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Showing 8 posts from February 2007.

Court of Chancery Sets Disclosure Rule For Banker

Posted In M&A

Ortsman v. Green, C.A. No. 2670-N (Del. Ch. February 28, 2007).

There is sometimes uncertainty as to what should be included in a disclosure statement that seeks stockholder approval of a merger. This brief opinion makes it clear that the basis for an investment banker's fees should be included, particularly when the fee is dependent in some degree on the merger's completion.


Court of Chancery Finds Hidden Appraisal Right

Posted In Appraisal, M&A

Louisiana Municipal Police Employees' Retirement System et al v. Crawford, C.A. No. 2635-N (Del. Ch. February 16, 2007).

In Delaware's corporate law, the doctrine of independent legal significance has a great importance. Basically, this means that if a transaction is authorized by any provision of our law, then it may go forward even if, in substance, it may seem to violate some other provision of that law. Thus, for example, a merger that really seems to be a sale of assets is still valid if it complies with the terms of the statute governing mergers. Here, the strength of that doctrine is called into question.

To make the merger of Caremark and CVS more competitive to a third party offer for Caremark, the directors of Caremark resolved to pay a special dividend to the Caremark stockholders. The problem was that the dividend was conditioned on those stockholders approving the merger with CVS. The plaintiffs argued that this dividend was really a cash payment as part of the merger consideration and thus triggered stockholder appraisal rights that occur when stockholders receive cash in a merger. The Court of Chancery agreed with the plaintiffs and rejected application of the doctrine of independent legal significance.

The result clearly was influenced by the evidence that the Caremark directors were motivated to declare the dividend to make the merger go through and thereby receive large personal benefits in the form of change of control payments. The point then is that when  the so-called "independent" event is really tied to personal interest and not to just getting a deal done, the Court is less likely to give it recognition as truly independent. More ›


District Court Rejects Defenses to Breach of Contract, Awards Attorneys' Fees

Chase Manhattan Bank v. Iridium Africa Corp., 2007 WL 518440 (D.Del. Feb. 16, 2007)

In this breach of contract case, the defendant members of a bankrupt LLC asserted various defenses to their alleged contractual obligation to make capital contributions after the bankruptcy. The plaintiff lender had made an $800 million dollar loan to the LLC, and asserted that the members were contractually obligated to continue capital contributions despite the bankruptcy. The District Court entered summary judgment for the plaintiff on its breach of contract claim, but delayed entering final judgment until the parties could brief remaining “open issues”. The defendants argued that the plaintiff’s alternate theory of recovery should be dismissed as moot prior to a final entry of summary judgment for the plaintiff, that the plaintiff was not entitled to attorneys’ fees, and that the Court’s grant of summary judgment had left unresolved various defenses asserted by the defendants. The Court concluded that the entry of summary judgment was appropriate without addressing the plaintiffs’ alternate theories of recovery and did not leave any defenses unresolved, and that the plaintiff was contractually entitled to attorneys’ fees. The Court therefore found that the entry of final judgment for the plaintiff was appropriate. More ›


Court of Chancery Extends Date For Meeting

Louisiana Municipal Police Employees Retirement System v. Crawford, C.A. No. 2635-N (Del. Ch. February 13, 2007).

The question sometimes comes up of whether a stockholder meeting should be postponed to permit supplemental proxy materials to be sent and read by the stockholders. Here, the Court did extend the meeting based on the facts presented to it. Hence, this decision provides guidance on this issue.


Court of Chancery Upholds Special Committee Action

Perelegos v. Atmel Corporation, C.A. No. 2320-N (February 8, 2007) The actions of special committees of  a board are often questioned, but this decision strongly affirmed the power of a properly organized and functioning  special committee. Indeed, given that the committee here removed the corporation's founder as its CEO, there can be few corporate actions more important than the act upheld here. There are still limits on that power, however, as the Court of Chancery also held that the board could not cancel the special stockholders' meeting called by the fired chairman to review the acts of the Special Committee. This reflects the strong Delaware respect for the rights of stockholders to vote on who should be on the board. More › Share

Court of Chancery Blasts Backdating Options

Posted In Fiduciary Duty

Ryan v. Gifford C.A. No. 2213-N (Del. Ch. February 6, 2007).

Backdating of stock options has long been under fire. This decision spells out the legal theories under Delaware law that support a breach of fiduciary duty claim for backdating. In addition, the opinion also seems critical of similar practices such as "springloading" option grants. Moreover, by characterizing the backdating of options as constituting "bad faith", under the facts presented in this case,  the opinion removes the protection of the director exculpation provisions provided in many charters. More ›


Court of Chancery Extends Time To Sue

Posted In Fiduciary Duty

In Re Tyson Foods, Inc., C.A. No. 1106-N (Del. Ch. February 6, 2007).

The Court of Chancery applies a three year statute of limitations to claims asserting breach of fiduciary duty. However, there are several theories that extend that time, such as for fraudulent concealment of the facts that would provide notice of the claim. This decision explains those theories in a comprehensive way. Moreover, the decision applies this law to the detailed facts presented in this case. That is useful as it is not always easy to understand when the Court will extend the time to sue. More ›


Court of Chancery Upholds Post-Closing Adjustment Clause

Posted In M&A

AHS New Mexico Holdings, Inc. v. Healthsource Inc., C.A. No. 2120-N (Del. Ch. February 2, 2007).

It is often the case that a merger agreement or sale of stock will provide for an adjustment to the closing price based on post-closing events. This decision holds that in such cases the procedures for submitting any dispute are enforceable and absent agreement of the parties will include all of their disputes over the adjustment. This later point is important because it permits the parties to reach preliminary agreements on some parts of the dispute while preserving their right to take the whole dispute to the chosen forum for resolution if all points are not resolved by negotiations. More ›

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