Computer Memories, a former disk-drive manufacturer that now is liquidating assets, is asking shareholders for permission to reincorporate in Delaware. The move is primarily intended to take advantage of the state's new law that allows companies to eliminate directors' liability for negligence.
The Chatsworth-based company's disclosure, which was made in proxy materials mailed to shareholders last week, comes amid the recent heavy trading in the concern's stock. During the last five days of trading, nearly 2.3 million shares--an amount equivalent to 20.5% of its outstanding stock--have changed hands.
On Monday the stock closed at $2.50, down 12 1/2 cents for the day but unchanged from a week before.
Law Takes Away Liability
The Delaware law, adopted in July, allows companies to protect directors from being personally liable for breaching their so-called "duty of due care," requiring them to make informed business judgments. That means, for example, that directors could not be successfully sued for supporting a merger that turns sour, as long as they act in good faith. The law, however, doesn't protect directors against allegations of fraud or misconduct.
Computer Memories' disclosure comes at a time when shareholder suits are becoming increasingly common and many companies are struggling to obtain liability insurance for directors. High-technology companies, whose stocks in many cases have plunged over the last two or three years, have been hit especially hard by shareholder suits.