 (Bergeson).
Tr. 427 (Bergeson).
those individuals were the Plaintiffs.162 The others were Ross, Sisois, Wu,163 and
Mar-Spinola. At trial, every member of the Special Committee cited Bergeson’s
It is important to understand that by the time Bergeson made the assessment that the facts
supported termination of the Plaintiffs, the focus of his work had shifted from the broad ranging
allegations of tickets purchased for extended family and friends to a smaller subset of tickets that
had been purchased by and for the Plaintiffs and their immediate family members. That is,
Bergeson and his team had isolated tickets of the Plaintiffs’ extended family and friends from his
conclusions on remedial actions. Furthermore, as the minutes from the Special Committee’s
meeting on August 6, 2006, reflect, the decision to terminate the Plaintiffs for cause was a “result of
their [own] use of Company travel funds for personal air travel.” JX 130 (Aug. 3, 2006); see also
JX 56 & JX 57.
Significant attention at trial was given to the similarities between Gust Perlegos and Wu’s travel
expenses. Despite Bergeson’s conclusion that the facts also supported termination of Wu, the
Special Committee considered his case distinguishable and chose not to terminate him. Boddy also
acknowledged that there was a good faith basis supporting Wu’s termination, but that his was a
“much closer case” than the four other individuals, including the Perlegoses, who had been
terminated. Tr. 905-06 (Boddy).
It is not readily apparent how the travel expense shenanigans of Gust Perlegos differed
materially from those of Wu. For example, both had a similar number of tickets (i.e., 146 for Gust
Perlegos; 175 for Wu) and their travel abuses cost Atmel roughly similar amounts of money (i.e.,
either about $67,000 for Perlegos and about $56,000 for Wu under Bergeson’s calculations, or,
$52,000 and $56,000, respectively, under the Plaintiffs’ calculations). It appears, however, that the
Special Committee relied upon two significant factors. First, although both Gust Perlegos and Wu
had paid back some portion of the personal tickets that had been charged to Atmel, the percentage
of repayment for the total cost of personal air travel booked through Atmel differed significantly:
Wu had paid back about 52% of the total cost of tickets he had booked through Atmel, but Gust
Perlegos only paid back about 28%. Second, there was some mention that Wu had been more
cooperative than Gust Perlegos during Bergeson’s investigation. Tr. 618 (Sugishita); 763 (Laub);
JX 35. “Cooperation” appeared to take on different meanings at different times during trial, but it is
not unreasonable that the Special Committee considered the fact that Wu had paid back a higher
percentage of total ticket cost as evidence that he was more forthcoming. Other reasons beyond
repaying and cooperation also appeared to be in play. Bertelsen’s handwritten notes from the
Special Committee’s meeting of August 1 indicate that the parties in attendance had also discussed
the fact that Wu was “not involved in finance” matters at Atmel and was “critical to [the]
Company.” JX 35 at ATMEL 100647.
The argument that Gust Perlegos and Wu were similarly situated yet suffered different
consequences is one that reasonable people might view differently. It is addressed here because it
illustrates the type of challenge raised by the Plaintiffs. The judgment as to whether they should
have been treated differently (or even the conclusion that they were similarly situated) is for the
Board or its designee, the Special Committee; it is not a separate and independent judgment for the
Court to make in this context.
presentation and recommendations as having a central role in shaping their views on
whether termination of the Plaintiffs was appropriate.164
In assessing the work of a special committee, this Court has often examined the
quality and nature of advice that independent directors receive from outside
experts.165 Of course, a special committee’s reliance on the advice of an expert
cannot be said to be reasonable where the expert’s work was so fundamentally flawed
that directors were grossly negligent in relying upon it. An expert’s work may be
fundamentally flawed, for example, where that expert misrepresented or failed to
disclose material information to directors. What constitutes materiality is a topic of
rich discussion within our case law, but a basic standard on which this Court can rely
is whether a reasonable director would have considered a particular fact important in
making his decision to terminate. Expressed differently, any fact having the tendency
to shed light on the proper outcome can be fairly said to be material. But that
recognition carries with it both aspirational and foundational notions of materiality.
