Ex-Disk Drive Maker Seeks to Reincorporate
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.
Computer Memories reported in its proxy materials that its directors are insured. But the company is the target of a shareholders’ suit filed in September, 1984, that alleges it violated federal securities laws.
Shareholders of Computer Memories, which now is incorporated in California, are to vote on the proposal at the annual shareholders meeting Oct. 21 in Sherman Oaks. Irwin Rubin, company chairman, could not be reached for comment.
The reincorporation technically would be achieved by merging Computer Memories into a wholly owned subsidiary called CMI Delaware.
Computer Memories has been selling its inventory and equipment over the past few months. Once a booming firm, its business fell apart last year when computer giant IBM decided to stop buying the company’s disk drives, which store and retrieve data for personal computers.
Computer Memories, which two weeks ago auctioned off the furniture and equipment at its headquarters, previously disclosed that it had hired the Baltimore investment banking firm of Alex. Brown & Sons to find a buyer or acquisition for the company. It had more than $30 million in cash before the auction and is believed to have accumulated significant tax-loss carryforwards, which would allow it or a company that purchases it to deduct previous losses from future income.
