GEORGE PERLEGOS and GUST PERLEGOS, Plaintiffs,

v.

ATMEL CORPORATION, Defendant. C.A. No. 2320-N; GEORGE PERLEGOS and GUST PERLEGOS, Plaintiffs, v. ATMEL CORPORATION, a Delaware corporation, DAVID SUGISHITA, STEVEN LAUB, PIERRE FOUGERE, T. PETER THOMAS and CHAIHO KIM, Defendants. C.A. No. 2321-N

C.A. No. 2320-N, C.A. No. 2321-N

COURT OF CHANCERY OF DELAWARE, NEW CASTLE

December 11, 2006, Submitted 

February 8, 2007, Decided

NOTICE:    THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

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 Defendants.

NOBLE, Vice Chancellor

A companys 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 companys 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 companys 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 companys 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 companys 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 Courts post-trial findings of fact and conclusions of law.

I. FINDINGS OF FACT ¹

A. The Players

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 entertainment products.

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, President, and Chief Executive Officer; Gust Perlegos as Executive Vice President--until their termination in August 2006. They were members of Atmels 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 Companys 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 Atmels 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 Mar--Spinola, Chief Litigation and Intellectual Property Counsel; and Shahram Davani, who was Atmels Global Travel Manager.

B. Trouble in the Travel Department: The Genesis of Investigating Breaches of Atmels Travel Policy

1. Atmels 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 Atmels 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.

2. Where There Are Rules, There Will Be Those Who Break Them--Davanis Fraudulent Scheme

Davani served as the head of Atmels 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, zero-exchange tickets, and direct payments to Davani.

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 Davanis 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 Atmels Diners Club card and then resell it to the traveler, sometimes for a lesser price. Surprisingly, 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 Companys purchase of airline tickets and travel upgrades. George Perlegos fired Davani on July 11, 2005. Four days later, the Board was advised of the controversy surrounding Davanis 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.

C. The Audit Committee Initiates an Independent Investigation into Travel Expenses and Retains Bergeson for Assistance

After Davanis termination on July 11, 2005, questions surrounding abuses of Atmels 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 Davanis 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 Perlegoss 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 Companys 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 funds by Davani was approximately $540,000 and that the total financial impact on Atmel was approximately $2.5 million. ⁹ Because Nevess report focused on Davani, it did not offer information about others who may also benefited from Davinis conduct. ¹⁰

Two months after Nevess report, Sugishita, Chairman of Atmels Audit Committee, sought an independent investigation into travel expenses. ¹¹ Bertelsen, Atmels Secretary and outside counsel at Wilson Sonsini, agreed, not least of all because of concerns raised by PricewaterhouseCoopers (PwC), Atmels auditors. ¹² Bertelsen recommended Bergeson and his law firm, Bergeson, LLP (also Bergeson or Bergesons firm), which had experience in audit committee investigations. ¹³ After some inquiry, Sugishita went ahead, and with the Audit Committees blessing, retained Bergesons firm in late November 2005 to determine whether others at Atmel had personally benefited from Davanis scheme. ¹⁴

Bergeson received a copy of Nevess internal report and noted the last page of her report which identified almost $2.5 million in damages to Atmel, yet only $540,000 attributable to Davani. Bergeson and his team wanted to find out where [the difference] went. ¹⁵

D. 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 Bergesons 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

1. Bergesons 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 Eleven 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, 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 Committees attention was turning increasingly to those in management, was not without an opinion as to the investigations focus. On February 8, a day after Bergesons Preliminary Report, George Perlegos e-mailed Sugishita, as chair of the Companys 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 described as an interrogation, and was asked specifically about certain findings in the Preliminary Report. ²⁴

2. Atmel Executes a Settlement Agreement with Davani and the Bergeson Investigation Continues

After the Preliminary Report, the Audit Committee continued to monitor Bergesons investigation. ²⁵ During this period, Bergeson and his colleagues reviewed e-mails and other documents uncovered during the investigation. They also conducted approximately a dozen more interviews. One of these interviews was with Davani. ²⁶

Davanis 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 Davanis lawyer had indicated that his client had documentary evidence relevant to the investigation and that a settlement agreement was a condition to Davanis 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

3. Bergesons Final Report of July 18, 2006

If the Preliminary Report did not provide Audit Committee members with a basis for terminating certain Atmel employees, Bergesons Final Report apparently did. ³³

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 Atmels 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 immediate family;

. 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;

. Gust Perlegos, there were 146 tickets for personal travel attributable to him, with $2,224 ³⁴ 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 immediate family. ³⁵

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 Committees discussion of Bergesons findings, Khanna, Atmels auditor at PwC, commented that Atmels auditors were looking for an effective and timely response to the breaches of Atmels 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 directors at the July 18 meeting testified that they relied, at least in part, on Bergesons assessment in forming their opinions. ⁴⁰

The Audit Committees 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 Companys expense; it was after Bergesons 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 Bergesons 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 five non-management directors to act on behalf of the Board on all issues with respect to travel-related expenses. ⁴³

E. Atmels 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 Sugishitas 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 Atmels Board was held on July 21 to consider the establishment of a Special Committee. Present were Kim, Thomas, Laub, Fougere, George Perlegos, and Sugishita,  3]  who was both chairman and secretary at the meeting. ⁴⁶ Gust Perlegos and Wu, however, were not. ⁴⁷ Gust 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 non-management 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 resolution.