It is aspirational in the sense that independent directors want to consider each fact as
important and, when asked whether they would have liked to have known a particular
Tr. 759-60 (Laub); Tr. 683 (Sugishita); Tr. 814-15 (Thomas); Tr. 560-61 (Kim); Tr. 863-64
See Gesoff, 902 A.2d at 1147 (citing In re Tele-Commc’ns, Inc. S’holders Litig., 2005
WL 3642727 (Del. Ch. Dec. 21, 2005)).
fact, the answer will almost certainly be in the affirmative.166
Upon an actual
determination that certain facts were not disclosed, however, the question that
emerges is whether those facts would have been foundationally important to the
ability of directors to make a reasonable decision based on sufficient information; in
other words, whether those facts would have had an outcome dispositive effect.
It was evident at trial that Bergeson’s work was not without flaw and that
certain information had not been given to the Director Defendants. First, and most
significantly, the Director Defendants were led to believe that the Perlegoses, before
their termination, had been provided with updated lists of tickets attributed to them.
They, however, were not.167 They were given abbreviated lists of tickets, and the
only complete list they received was after they had been terminated.168 Second, the
Director Defendants were not informed of several credit card payments by Gust
Perlegos for personal tickets. Although they were informed in the Final Report that
That was precisely the case at trial when directors were asked if they would have liked to have
known certain information that was not disclosed to them by Bergeson. See, e.g., Tr. 644-45
(Sugishita); Tr. 797 (Laub); Tr. 852-53 (Thomas); Tr. 887 (Fougere). If they had responded in the
negative, the natural reaction would be that the decision to terminate the Perlegoses had been
preordained and that the Director Defendants were acting without the proper care needed to make
an informed decision.
Questions of whether the Plaintiffs were given an adequate opportunity to respond could have
been easily avoided had Bergeson provided George Perlegos and Gust Perlegos with the list that
had been presented to the Audit Committee on July 18 or the list that had been in Bergeson’s
possession at the July 21 meeting with George Perlegos.
Complete lists were forwarded to their counsel, Paul Alexander, on August 5, 2006, but even
these were not flawless. For example, the list of tickets attributed to George Perlegos included at
least one ticket for which he had actually paid. See Tr. 461-62 (Bergeson). That came to light only
Gust Perlegos had paid $2,200 of the total cost of personal air travel to Davani, at
trial questions were raised as to whether directors had known that Gust Perlegos had
also made approximately $22,000 in payments on his credit card,169 with a partial
payment for many of the tickets attributed to him.
Still, however, the Special Committee’s reliance on Bergeson’s investigation
and Final Report was reasonable.
Neither Bergeson’s work nor the Special
Committee’s process was perfect, but that is not what is required. The Special
Committee reasonably relied upon the advice of experts and reasonable efforts were
made to make a decision based on the material facts that were available. Although
there were facts that should have been made available to them (and facts that they
would have wanted to know), the Director Defendants reasonably viewed the weight
of evidence against the Plaintiffs as sufficient cause to justify the extraordinary action
of termination. That they were not aware of all of the facts relating to the travel
investigation does not, itself, cause doubt that they were sufficiently informed to
make the decisions they did.
The Bergeson investigation may have left something to be desired with respect
to the information provided to the Perlegoses prior to their termination, but members
of the Special Committee reasonably believed that the Perlegoses had sufficient time
and sufficient information to respond adequately to the allegations directed to them.
Tr. 644 (Sugishita) (“These credit card payments, we were not aware of that.”); Tr. 509 (Kim).
The Perlegoses had adequate opportunities to be more forthcoming and to explain
further their understanding of the facts and, in so doing, possibly change the
investigation’s course and its eventual conclusions.
The Perlegoses had been
interviewed multiple times and they indicated at trial that they provided Bergeson
with all evidence pertaining to their personal and family travel expenses (e.g., credit
card statements, frequent flier summaries). They cannot reasonably claim to have
been blind-sided by an investigation that had gone on for eight months; that followed
a prior investigation by George Perlegos’s secretary; and that had been known to be
ongoing by all of Atmel’s directors and senior executives.
