MEYER & ASSOCIATES

NOT ATTORNEYS AT LAW

1234 Second Year Student Avenue
Lawrence, Kansas 2021

December 3, 2019

LatteMamas Board of Directors

4321 I Love Lattes Avenue
Lawrence, Kansas 435763

Regarding: Upcoming Annual Meeting

Dear LatteMamas Board of Directors:

Below is an analysis of the issues you asked me to address before the 2019 annual meeting. I
have analyzed these issues in accordance with LatteMama’s Articles of Incorporation and
Bylaws. Because LatteMama’s is incorporated in Delaware, I have applied Delaware corporation
law where appropriate. In all other cases, I have applied the default rules of corporations. If you
have any more questions, please do not hesitate to contact me.

Sincerely,

Anna S. Meyer

Anna S. Meyer
MEYER & ASSOCIATES
NOT ATTORNEYS AT LAW
1234 Second Year Student Avenue
Lawrence, Kansas 2021
 Executive Summary

• Regarding Elisabeth Anderson-Sierra’s actions, LatteMamas probably does not have any

legal rights. Typically, an officer may resign at any time by delivering written notice to the board

of directors, or its chair or to the appointing officer or the secretary. Here, if Ms. Anderson-Sierra

delivered written notice, her resignation was proper. Thus, she is no longer an officer of the

company. As such, in respect to LatteMamas, Ms. Anderson-Sierra does not have the fiduciary

duties of an officer. Ms. Anderson-Sierra may remain a shareholder of LatteMamas despite her

new role as a director in what is possibly a competing company because shareholders do not

have the same fiduciary duties as officers or directors. In fact, for the most part, shareholders do

not owe fiduciary duties to the corporation. For this reason, Ms. Anderson-Sierra is not

breaching her duty of loyalty to LatteMamas by remaining a shareholder. Thus, LatteMamas will

likely be unsuccessful in a claim against Ms. Anderson-Sierra for a breach of fiduciary duties.

LatteMamas may have a claim against Ms. Anderson-Sierra based on the corporate

opportunity doctrine because Ms. Anderson-Sierra served as an officer for three years. Officers

do have fiduciary duties similar to those of directors in a corporation. According to the corporate

opportunity doctrine, a director or officer may not take a secret profit in connection with

corporate transactions, compete unfairly with the corporation, or take personally profitable

business opportunities which belong to the corporation. However, a court will likely not find Ms.

Anderson-Sierra’s new position as director at the competing company a corporate opportunity.

Although LatteMamas and the other company operate in similar markets, this was not an

opportunity LatteMamas could have taken itself. LatteMamas, could not have financially

exploited this opportunity because the benefit of the opportunity is rooted in a strategic career

decision for Ms. Anderson-Sierra. If LatteMamas can show that Ms. Anderson-Sierra discovered

1
this opportunity using LatteMamas’s resources or information, a court may be more likely to find

in LatteMamas favor on the corporate opportunity doctrine. However, this is likely not a strong

claim and litigation on this matter is probably not an efficient use of LatteMamas’s resources.

• If Ms. Anderson-Sierra is displeased with the current board composition she may attempt

to take action by appointing her own board. Ms. Anderson-Sierra will likely be eligible to vote at

the upcoming meeting because she is still a shareholder and she is likely still a record owner as

of the record date. Further, the annual meeting is the proper forum for Ms. Anderson-Sierra to

attempt to appoint a new board of directors. However, Ms. Anderson-Sierra’s attempt to appoint

a new board of directors will likely be unsuccessful because LatteMamas elects its directors with

slate voting. In slate voting, each stockholder may cast the number of votes equal to the number

of shares held for candidates for each position to be filled on the board of directors. Under slate

voting, stockholders holding a majority of the voting shares can always elect the entire board of

directors. Here, Ms. Anderson remains the controlling shareholder with a majority of the shares.

For this reason, Ms. Anderson will likely have no problem ensuring that her desired board of

directors is elected at the annual meeting.

• The proposal advanced in the Proxy Statement is an amendment to the Articles of

Incorporation. The proposal does recommend a new type of shares. Types of shares are typically

included in the articles of incorporation; new shares may be proposed in an amendment to the

articles of incorporation. Here, LatteMamas has followed proper procedures for proposing this

amendment to its articles of incorporation, so there should be no procedural problem. First, the

board of directors must adopt an amendment to the articles of incorporation and then submit the

amendment to shareholders for their approval. A board committee may adopt an amendment to

the articles of incorporation. There are a few actions the board may not delegate to a committee

2
but adopting amendment to the articles of incorporation is not one. Thus, there delegating the

decision to adopt the amendment to a committee was proper. Further, the board must recommend

that shareholders approve the amendment unless it determines that due to special circumstances

such as conflicts of interest, the amendment should not be approved. Here, the board committee

did not find the proposal to create a conflict of interest. Because the board committee was found

to be independent of Ms. Anderson, a court will likely confirm its decision. Thus, a court will

likely reject the argument that the proposal creates an unfair deal.