F. 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 Bergesons Final Report, which took the form of PowerPoint slides.   ⁵¹ He was not, however, provided a copy of Bergesons 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 hour-long meeting before its conclusion to head to a doctors appointment. ⁵⁴

G. The Special Committee Receives an Independent Review of Bergesons 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 it ⁵⁵ --of Bergesons investigation. Soon thereafter, Boddy, an experienced labor and employment attorney at Morrison & Foerster, LLP, was retained. His charge was to review Bergesons findings for fairness and thoroughness. ⁵⁶

On August 1, 2006, the Special Committee met to receive Boddys assessment. He explained that his methodology was, first, to understand the nature and scope of the investigation that Bergesons 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) Bergesons Final Report provided a good faith basis to terminate George Perlegos, Gust Perlegos, Ross, Sisois, and, although a closer case, Wu. ⁵⁹

Boddys 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 Bergesons 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

H. 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 Atmels expense); to reprimand Wu; and to meet further with Mar-Spinola and ask that she provide additional information. ⁶³ The Special Committee also resolved to request that George Perlegos, Gust Perlegos, and Wu resign from Atmels 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 Committees decision, ⁶⁶ commenced a meeting with Gust Perlegos at Atmels 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 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, Atmels chief financial officer; Leo Rodrigues, Atmels 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 goingon. ⁷³

I. 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 Companys stockholders for the purpose of voting to remove the Director Defendants. ⁷⁴ He directed Bertelsen, as Atmels 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 Perlegoss 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 Boards final decision that day: its authorization of, and order to, Sugishita to rescind and revoke George Perlegoss attempted notice of a special meeting of stockholders. ⁷⁸ The stated reasons for the Boards cancellation of this meeting were threefold: the Director Defendants had been elected at Atmels annual meeting just three months earlier; the time and expense of calling a special meeting could detract from the management of Atmels business; and the meeting could cause confusion among stockholders and employees of Atmel. ⁷⁹ Certainly driving their decision to cancel, however, was what 4]  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 Atmels most important figures, George Perlegos. ⁸⁰

J. 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. On September 8, their action under Section 5]  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.

II. CONTENTIONS

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 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 Atmels 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 Perlegoss 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 Boards 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.

III. ANALYSIS

A. 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 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 Committees 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 Committees composition and process effectively rebuts the Perlegoses arguments that the Special Committees conduct was merely a pretext to mask its members true motives.

1. The Special Committees Formation and Authorization

a. Notice of the July 21 Board Meeting Forming the Special Committee

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 Committees creation. The special meeting of the full Board was held at 8:00 a.m. on July 21, 2006 just three days after Bergesons 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 Companys founders. 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 Atmels 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 directors 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) Sugishitas e-mail to Board members on July 19, ⁸⁷ and (ii) Sugishitas telephone 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. Sugishitas 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 wireless means reasonably subsumes it. Indeed, it is difficult to contemplate how it could not. ⁹¹

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 Atmels 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 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 Sugishitas 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]. Sugishitas 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 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 message.

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 meetings 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

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 Sugishitas contacting Cazier--not to Caziers 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 Sugishitas 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 Sugishitas 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. 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 Wu.

The timing is extremely tight, and maybe even harsh, but it was reasonable for Sugishita to rely upon Caziers 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.

b. 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 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 Boards 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 Boards 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 Bergesons 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 Special Committee was designed to consider remedial actions, such as terminations. ¹⁰⁴

Still, George Perlegos argues that the resolution is invalid because he was never expressly informed of the resolutions 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 resolutions 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 Perlegoss 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 of the travel investigation . . . [without having] . . . the three inside directors who are implicated in this investigation ... in discussions with regards to their own remediation. ¹⁰⁸ 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 resolution.

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 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 boards 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 committees decision to remove from office the companys 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.

The parties do not dispute that the removal of directors is expressly within the power of Atmels Board. Section 5.4 of Atmels 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 Atmels 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 corporation. ¹¹⁵ 

In other words, Atmels Bylaws neither require Board approval for removal of officers nor impose any particular limitation on the Boards authority to delegate that task to a committee. Because Atmels Bylaws confer authority upon the Board to 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 Atmels 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.