Furthermore, with respect to whether the Director Defendants had known of
Gust Perlegos’s credit card payments and the fact that he, unlike Wu, had made some
payment on most tickets attributed to him, the evidence presented at trial does not
move the Court to conclude that the Special Committee acted unreasonably when it
decided that the evidence supported his termination.
The Director Defendants
reasonably believed that Wu had been more cooperative and that, because he repaid a
greater percentage of the total amount of personal tickets paid by Atmel, he had less
of a reason than Gust Perlegos to know that he had not, in fact, paid the full price for
the personal tickets booked through Atmel.
On the other hand, even with the
knowledge of Gust Perlegos’s credit card payments, the nature of these payments was
reasonably troubling to the Special Committee. Some illustrative, and undisputed,
evidence at trial showed that Gust Perlegos paid $6.80 for an $864 business class
ticket for his son to fly to Philadelphia; $230 for a $4,800 business class ticket for his
father to fly to Greece; and about $730 for each $3,800 business class ticket for his
immediate family fly to Greece.170 The Special Committee could reasonably rely on
such evidence to conclude that termination was justified.
The Director Defendants did not, however, blindly accept Bergeson’s findings.
Following the Final Report, they sought an independent review of Bergeson’s work
by Boddy, an attorney with extensive experience in reviewing internal
investigations.171 Boddy’s review is entitled to weight for what it was: a limited
review of the record before him. And in many ways, his function was similar to that
of this Court: an inquiry into the process by which the investigation was conducted
and the Special Committee’s reliance upon it, but not a review of whether substantive
details were correct. He reviewed both the documents that Bergeson’s firm had
provided him as well as documents that he independently sought. On August 1, the
Special Committee learned that the crux of Boddy’s findings was that Bergeson’s
work had been both fair and thorough, and that they could, in good faith, rely upon it
in deciding to terminate Atmel executives.172
JX 56; Tr. 232-35, 250-51 (Gust Perlegos).
Boddy’s objectivity and independence are not suspect merely because he was a partner of
Morrison & Foerster, LLP, the same firm supplying special counsel to the Special Committee and
providing counsel to the Audit Committee’s investigation into stock option backdating. Tr. 908-09
(Boddy); JX 3.
JX 127 (Aug. 1, 2006); Tr. 900-02 (Boddy).
On August 1, 2006, the Special Committee also heard from Rains, its special
counsel, who warned of the potential consequences of not taking any action in light
of the investigative findings. Khanna also attended that meeting and concurred with
Rains. He repeated his advice that auditors were looking to the Special Committee to
take “prompt and appropriate remedial action.” The Special Committee took a straw
vote and tentatively agreed to terminate the Perlegoses for cause. A formal vote was
taken on August 3.
The Perlegoses ask the Court to substitute its judgment about the facts for that
of Bergeson and the Special Committee. Whether, for example, Bergeson gave too
much credit to Davani’s testimony or whether the wife of George Perlegos
appropriately accompanied him on certain trips at Atmel’s expense are not the
substantive merits-based questions which the Court can, or should, resolve in the
context of a Section 225 action. In any event, the record refutes any contention of
the Plaintiffs that they are innocent of material wrongdoing.
In sum, the Director Defendants decided in good faith to investigate the travel
expenses at Atmel and the involvement of senior management.
Bergeson with reasonable care and they acted with the reasonable belief that he was
capable of carrying out the investigation.
They appropriately monitored and
supervised his work. When Bergeson was done, they, in good faith and reasonably,
relied upon his findings and his advice.173
This Court will not disturb the Special Committee’s decision to terminate the
Perlegoses where it was not the product of pretext but of a fair and reasonable
process. Supporting the Special Committee’s decision is a careful and competent,
although somewhat distant from ideal, investigation by Bergeson, a second opinion
provided by Boddy as to the good faith basis that existed for independent directors to
rely on Bergeson’s findings, and the professional advice received from both Rains
That is all that the Court can require.
