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Category Archives: Delaware News

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Recent Delaware case reminds of importance of litigation expense advancement provisions in organizational documents

Posted in Corporate Governance, Delaware News

Much to the chagrin of corporate lawyers, there are still some companies that do not have provisions in their articles of incorporation, bylaws or operating agreements that provide for advancement of litigation expenses to directors and officers. The recent case of White v. Kern, No. 7872-VCG (Del. Ch. Jan. 24, 2014) (Transcript) illustrates that courts may prohibit the advancement of expenses to defendant directors and officers in the absence of these provisions.…

Lessons from In re Trados: Conflicting Interests of Preferred and Common Stockholders

Posted in Corporate Governance, Delaware News

In our previous post about In re Trados, we provided some background on the facts, outcome and usefulness of the Trados case. In this installment, we will discuss the conflict of interest between the preferred stockholders and the common stockholders of Trados and the related analysis conducted by the Delaware Court of Chancery.

Divergence in Interests of Preferred and Common Stockholders

Due to the liquidation preference of preferred stock, preferred stockholders and common stockholders can have diverging interests in exit transactions. “Because of the preferred shareholders’ liquidation preferences, they sometimes gain less from increases in firm value than they lose from decreases in firm value. This effect may cause a board dominated by preferred shareholders to choose lower-risk, lower-value investment strategies over higher-risk, higher-value investment strategies.1

Fiduciary Duties in M&A Exit Transactions: Lessons from In re Trados

Posted in Corporate Governance, Delaware News

On Aug. 16, 2013, the Delaware Court of Chancery issued an opinion1 finding that the directors of TRADOS Inc. (Trados) did not breach their fiduciary duties in deciding to sell Trados despite the common stockholders receiving no sale consideration; (ii) a majority of the directors approving the transaction having a conflict of interest; (iii) the court’s review under the entire fairness standard; and (iv) the directors’ failure to follow a fair process, because the common stockholders received a fair price (i.e. the value of the common stock immediately prior to the merger was zero and the common stockholders received zero in the merger).

Though In re Trados is not groundbreaking in the sense that it does not present any novel legal issues, it nonetheless serves as an important illustration of common conflict of interest and fiduciary duty issues that arise in a typical exit transaction fact pattern, particularly for venture capital or private equity backed companies. Through the next several weeks, we will discuss in more detail some of the important takeaways from In re Trados in a series of blog posts.…

Wall Street Journal: Judges in Delaware Taking a Hard Look At Fee Awards in M & A Derivative Cases

Posted in Delaware News, Private Securities Litigation, Shareholder News, Trends

On Tuesday, July 19, 2011, the Wall Street Journal ran an interesting article by Gina Chon entitled "Judges Making Lawyers Earn It," discussing trends in fee awards in lawsuits challenging mergers and acquisitions in the Delaware Court of Chancery, finding that:

In recent months … the court’s judges have been more discerning, according to plaintiffs and defense lawyers as well as court officials. In several cases, they have been less willing to sign off on standard fees for lawyers who have done relatively little and more willing to grant high payouts when they think lawyers have worked to earn them. 

The article is available on line here.…

Changes For Delaware Corporations in 2008

Posted in Delaware News

As of January 1, 2008, Delaware corporations seeking to discontinue their corporate existence in Delaware, either through dissolution, merger or conversion, must be current in (a) filing their Annual Franchise Tax Reports (“Annual Reports”) and (b) payment of any required franchise tax (this is not a new requirement). The State of Delaware will reject any dissolution, merger or conversion filing if the Delaware corporation that is dissolving, merging out of existence, or converting to an entity not subject to the Delaware Franchise Tax has not filed all of its Annual Reports and paid all of the required franchise tax due up to the time in which the dissolution, merger or conversion is to become effective.…