Author: axtman

Strict Interpretation of Advance Notice Bylaws Guides Chancery Court in Issuing Preliminary Injunction and Partial Final Judgment Orders

By William Axtman and Ryan Drzemiecki

In the ongoing dispute of Opportunity Partners L.P. v. Hill International, Inc., Vice Chancellor J. Travis Laster granted plaintiff Opportunity’s motion for preliminary injunction with respect to an annual meeting of stockholders and defendant’s motion to enter the injunction order as partial final judgment for purposes of appellate review. In reaching its decision on the preliminary injunction, the Court relied on strict interpretation of defendant Hill’s advance notice bylaws.

Defendant’s advance notice bylaws provided that stockholders’ notice of business or nominees to be presented in an annual meeting must be furnished “not less than sixty (60) days nor more than ninety (90) days prior to the meeting,” with an exception that “in the event that less than seventy (70) days notice or prior public disclosure of the annual meeting is given or made to stockholders,” the stockholders’ notice would be considered timely if received “no later than the close of business on the tenth (10th) day” thereafter.

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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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2015 Proxy Season Preview: Chancery Court Declines to Order Waiver of Advance Notice Bylaws

By William Axtman and Caitlin Howe

Can an activist shareholder avoid compliance with advance notice bylaw provisions to run a dissident slate of directors at a fast-approaching annual meeting? The answer, which is discussed in our summary of AB Value Partners, often hinges on the actions of the board.

In AB Value Partners, LP v. Kreisler Manufacturing Corp., Vice Chancellor Parsons denied AB Value’s request for a temporary restraining order to enjoin enforcement of Kreisler’s advance notice bylaw provisions.  AB Value, a hedge fund that owned approximately 11% of Kreisler’s shares, sought to run a competing slate of director’s at Kreisler’s annual meeting.  The bylaws of Kreisler required that stockholders provide advance notice within a 60-90 day window prior to the anniversary date of the preceding annual meeting of any business that the stockholders wanted to address at Kreisler’s annual meeting.  AB Value failed to propose its slate of directors within this required timeframe.

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In Re: Crimson Exploration Inc. Stockholder Litigation, C.A. No. 8541-VCP (October 24, 2014) (Parsons, V.C.)

By William Axtman and Ryan Drzemiecki

In Re: Crimson Exploration Inc. Stockholder Litigation involved a consolidated class action claim made by certain minority stockholders (“Plaintiffs”) of Crimson Exploration, Inc. (“Crimson”) challenging the completed acquisition of Crimson by Contango Oil & Gas Co. (“Contango”).  The transaction was structured as a stock-for-stock merger (the “Merger”), with the Crimson stockholders holding approximately 20.3 % of the combined entity following the merger and an exchange ratio representing a 7.7% premium based on the April 29, 2013 trading price of Contango common stock and Crimson common stock.  Plaintiffs also alleged that the members of Crimson’s Board of Directors (the “Directors”) and various entities affiliated with the investment management firm Oaktree Capital Management, L.P. (“Oaktree”) breached their respective fiduciary duties by selling Crimson below market value for self-serving reasons.  In total, Plaintiffs brought claims against Crimson, the Directors, Oaktree, Contango Acquisition, Inc. (the “Merger Sub”) and Contango (“Defendants”).

A major premise of Plaintiffs’ complaint is that Oaktree controlled Crimson and thereby had fiduciary duties to the minority stockholders of Crimson.  Oaktree owned roughly 33.7% of Crimson’s pre-Merger outstanding shares and a significant portion of Crimson’s $175 million Second Lien Credit Agreement, which Contango agreed to payoff after the signing of the Merger, including a 1% prepayment fee (the “Prepayment”).  Also, in connection with the Merger, Oaktree negotiated to receive a Registration Rights Agreement (the “RRA”) so that it had the option to sell its stock in the post-Merger combined entity through a private placement.

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Quadrant Structured Products Company v. Vertin, C.A. No. 6990-VCL (October 1, 2014) (Laster, V.C.)

By William Axtman and Dotun Obadina

In Quadrant Structured Products Company v. Vertin, creditor plaintiff Quadrant Structured Products Company, Ltd. (“Quadrant”) asserted breach of fiduciary duty claims derivatively against the Board of Directors (the “Board”) of the Athilon Capital Corp. (the “Company”) and EBF & Associates (“EBF”), the holder of all of equity and certain junior debt of the Company.  EBF also managed the operations of the Company through service and license agreements between the Company and an affiliate of EBF, Athilon Structured Investment Advisors, LLC (“ASIA”), and appointed all five directors of the Board, three of which are current employees of EBF.

Quadrant, as holder of senior notes of the Company, asserted that (a) the Company was insolvent and (b) the directors of the Board and EBF breached their fiduciary duty of loyalty and committed corporate waste by (i) continuing to unnecessarily make interest payments on the junior debt, even though such payments could be deferred for an extended period of time (past the likely date of dissolution and liquidation of the Company), (ii) paying excessive service and license fees to ASIA and EBF to operate the Company, and (iii) changing the Company’s business model to take on greater risk under a strategy where EBF would  benefit from any upside as the sole holder of the junior debt and the Company’s equity, but the Company’s more senior creditors (including Quadrant) would bear the cost of any downside.  In addition, Quadrant asserted claims under the Delaware Uniform Fraudulent Transfer Act based on the non-deferral of interest on the junior debt and the payment of excessive service and license fees to ASIA and EBF to operate the Company.

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In re TriQuint Semiconductor, Inc. Stockholders Litigation, C.A. No. 9415-VCN (Del. Ch. June 13, 2014)

By William Axtman and Joshua Haft

In In re TriQuint Semiconductor, Inc. Stockholders Litigation, plaintiff stockholders of TriQuint Semiconductor, Inc. (“TriQuint”) moved to expedite their breach of fiduciary duties claims against TriQuint’s board of directors for approving a merger of equals with RF Micro Devices, Inc. (“RFMD”) in which the shares of each company would be exchanged for 50% of the shares of a newly formed entity, Rocky Holding, Inc. (“Rocky Holding”). In this letter opinion, the Delaware Court of Chancery ruled on plaintiffs’ motion for expedited proceedings with regard to plaintiffs’ claims that the TriQuint board (i) engaged in defensive entrenchment tactics, (ii) agreed to preclusive deal protection devices, and (iii) failed to provide all material information to the stockholders in advance of the stockholder vote.

In order to show good cause for expedited proceedings under Delaware law, plaintiffs must articulate “a sufficiently colorable claim” and show “a sufficient possibility” of irreparable injury so as to justify imposing the costs of an expedited preliminary injunction proceeding on the defendants and the public.

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