Aspects of Bergeson’s
investigation may have been worthy of improvement, but the evidence offered by the
Plaintiffs does not support a conclusion that the Special Committee’s dismissal for
cause was a pretext for ridding the Company of the Perlegoses.
Cancellation of the Special Meeting of Stockholders
The Plaintiffs also complain about the cancellation, on August 6, 2006, of the
Special Meeting of Stockholders that had been called by George Perlegos just one
day before. They seek an order, under Section 211 of the DGCL, requiring Atmel to
hold the meeting in accordance with Section 2.3 of the Company’s Bylaws. For
To require more would unnecessarily and improvidently impair the ability of a board (or a
special committee) to respond timely, reasonably, and effectively to wrongful conduct by senior
management. Board members must be allowed to employ and rely upon experts—investigators,
lawyers, accountants, and the like—because few directors are properly qualified to investigate
reasons that follow, the Court concludes that the meeting should be held. A special
meeting was validly called by George Perlegos as Chairman and, although Sugishita
had the authority as George Perlegos’s successor to rescind the notice and cancel the
special meeting, Sugishita and the Board lacked proper and sufficient reasons for
The Bylaws and Atmel’s Chairman: Authority to Call a Special
Meeting; the Authority to Cancel One
The Court first turns to the question of whether George Perlegos had the
authority to call the special meeting of Atmel’s stockholders and, correspondingly,
whether Sugishita had the authority to cancel it.
The starting point is Atmel’s
Section 2.3 provides:
Special Meeting. A special meeting of the stockholders may be
called at any time by the board of directors, by the chairman of the
board, or by the president, but such special meetings may not be called
by any other person or persons. Only such business shall be considered
at a special meeting of stockholders as shall have been stated in the
notice of such meeting.
There is no dispute that George Perlegos was Chairman on August 5 when he
informed Atmel’s Secretary and the Board by letter of his call for a special meeting.
Sugishita’s letter of August 5 informing George Perlegos of his termination expressly
acknowledged that George Perlegos was still Chairman of the Board, and it was not
until August 6 that the Board formally considered his removal. Thus, under Atmel’s
Bylaws, George Perlegos could call a special meeting in his capacity as Chairman.
Still, Atmel argues that George Perlegos’s call, while technically permitted
under the Bylaws, was nonetheless improper because it was made without regard to
his fiduciary duties and out of retaliation against the same directors who had voted to
remove him as President and Chief Executive Officer.174 Atmel and the Director
Defendants point to the sequence of events leading up to the call of the meeting—
George Perlegos’s letter scheduling the meeting was faxed only hours after his
attorney had been notified of the Special Committee’s decision to terminate—and
George Perlegos’s steadfast denial that he was aware that he had just been
terminated.175 In short, they argue that George Perlegos must have known that he had
been terminated and that his call for a stockholders meeting was in direct response to
learning of the Special Committee’s action. He may have called the meeting with the
belief that the eight-month investigation’s findings were riddled with errors or out of
concern that “armed security ha[d] taken over Atmel” and employees were being
“la[id] off,” but his primary reason, according to the Defendants, was an inequitable,
See Tr. 565-66 (Kim); Tr. 606-07, 716 (Sugishita); Tr. 772 (Laub); Tr. 833-34 (Thomas)
(viewing George Perlegos’s call for a special meeting as a “retaliatory move . . . to somehow
remove people that had spent nine months and a lot of money and time trying to understand why we
had to remove him” and get a “new jury”).
See Tr. 16-17, 179-80 (George Perlegos).
and therefore, an unenforceable, one: to avenge his termination.176 Notwithstanding
the rather curious chronology of events that George Perlegos offered at trial, the
Court is reluctant to conclude that the call itself was improper. George Perlegos’s
motivations may very well be suspect, but the calling of a special meeting of
shareholders to afford them the opportunity to consider the conduct of the Company’s
directors, is difficult to characterize as a violation of fiduciary duty.
The challenged action before this Court is not so much that George Perlegos
called a special meeting but that the Defendants cancelled one. Therefore, the Court
must consider what authority, if any, Sugishita had at the time he rescinded and
revoked George Perlegos’s attempted notice.
