Archive: January 2015

Differential Voting Rights for Directors of a Delaware Corporation Must Be Set Forth in the Certificate of Incorporation

By William Axtman and Dotun Obadina

In addressing a request for a preliminary injunction seeking the invalidity of a resolution adopted by the defendant directors through the exercise of disproportionate voting rights, the Delaware court reaffirmed that differential voting rights for directors of a Delaware corporation must be set forth in the certificate of incorporation.

In Sinchareonkul v. Fahnemann, the plaintiff, a director of Sempermed USA, Inc. (the “Company”), brought suit against two other directors of the Company, seeking declaratory judgments invalidating bylaw provisions that conferred disproportionate voting power on the defendants who are also directors of the Company.  Semperit Technische Produkte Gesellschaft m. b. H. (“Semperit”), Sri Trang Agro-Industry Public Co., Ltd. (“Sri Trang”), and Siam Sempermed Corporation Ltd. (“Siam Sempermed”) agreed to form the Company in 1998 for the purposes of manufacturing latex surgical gloves and then distributing and selling them in the United States market.

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Chancery Court Denies Motion to Expedite on Speculative Disclosure Claims

By Annette Becker and Eric Jay

On January 12, 2015, Vice Chancellor Glasscock issued an opinion in Parsons v. Digital River, Inc., et al., 2015 WL 139760 (Del. Ch. 2015) on a Motion to Expedite brought by Amy Parsons on behalf of similarly situated public stockholders (“Plaintiff”) as to disclosure claims concerning an imminent merger. The ruling on the disclosure claims was deferred after the Vice Chancellor denied Plaintiff’s Motion on December 31, 2014 as it related to Revlon claims raised, in order to allow Plaintiff to submit a supplemental brief clarifying why such claims would be material to stockholders.

The Motion was brought by Plaintiff against the Board of Directors of Digital River, Inc. (the “Company”) for breaches of fiduciary duties arising in connection with the Agreement and Plan of Merger entered into with Siris Capital Group, LLC, dated October 23, 2014 (the “Merger Agreement”). On November 18, 2014, Plaintiff initiated a class action to enjoin the proposed merger on the grounds that the Company was undervalued and that the Board of Directors failed to provide the stockholders with material information regarding the deal process.

Of the numerous disclosure claims raised by Plaintiff in the Motion to Expedite, Vice Chancellor Glasscock focused primarily on the claim regarding management retention, both because it was the most significant and it had not been rendered moot by the Company’s subsequent filing of a definitive proxy statement. Vice Chancellor Glasscock concluded that Plaintiff sought expedited discovery on the grounds that the disclosures were “simply not credible” without providing a factual basis for such assertion.

Because the disclosure claim was speculative, Vice Chancellor Glasscock found that the chance of receiving injunctive relief to be low and that the value of potential disclosure did not outweigh the cost of expedition. The Plaintiff’s Motion to Expedite was denied.

Parsons v. Digital River, Inc., et al., 2015 WL 139760 (Del. Ch. 2015) (Glasscock, V.C.)

Chancery Court Confirms Standing of Record Holder as of Appraisal Demand Date to Pursue Appraisal

By David Bernstein and Meredith Laitner

In Merion Capital LP v. BMC Software, Inc., the Chancery Court held that a person who became the record owner of shares after the record date for voting on a merger could seek appraisal with regard to those shares so long as that person did not vote the shares in favor of the merger, without having to demonstrate that the shares had not been voted in favor of the merger by a prior record owner.

On January 5, 2015, the Delaware Chancery Court issued its ruling in Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital LP had standing to seek an appraisal with regard to shares of which it became the record owner after the record date for voting on a merger without having to prove that those shares had not been voted in favor or the merger.

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DGCL §220 Does Not Limit Court’s Ability to Restrict Shareholder Inspection Rights

By Eric Freedman and Eric Taylor

In an en banc decision, the Delaware Supreme Court reversed a decision of the Delaware Court of Chancery holding that the court lacked the authority to impose a specific restriction on a shareholder’s inspection of a corporation’s books and records under section 220(c) of the Delaware General Corporation Law (the “DGCL”). United Technologies Corp. (“UnitedTechnologies”) had sought to restrict the use of information obtained in an inspection of the company’s books and recordsby its shareholder Lawrence Treppel (“Treppel”). Specifically, United Technologies asked Treppel to sign a confidentiality agreement that would require Treppel to bring any legal action “arising out of” the inspection in a Delaware court. Treppel refused to sign the agreement and filed a section 220 action seeking access to United Technologies’ books and records without any such restriction. United Technologies challenged whether Treppel had a “proper purpose” for the information request (as required by section 220(b) of the DGCL), but also asked the Court of Chancery to use its legal authority under section 220(c) to limit the use of information gained from Treppel’s books and records inspection to action in a Delaware court. Section 220(c) grants the court the discretion to “prescribe any limitations or conditions with respect to [an] inspection,” or award such further relief as the court deems proper.

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Chancery Court Confirms Beneficial Owner’s Standing to Pursue Appraisal Action

By David Bernstein and Meredith Laitner

Amid debates around the merits of “appraisal arbitrage,” the Chancery Court held in In re: Appraisal of, Inc. that the hedge fund petitioner did not need to prove that the shares of which it became the beneficial owner after the record date for voting on an Ancestry merger had not been voted in favor of the merger in order to pursue appraisal rights with regard to those shares. The Court said any problems with DGCL Section 262 itself should be solved by the legislature, not the courts.

On January 5, 2015, the Delaware Chancery Court issued its ruling in In re: Appraisal of Inc., C.A. No. 8173-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital L.P., the beneficial owner of, Inc. shares, did not need to prove that the specific Ancestry shares with respect to which petitioner seeks appraisal were not voted in favor of an Ancestry merger in order to have standing to seek appraisal.

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