2. Analysis of the Special Committees Composition and Process: A Search for Conflict and Pretext

The Perlegoses lodge two broad challenges against the workings of the Special Committee. First, they contend that the Special Committee did not satisfy its mandate that its members be non-management directors who have no 0]  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 Committees entire endeavor was nothing more than a pretext to get rid of them. Analysis of this contention implicates the principles developed to determine whether 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 Committees actions were merely a sham.

a. The Special Committees 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 committees 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. The Court disagrees.

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-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 corporation.

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

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.

i. David Sugishita

The Plaintiffs contend that Sugishita was conflicted because he benefited from George Perlegoss ouster as Chairman. Sugishita was elected as Atmels non-executive Chairman at the Boards 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 Committees 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, Atmels 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 Bertelsens 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 [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 companys 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.

ii. Steven Laub

As with Sugishita, the Plaintiffs assert that Laub was conflicted because he also was to benefit from George Perlegoss termination by becoming President and Chief Executive Officer of Atmel. Discussions with Laub as a possible replacement to 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 Committees 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 Perlegoss 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.

iii. Chaiho Kim

Kim is alleged to have been conflicted because he, like the Perlegoses, purchased tickets from Davani. Sometime in the spring of 2003, before Atmels 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 Bergesons 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 Bergesons associates, van Niekerk and Lear, and informed of the difference in what he paid and what Atmel had been charged. ¹³⁵ He immediately offered to reimburse Atmel, and he eventually did. ¹³⁶

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 Committees 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

iv. Pierre Fougere

Fougere and George Perlegos had known each other since 1993. Perlegos was impressed with Fougeres knowledge of the European semiconductor industry and eventually asked him to join the Board in 2001. ¹³⁸ Although it was Atmels 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 Atmels paying for his hotel accommodation, meals, and ground transportation in exchange for Atmels 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 Fougeres schedule to attend a one-day meeting, Perlegos also agreed to Fougeres 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 Atmels 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 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 Atmels Travel Policy when it neither existed at the time he joined the Board nor applied to anyone other than Atmels 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

v. Peter Thomas

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 Atmels 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 Perlegoss 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 easily. His testimony revealed his initial hope that the investigation would begin and end with individuals like 6]  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 Committees 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 enabling resolution. ¹⁴⁵

b. The Special Committees 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 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 demonstrates that the Special Committees 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 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 members duties, be fully protected in relying in good faith . . . [on] any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation.

The Special Committee sought the advice of experienced and independent experts. In the fall of 2005, Sugishita, as head of the Audit Committee, turned to Bergeson when questions remained after Neves, George Perlegoss former secretary, had investigated Davanis 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 Atmels 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.

Bergesons firm was independent; it had never worked for either Atmel or its Audit Committee. ¹⁵⁰ The firm was recommended to Sugishita by Atmels outside 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 Atmels auditors. Thomas was positive of Bergesons 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 Bergesons firm was of very 0]  good quality and that he was currently using Bergesons 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 Bergesons competence; he had done investigations for special committees before and his firm had conducted more than a dozen for public companies. ¹⁵³ Bergesons colleagues who worked on the travel investigation were also qualified. ¹⁵⁴

The evidence at trial illustrated that that Bergesons work was adequately monitored by the Special Committee and that members were frequently apprised of the investigations 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 Committee meetings. ¹⁵⁵ In addition, Bergeson had regularly been in contact with Sugishita as the head of the Audit Committee. Sugishita regularly monitored Bergesons work and even attended some of the interviews conducted by Bergeson as part of the investigation. ¹⁵⁶ Findings and recommendations were set forth in his firms 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 Nevess 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. Bergesons 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 individuals were interviewed, and the Plaintiffs were each interviewed more than once. ¹⁵⁸

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 George Perlegoss frequent contacts with Davani and his central role in reviewing Atmels 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 the investigation.

Third, Bergesons 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 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 Bergesons presentation and recommendations as having a central role in shaping their views on whether termination of the Plaintiffs was appropriate. ¹⁶⁴

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 Bergesons 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 Bergesons 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. Bertelsens handwritten notes from the Special Committees 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. 

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 committees reliance on the advice of an expert cannot be said to be reasonable where the experts work was so fundamentally flawed that directors were grossly negligent in relying upon it. An experts 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 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 Bergesons 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 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 Committees reliance on Bergesons investigation and Final Report was reasonable. Neither Bergesons work nor the Special Committees 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. 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 investigations 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 Perlegoss secretary; and that had been known to be ongoing by all of Atmels directors and senior executives.