First, the Perlegoses challenge a key factual premise upon which the
Defendants’ argument is based—that Sugishita replaced George Perlegos as
Chairman. They maintain that, although Sugishita was elected as Atmel’s “nonexecutive Chairman,” the Board did not, in fact, elect him as George Perlegos’s
replacement because it failed to vote first to remove George Perlegos.177
As the Defendants correctly note, this Court can rescind or nullify a corporate action “where
corporate directors exercise[d] their legal powers for an inequitable purpose.” Stahl v. Apple
Bancorp, Inc., 579 A.2d 1115, 1121 (Del. Ch. 1990) (citing Schnell v. Chris-Craft Indus., Inc., 285
A.2d 437, 439 (Del. 1971)); see also Black v. Hollinger Int’l, Inc., 872 A.2d 559, 564 (Del. 2005)
(concluding certain bylaw amendments “were invalid in equity and of no force and effect, because
they had been adopted for an inequitable purpose”).
The Director Defendants did discuss his removal. JX 131 (Aug. 6, 2006) (meeting minutes)
(“The Board then discussed the removal of George Perlegos as Chairman of the Board and the
appointment of Mr. Sugishita as non-executive Chairman of the Board.”).
suggest that two chairmen (one an executive and one a non-executive) could coexist.
Of note also are two provisions of Atmel’s Bylaws, Sections 5.1 and 5.6, both of
which pertain to the position of board chairman.178
Section 5.6 provides for more than one chairman.
Neither Section 5.1 nor
Indeed, the reference to “a
chairman” and “such an officer” cannot be reconciled with the concept of multiple
chairmen. The Board may have taken a short cut by electing Sugishita without first
voting to remove George Perlegos, but that failure is not sufficient to deny the
legitimacy of Sugishita as the only Chairman for which Atmel’s Bylaws provide.
Under the Company’s Bylaws, the election of Sugishita as Chairman logically and
necessarily meant that George Perlegos no longer served in that role.
Second, the Perlegoses assert that neither the Board nor a new Chairman
possessed the authority under Atmel’s Bylaws to cancel or rescind notice of a validly
called special meeting of stockholders. They cite Republic Corp. v. Carter179 for the
Section 5.1 states, in pertinent part:
Officers. The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board . . . .”
Section 5.6 states, in pertinent part:
Chairman of the Board. The chairman of the board, if such an officer be
elected, shall, if present, preside at meetings of the board of directors and exercise
such other powers and perform such duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these Bylaws.
253 N.Y.S.2d 280 (App. Div. 1964), aff’d, 15 N.Y.2d 661 (N.Y. 1964).
proposition that neither a board nor its chairman can cancel a special meeting if the
company’s bylaws contain no provision expressly authorizing them to do so.180 In
other words, the Perlegoses’ position appears to be that the absence of language
permitting an action amounts to a preclusion of that action.
The Court cannot agree with the Plaintiffs’ contention that Sugishita was
precluded from rescinding notice of the meeting simply because the Bylaws do not
provide for such rescission or cancellation.181 It is true that Atmel’s Bylaws are silent
in this regard; that, however, does not necessarily mean that a board or its chairman
can never take an action that would undo what had been done earlier by a board or by
a previous chairman.182 The Plaintiffs characterize the Director Defendants’ decision
to rescind notice as an attempt “to override and frustrate the Chairman’s contractual
Id. at 283 (“The power of the president to call the special meeting is expressly granted by the
stockholders through the by-law and, absent something in the language of the by-law . . . pointing to
an intention to authorize the board to cancel, we will not, nor should we, rewrite the by-law so as to
dissipate such power.”). Although there are important factual differences between Republic and this
case, the similarities are at least intriguing. In Republic, a company’s president validly called a
special stockholders meeting pursuant to the company’s bylaws. One of the stated purposes was to
remove and replace certain directors with whom the president had recently fallen out of favor.