After the board adopts the amendment shareholders must vote on the amendment.

Typically, a majority of shareholders may approve the amendment. Here, Ms. Anderson is the

controlling shareholder with a majority of the shares, so she will likely be able to approve the

amendment. Sondra Chely and Nobert Levy will probably not be able to successfully reject the

proposed amendment. The two shareholders will probably argue that they have dissent and

appraisal rights. These rights permit shareholders who reject an amendment like this one to have

the value of their shares ascertained by judicial proceeding and paid to them in cash by the

corporation. The right of dissent and appraisal is available when an amendment to the articles of

incorporation materially alter the structure of the company. Here, the amendment states its

purpose is to maintain LatteMama’s current goals and leadership, so it probably does not

materially alter the corporation’s structure. The amendment does not alter or abolish a

preferential right of the share; create, alter, or abolish a right in respect of redemption; alter or

abolish a preemptive right of the holder of the shares to acquire shares or other securities;

exclude or limit the right of the shares to vote on any matter; or reduce the number of shares

owned by the shareholder to a fraction of a share if the fractional share so created is to be

3
acquired for cash. Thus, Sondra Chely and Nobert Levy will likely not be able to force the

corporation to pay them the value of their shares.

• The purchase of the Caribbean plantation is risky. If the shareholders pursue a legal

remedy arising from the purchase of the Caribbean plantation, the court would likely consider

whether the decision to purchase the plantation violated the directors’ duty of care. When

making management decisions, directors and officers owe a duty to the corporation to exercise

reasonable care in performing their duties. Typically, if business decisions satisfy the business

judgment rule the directors have not violated the duty of care. Under the business judgment rule,

honest business decisions made in good faith and on the basis of reasonable investigation are not

actionable, even though the decision is mistaken, unfortunate, or even disastrous. The decision to

purchase the plantation, based on the information that the purchase will yield a 30 percent

pricing premium on products, would be protected by the business judgment rule. However,

because the board knows that purchasing the plantation might require payments to local officials

in violation of U.S. Federal law the board’s decision to make the purchase will likely not be

protected by the business judgment rule. An action in violation of U.S. Federal law is likely an

ultra vires action, and the business judgment rule does not protect ultra vires actions. Even

though LatteMamas is willing to pay the penalty for any such payment, the shareholders will

likely still have a valid claim that the decision violates the board’s duty of care if the board

approves a purchase that authorizes bribes in violation of U.S. Federal law.

• The board may be able to approve the plantation purchase if it imposes some limitations

on the purchase. First, to properly approve the decision a majority vote of directors present at a

meeting where a quorum is present is necessary. A quorum of directors consists of a majority of

the number of directors outlined in the bylaws.

4
 The board may be able to abrogate the risks involved with the plantation purchase by

approving the purchase so long as it does not require bribes. The board knows that the purchase

has the possibility of requiring bribes, so it likely cannot approve the purchase without some

limitations. Ignoring the possibility the purchase could require bribes, would likely constitute

gross negligence, which would violate the directors’ duty of care. The standard test for directors’

duty of care is that the duties must be discharged in good faith, with the care of an ordinarily

prudent person in a like position would exercise under similar circumstances, and in a manner he

or she reasonably believes to be in the best interest of the corporation.

If the board approves the plantation purchase with the limitation a court will probably

find the board did not violate its duty of care. First, the decision would be in good faith because

it would be an honest decision based on all the genuine facts. Next, the board could likely

successfully argue the decision was made with care because the board addressed the potential

risks. Finally, the board will likely be able to show that the decision to purchase with limitations

was reasonably in the corporation’s best interest because the board would be acting on

information that the purchase would yield a 30 percent pricing premium on products and the

board took steps to minimize potential risks.

The board’s decision would also not violate the duty of care because it would likely be

protected by the business judgment rule. As previously discussed, the decision to purchase based

solely on the information about the 30 percent yield would be protected by the business

judgment rule. If the board took steps to eliminate the possibility of an ultra vires action by

refusing to approve the bribes, the decision to purchase the plantation would likely be protected

by the business judgment rule.