Furthermore, with respect to whether the Director Defendants had known of Gust Perlegoss 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 Perlegoss 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 Bergesons findings. Following the Final Report, they sought an independent review of Bergesons work by Boddy, an attorney with extensive experience in reviewing internal investigations. ¹⁷¹ Boddys 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 Committees reliance upon it, but not a review of whether substantive details were correct. He reviewed both the documents that Bergesons firm had provided him as well as documents that he independently sought. On August 1, the Special Committee learned that the crux of Boddys findings was that Bergesons work had been both fair and thorough, and that they could, in good faith, rely upon it in deciding to terminate Atmel executives. ¹⁷²

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. IChanna 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 Davanis testimony or whether the wife of George Perlegos appropriately accompanied him on certain trips at Atmels 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. They selected 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 Committees decision to terminate the Perlegoses where it was not the product of pretext but of a fair and reasonable process. Supporting the Special Committees 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 Bergesons findings, and the professional advice received from both Rains and Khanna. That is all that the Court can require. Aspects of Bergesons investigation may have been worthy of improvement, but the evidence offered by the Plaintiffs does not support a conclusion that the Special Committees dismissal for cause was a pretext for ridding the Company of the Perlegoses.

B. 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 Companys Bylaws. For 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 Perlegoss successor to rescind the notice and cancel the special meeting, Sugishita and the Board lacked proper and sufficient reasons for doing so.

1. The Bylaws and Atmels 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 Atmels stockholders and, correspondingly, whether Sugishita had the authority to cancel it.. The starting point is Atmels Bylaws.

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 Atmels Secretary and the Board by letter of his call for a special meeting. Sugishitas 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 Atmels Bylaws, George Perlegos could call a special meeting in his capacity as Chairman.

Still, Atmel argues that George Perlegoss 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 Perlegoss letter scheduling the meeting was faxed only hours after his attorney had been notified of the Special Committees decision to terminate-and George Perlegoss 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 00]  of the Special Committees action. He may have called the meeting with the belief that the eight-month investigations 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, 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 Perlegoss 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 Companys 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 Perlegoss 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 Atmels non-executive Chairman, the Board did not, in fact, elect him as George Perlegoss replacement because it failed to vote first to remove George Perlegos. ¹⁷⁷ They suggest that two chairmen (one an executive and one a non-executive) could coexist. Of note also are two provisions of Atmels Bylaws, Sections 5.1 and 5.6, both of which pertain to the position of board chairman. ¹⁷⁸ Neither Section 5.1 nor Section 5.6 provides for more than one chairman. 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 Atmels Bylaws provide. Under the Companys Bylaws, the election of Sugishita as Chairman logically and necessarily meant that George Perlegos no longer served in that role.

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.

Second, the Perlegoses assert that neither the Board nor a new Chairman possessed the authority under Atmels Bylaws to cancel or rescind notice of a validly called special meeting of stockholders. They cite Republic Corp. v. Carter ¹⁷⁹ for the proposition that neither a board nor its chairman can cancel a special meeting if the companys bylaws contain no provision expressly authorizing them to do so. ¹⁸⁰ In other words, the Perlegoses position 04]  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 Atmels 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 Chairmans contractual right to call a stockholders meeting. ¹⁸³ Atmels 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 ones fiduciary duties and unless otherwise restricted, to undo it. As observed in Unisuper Ltd. v. News Corporation, 0it is an 06]  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 boards 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 Atmels 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.

2. 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 Perlegoss call as an inappropriate reaction to his termination and have argued that, in the absence 08]  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 meetings 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 justification. ¹⁸⁹ Naturally, the Director Defendants contend that Blasius is inapplicable because the sine qua non of that standard--that actions be taken for the primary purpose of foreclosing shareholder action ¹⁹⁰ --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 postponed or delayed a stockholders meeting, ¹⁹² but those cases are distinguishable.  Here, the Director Defendants did not simply postpone the special meeting. They cancelled it.

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 meetings cost and its possibility to distract management and confuse Atmel employees and 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 listing on NASDAQ if its independent directors were removed. ¹⁹⁵ None of these concerns, however, justified cancellation of the special meeting.

A stockholders 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, 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 Committees investigation, the Special Committees creation and termination decisions, and the Boards 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 Boards 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 Perlegoss call provided only for the removal of the Director Defendants and not the election of new independent directors, Atmel necessarily faced delisting. The concern is based on an assumption that stockholders would have voted to remove the Director Defendants without designating replacements. In addition, George Perlegos testified that it was his intent also to have new independent directors elected. ¹⁹⁸ Although Section 2.3 of Atmels 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 Atmels Bylaws.

IV. CONCLUSION

For the foregoing reasons, the Court finds that the Perlegos