About a month later, the board voted to cancel the call for the special meeting and to replace the
president. The New York Appellate Division court, however, eventually rejected the board’s
argument that it had the “implicit power” to cancel the meeting, as well as its alternative argument
that, even if it did not have the authority to cancel, the company’s newly minted president did
because the “right to cancel resides in the office rather than the individual.” Id. at 282-84.
Although the Board directed Sugishita to cancel the meeting, the act of cancellation was
Sugishita’s. Thus, this is an instance in which a new chair rescinds an act of his predecessor. It is
not an example strictly of a board’s rescinding the act of its chair.
A corporation’s affairs are not static. Because they evolve with time and reflect new
circumstances, a board must be able to respond accordingly. See Omnicare, Inc. v. NCS
Healthcare, Inc., 818 A.2d 914, 938 (Del. 2003).
right to call a stockholders meeting.”183 Atmel’s Bylaws, which are read with the
general rules of contract interpretation in mind,184 confer the authority to call a special
meeting of shareholders upon the one who holds the position of Chairman. It did not
apply exclusively to George Perlegos. Once Sugishita became Chairman, he had the
authority to call a special meeting under the Bylaws as well. But the power to take an
action also includes the power, consistent with one’s fiduciary duties and unless
otherwise restricted, to undo it. As observed in Unisuper Ltd. v. News Corporation, it
is “an elementary principle of corporate law” that if a board has the power to adopt
resolutions or policies, then it has the corresponding power to rescind them.185
Similarly, if bylaws authorize a board’s chairman with the right to call a special
meeting of stockholders, it follows that a chairman can later rescind it.
Having concluded that Sugishita had the authority under Atmel’s Bylaws to
cancel the special meeting, the Court now turns to whether the decision to cancel was
a proper one, as a matter of equity, in light of the reasons that have been offered.
Pls.’ Post-Trial Reply Br. at 6 n.7.
See Centaur Partners, 582 A.2d at 928 (“Corporate charters and by-laws are contracts among the
shareholders of a corporation and the general rules of contract interpretation are held to apply.”);
see also Engelen v. Barton-Aschman Assocs., 1987 WL 14681, at *3 (N.D. Ill. Nov. 2, 1987)
(noting that, while “[a] corporation’s bylaws constitute a contract between the corporation and its
shareholders,” they also “govern the relationship between a corporation and its officers . . .”).
2005 WL 3529317, at *5 (Del. Ch. Dec. 20, 2005); cf. In re LJM2 Co-Inv., L.P., 866 A.2d 762,
780 (Del. Ch. 2004) (“As a general matter, the court agrees that, as a simple question of power, the
power to rescind a capital call, and thus to ‘abrogate, revoke or cancel’ it, is implicit in the General
Partner’s power to make such a call in the first place.”).
The Search for Legitimate Grounds: Justifying the Cancellation
of the Special Meeting of Stockholders
After electing Sugishita as Chairman on August 6, 2006, the Board approved a
resolution to rescind and revoke the attempted notice of the special meeting that had
been called by George Perlegos the day before.186 The Director Defendants perceived
George Perlegos’s call as an inappropriate reaction to his termination and have
argued that, in the absence of cancellation, Atmel “risked terrible consequences.”187
The Perlegoses see it differently: that the Director Defendants, faced with the
prospect of being replaced, chose instead to cancel the special meeting and entrench
themselves in office.188
On the premise that the meeting’s cancellation was undertaken for the
purpose of obstructing stockholders’ exercise of their franchise, the Perlegoses
argue they are entitled to an order requiring Atmel to hold a special meeting—
unless, under the standard articulated in Blasius Industries, Inc. v. Atlas
Corporation, the Director Defendants are able to offer a “compelling
Naturally, the Director Defendants contend that Blasius is
The Perlegoses were not in attendance at the Board’s August 6 meeting, and Wu was the only
director present who opposed cancellation of the special meeting.
See Defs.’ Post-Trial Br. at 65.
