Author: chu

In Re Astex Pharmaceuticals, Inc. Stockholders Litigation, Consolidated C.A. No. 8917-VCL

By Wilson Chu and Jason Jones

On August 25, 2014, Vice Chancellor J. Travis Laster denied a stipulated dismissal order involving the payment of a “mootness fee” as part of the settlement of a disclosure claim because it did not comply with the requirements of In re Advanced Mammography Sys., Inc. S’holders Litig., 1996 WL 633409 (Del. Ch. Oct. 30, 1996). 

Astex Pharmaceuticals, Inc. (“Astex”) and Otsuka Pharmaceutical Co, Ltd. (“Otsuka”) entered into an Agreement and Plan of Merger. Various stockholder plaintiffs filed lawsuits asserting claims against Astex, its Board of Directors, and Otsuka, and the court certified a class. One claim asserted that Astex’s stockholders lacked sufficient information to make an informed decision about tendering their shares or seeking appraisal.  In response, Astex filed a supplemental Schedule 14D-9 containing additional disclosures on October 1, 2013.  After the defendants moved for judgment on the pleadings, the named plaintiffs concluded that their remaining claims lacked merit. The parties then submitted a stipulated dismissal order, which included an agreement whereby defendants would pay a mootness fee relating to the disclosure claim. The court denied the proposed dismissal order pending further submission by the parties explaining how they complied, or proposed to comply, with Advanced Mammography.

Advanced Mammography provides that the board may exercise its business judgment to pay a mootness fee, but it is necessary to (i) notify the court and (ii) provide notice to the class and provide an opportunity for the class to be heard.  In addition, “in the context of a claim that is acknowledged to be moot and in which no consideration has been paid to the class, it is not appropriate for the court to purport to release any claims of the class.”  Id. at *1.  Notice to the class allows the class to argue that the case is not moot, but rather that the mootness fee is in fact a buyout; and enables members of the class to object to such use of corporate funds.  Id.  In this case, the stipulated dismissal order did not provide notice to the class, and as a result, Vice Chancellor Laster denied the proposal and requested that the parties submit a revised order contemplating notice to the class.

InReAstex

Lehman Brothers Holdings Inc., et al. v. Spanish Broadcasting System, Inc. No. 8321-VCG (Glasscock, V.C.)

By Wilson Chu and Mark Hammes

In this action for breach of contract, Plaintiff institutional investors held cumulative preferred stock of Spanish Broadcasting System (“SBS”), a Delaware corporation, with dividends payable quarterly if so declared by the board of directors. If the dividends were unpaid for four consecutive quarters, a voting rights trigger in the shares’ Certificate of Designation (“Certificate”) allowed the holders of the preferred stock to call a special meeting and elect two additional directors to SBS’s board. In addition, the Certificate prohibited SBS from incurring additional debt after such a triggering event.

During 2009, SBS began to fail to make dividend payments. Plaintiffs alleged a triggering event occurred no later than July 2010. Plaintiffs did not at that time assert their rights under the Certificate, nor did they when SBS incurred additional debt in publicly announced transactions during 2011 and 2012. Plaintiffs brought suit for breach of contract and breach of the covenant of good faith and fair dealing. SBS argued that no triggering event occurred until after the debt transactions, and raised defenses including laches and acquiescence.

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