## Facts

- Staley Continental Corporation, Inc. (Staley), a Delaware corporation, was not facing an imminent hostile takeover, but it was reasonable to expect a takeover attempt in the near future.
- In anticipation of that possibility, Staley’s directors established a trust-funded compensation arrangement that would pay directors if a change of control occurred.
- The change-of-control compensation plan covered both managerial directors and nonmanagerial (outside) directors on the same terms.
- Tate & Lyle PLC (Tate & Lyle) later made an offer to purchase Staley’s shares from its stockholders.
- Tate & Lyle conditioned its offer on Staley’s repeal of the directors’ change-of-control compensation plan.
- Tate & Lyle sued Staley and its directors in the Delaware Court of Chancery, alleging the directors breached fiduciary duties by adopting and maintaining the trust arrangement.
- Tate & Lyle sought a preliminary injunction to stop operation of the trust fund while the acquisition contest was ongoing.

## Issues

1. Whether, on a motion for preliminary injunction, Tate & Lyle showed a sufficient probability of success on its claim that Staley’s directors breached fiduciary duties by adopting and keeping a change-of-control director compensation trust in anticipation of a takeover.
2. Whether Tate & Lyle showed irreparable harm and a balance of equities favoring interim relief that would halt operation of the trust arrangement.

## Decision

- The Delaware Court of Chancery denied Tate & Lyle’s request for a preliminary injunction.
- The court declined to block operation of the director compensation trust during the pendency of the dispute.

## Legal Principles

- A preliminary injunction requires the movant to show (1) a reasonable probability of success on the merits, (2) irreparable harm absent an injunction, and (3) that the equities favor granting interim relief.
- When directors take action in the face of anticipated takeover activity and the action has defensive characteristics, Delaware courts review the directors’ conduct with careful scrutiny to test the directors’ good faith and the reasonableness of the response.
- Director compensation measures tied to a change of control are not automatically invalid, but they raise loyalty concerns because directors may benefit personally; a court assesses whether the measure appears reasonably related to a proper corporate purpose rather than serving as an entrenchment device.
- A bidder’s objection to a board-adopted compensation arrangement, standing alone, does not establish entitlement to emergency injunctive relief; the court focuses on the movant’s ability to meet the injunction standards on the existing record.

## Conclusion

In *Tate & Lyle PLC v. Staley Continental Corp.*, the Delaware Court of Chancery refused to preliminarily enjoin a trust-funded, change-of-control compensation plan adopted for Staley’s directors in anticipation of possible takeover activity, holding that Tate & Lyle did not meet the requirements for preliminary injunctive relief on its fiduciary-duty challenge.


Tate & Lyle PLC v. Staley Continental Corp., Fed. Sec. L. Rep. (CCH) ¶ 93764 (1988)