Under Delaware law, a board’s action “taken for the principal purpose of impeding the effective
exercise of the stockholder franchise is inequitable and will be restrained or set aside in proper
circumstances.” Kidsco Inc. v. Dinsmore, 674 A.2d 483, 495 (Del. Ch. 1995), aff’d, 670 A.2d 1338
(Del. 1995) (TABLE) (citing Stahl v. Apple Bancorp, Inc., 579 A.2d 1115, 1122 (Del. Ch. 1990)).
564 A.2d 651, 661-62 (Del. Ch. 1988).
inapplicable because the sine qua non of that standard—that actions be taken for the
“primary purpose” of foreclosing shareholder action190—is missing.
Although the Director Defendants may have viewed their decision on
August 6, 2006, as one of protection, not preclusion, the Plaintiffs have presented
arguments for requiring a compelling justification when the call of a special
stockholders meeting is rescinded less than twenty-four hours after it had been
made. In Shamrock Holdings, Inc. v. Polaroid Corporation, this Court noted that
Blasius made its “primary purpose” finding “largely because of the timing of
defendants’ actions and their preclusive effect.”191 Even though the cancellation of
the special meeting was not at the quintessential “eleventh hour” or in the context of
a key transaction, it had the effect of precluding stockholders from voting on the
removal of the Director Defendants until the next scheduled annual meeting in May
2007. The Defendants liken this to “mere delay.” That stockholders were not
prevented from voting on replacing the Director Defendants but, instead, their
opportunity to do so was postponed for seven months may, however, be a
distinction without a difference.
The Defendants have correctly referenced
instances in which this Court has refused to apply Blasius where a board only
Id. at 659-62. See also Williams v. Geier, 671 A.2d 1368, 1376 (Del. 1996) (holding that
application of the “compelling justification” standard in Blasius is “applied rarely” and applicable
only where the “primary purpose” of a board’s action is to interfere with or impede the exercise of
the shareholder franchise).
559 A.2d 278, 286 (Del. Ch. 1989).
postponed or delayed a stockholders meeting,192 but those cases are distinguishable.
Here, the Director Defendants did not simply postpone the special meeting. They
Ultimately, it is unnecessary to define the scope of judicial scrutiny because
the Director Defendants cannot even justify their decision under a less stringent,
less searching standard.193 The minutes of the Board meeting on August 6 reflect
that the Director Defendants were concerned about the special meeting’s cost and its
shareholders.194 In addition, at trial, there was some testimony by the Director
Defendants that Atmel could face additional governance problems and even lose its
See, e.g., In re MONY Group, Inc. S’holder Litig., 853 A.2d 661, 676 (Del. Ch. 2004) (declining
review under Blasius and concluding that “[s]etting a new meeting and record date, by itself, does
not fall within this category of prohibited acts”); H.F. Ahmanson & Co. v. Great W. Fin. Corp.,
1997 WL 305824, at *16 (Del. Ch. June 3, 1997) (concluding Blasius not applicable and finding a
seven week delay in an annual meeting did not frustrate the effective exercise of the shareholders’
franchise); Kidsco Inc., 674 A.2d at 496 (declining to apply Blasius where a by-law amendment
providing the board with an additional twenty-five days to call a special meeting was not enacted
for an entrenchment purpose or for the primary purpose of impeding the shareholder franchise);
Stahl, 579 A.2d at 1123 (1990) (“deferring this company’s annual meeting where no meeting date
has yet been set and no proxies even solicited does not impair or impede the effective exercise of
the franchise to any extent”).
See, e.g., Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). Under this standard,
the Board would be required to demonstrate, first, that it had reasonable grounds to believe that a
danger faced the Company and, second, that it acted proportionately to that threat. See id. at 95455; Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1372, 1384-86 (Del. 1995).
JX 131 (Aug. 6, 2006).
listing on NASDAQ if its independent directors were removed.195 None of these
concerns, however, justified cancellation of the special meeting.
A stockholder’s vote is one of the most fundamental rights of owning stock.
Although such a vote may be seen by some as a “vestige or ritual of little practical
importance,” it is clear that it is the “ideological underpinning upon which the
legitimacy of directorial power rests.”196 Along with the right to vote, the forum in
which shareholders exercise this right plays a fundamentally important role in the
corporate governance structure established under the DGCL. In short, a stockholders
meeting is an important event on the corporate calendar.
