## Facts

- A Signal Companies, Inc. stockholder filed a derivative action to stop Signal from selling all stock of its wholly owned subsidiary, Signal Oil and Gas Company, to Burmah Oil Incorporated for over $480 million.
- Signal had evolved from an oil company into a diversified conglomerate; the oil and gas business operated through Signal Oil.
- On Signal’s consolidated statements, Signal Oil comprised about 26% of total assets, 41% of net worth, and 15% of revenues and earnings.
- The board approved the sale at a special meeting on December 21, 1973, with closing anticipated in early 1974 subject to regulatory consents.
- The plaintiff sought a preliminary injunction, arguing (i) the sale required a stockholder vote under 8 Del. C. § 271 as a sale of “all or substantially all” assets, and (ii) the price was grossly inadequate and reflected fiduciary breaches.
- The Court of Chancery granted a preliminary injunction against closing, conditioned on the plaintiff posting a $25 million bond under Chancery Rule 65(c), and rejected a proposed “hold separate” order that would have allowed closing while preserving rescission.
- The plaintiff appealed only the bond amount and the refusal to enter a hold-separate order.

## Issues

1. Whether the Court of Chancery abused its discretion by requiring the plaintiff to post $25 million security as a condition of a preliminary injunction.
2. Whether the Court of Chancery abused its discretion by denying a “hold separate” order in lieu of a large injunction bond.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s order.
- The Court assumed, without deciding, that the challenged matters were appealable and that the Court of Chancery had authority to issue a hold-separate order.
- The Court held there was no abuse of discretion in either setting the bond at $25 million or refusing to permit closing under a hold-separate arrangement.
- The Court found the Chancellor’s remedial choices were carefully weighed and were not arbitrary or unreasonable.

## Legal Principles

- The form of preliminary injunctive relief and the amount of security required under Rule 65(c) are matters committed to the trial court’s equitable discretion.
- A reviewing court will not disturb discretionary rulings on injunction security or structure absent a showing that the decision was arbitrary or unreasonable.
- A “hold separate” structure is not required as an alternative to a substantial bond; the trial court may reject it when it finds it would not adequately protect the enjoined parties against losses from a wrongful injunction.

## Conclusion

The Delaware Supreme Court upheld the preliminary injunction conditions, concluding that the Court of Chancery acted within its discretion in requiring a $25 million bond and declining to allow the transaction to close under a hold-separate order.


Gimbel v. Signal Cos., Inc., 316 A.2d 619 (Del. 1974)