The Director Defendants have offered no persuasive reasons for the
cancellation of the special meeting. Atmel cites the “expense” of holding a special
meeting. Although stockholder meetings are not without cost, Atmel is a billion
dollar company and appears able to bear it. Atmel also cites the potential for the
special meeting to be “confusing” to Atmel stockholders and employees. A meeting,
Tr. 716-17, 720 (Sugishita); Tr. 772-74 (Laub). These concerns were not reflected in the
minutes of the Board’s August 6 meeting; thus, the Plaintiffs object to them as “post hoc, litigationinspired rationale[s].” Chesapeake Corp. v. Shore, 771 A.2d 293, 333 (Del. Ch. 2000). There have
been, however, instances in which this Court has permitted directors to look beyond a board’s
minutes when providing rationales for a certain action. See, e.g., Cheff v. Mathes, 199 A.2d 548,
555 (Del. 1964) (“While the minutes . . . indicated the stock option plan as the motivating reason,
the defendants are not bound by such statements and may supplement the minutes by oral
testimony . . . .”); GGS Co., Ltd. v. Schuster, 1991 WL 107766, at *2 (Del. Ch. June 19, 1991).
These additional concerns given at trial by two of the Director Defendants are recited to illustrate
further that even they are insufficient to support the Board’s decision to rescind notice and cancel
the special meeting.
Blasius, 564 A.2d at 659.
however, is likely to provide clarification, not confusion. Even though the last
meeting of stockholders would have been only five months before the special meeting
slated for early October, there were important, even extraordinary, intervening
events—the Audit Committee’s investigation, the Special Committee’s creation and
termination decisions, and the Board’s appointment of a new Chairman. That a
special meeting itself would cause confusion among stockholders is possible (even if
unlikely), but it is not enough to justify cancellation.197 Furthermore, neither the
Board’s minutes nor the Director Defendants’ testimony at trial indicate that there
was discussion on August 6 as to the availability of measures that would address
more proportionately the threat of confusion. Finally, the Court is not persuaded by
the concern aired at trial (and not referenced in the minutes) that, because George
Perlegos’s call provided only for the removal of the Director Defendants and not the
election of new independent directors, Atmel necessarily faced delisting.
concern is based on an assumption that stockholders would have voted to remove the
Director Defendants without designating replacements. In addition, George Perlegos
These were critical times for Atmel—the Perlegoses and the Director Defendants agree on that.
One can plausibly argue that requiring a shareholders meeting would distract the Board from its
statutory obligation that the “business and affairs” of the Company “be managed by or under the
direction of” the Board, 8 Del. C. § 141(a), but any challenge to a board would constitute a
“distraction” to some extent. George Perlegos may have used his position to call the special
meeting for his own selfish purposes, but, although the work of the Special Committee must be
sustained in this action, there is room for some discomfort with the thoroughness and fairness of the
investigation and with the decisions that, especially with respect to Gust Perlegos, the extreme
sanction of termination was necessary. Under these circumstances, there is no apparent reason why
the shareholders could not appropriately assess the conduct of the Director Defendants who, by their
decision to cancel the shareholders meeting, precluded prompt shareholder action.
testified that it was his intent also to have new independent directors elected.198
Although Section 2.3 of Atmel’s Bylaws prohibits the consideration of business not
stated in the notice of the special meeting, a less preclusive and more reasoned
response would have been to allow the nomination of other directors, as the
Perlegoses undoubtedly planned to do.
Therefore, because the Director Defendants have not presented sufficient
grounds, the Court concludes that cancellation was improper and that Atmel should
be ordered to hold the special meeting in accordance with Section 2.3 of Atmel’s
For the foregoing reasons, the Court finds that the Perlegoses have not
demonstrated any right to hold any office of Atmel and that the special meeting of
stockholders called by George Perlegos must be held. The parties shall bear their
Counsel are requested to confer and to submit forms of order to
implement this Memorandum Opinion.
Tr. 183-84 (George Perlegos).