becker – Page 2 – Delaware Docket

Kostyszyn v. Martuscelli, et al., C.A. No. 8828-MA (July 14, 2014)

Jul 16 2014

On July 14, 2014, Master in Chancery Kim E. Ayvazian issued her draft report in Kostyszn v. Martuscelli, a dispute between the purchasers (“Plaintiffs”) and sellers (“Defendants”) of Paciugo Gelato and Café (the “Business”), an ongoing business which Plaintiffs purchased in December 2011 for a purchase price of $272,500.00. According to Plaintiffs, their decision to purchase the Business and the purchase price were based on sales information provided to them by Defendants, as well as subsequent statements made by Defendants regarding, among other things, business earnings, on-site sales, catering sales and profits.

In August 2013, Plaintiffs commenced a lawsuit against Defendants in the Delaware Chancery Court alleging that this information and Defendants’ statements were false and misleading, and directly resulted in Plaintiffs both calculating a purchase price that was more than they otherwise would have been willing to pay for the Business and entering into a long-term lease exposing the assets of the Business to risk and the Plaintiffs to personal liability if the Business ultimately failed. In their amended complaint (the “Amended Complaint”), Plaintiffs asserted claims against Defendants for breach of contract, breach of warranty, indemnification, equitable fraud, fraud, negligent misrepresentation, intentional misrepresentation and breach of the covenant of good faith and fair dealing, and sought indemnification and monetary damages from Defendants, as well as cancellation of the agreement to purchase the Business. Defendants moved to dismiss the Amended Complaint on grounds that the Chancery Court lacked subject matter jurisdiction over Plaintiffs’ claims. In her draft report, Master Ayvazian recommended that the Court dismiss Plaintiffs’ equitable claim (for equitable fraud) with prejudice, decline to apply the “clean up” doctrine to address Plaintiffs’ remaining legal claims and to allow Plaintiffs to transfer those remaining legal claims to a court of law.

Laidler v. Hesco Bastion Environmental, Inc. (May 12, 2014)

May 13 2014

By Annette Becker and Naomi Ogan

In Laidler v. Hesco Bastion Environmental, Inc., the petitioner, Patricia Laidler (a former employee of Hesco Bastion USA, Inc. (“Hesco”)) sought statutory appraisal pursuant to 8 Del. C. § 262 of her 10% interest in Hesco following a short-form merger of Hesco into Hesco Bastion Environmental, Inc., the holder of a 90% interest in Hesco (and respondent in this proceeding). Vice Chancellor Glasscock issued a memorandum opinion on May 12, 2014, determining the fair value per share of Hesco, the sole remedy for a freeze out merger, and explaining his methodology for the valuation.

Hesco and its affiliates design and manufacture large, mobile barrier units, designed to be filled with sand and rock and rapidly deployed for protection of land and assets in the event of a natural disaster or military emergency. Due to the variable demand for the units, Hesco’s sales and revenues varied. During November and December of 2011, shortly before the January 26, 2012 merger, third party valuations of Hesco stock were prepared in connection with the death of a stockholder who retained a controlling interest in the Hesco affiliated entities, and in connection with the put right provided to Ms. Laidler in accordance with a shareholder agreement to compel Hesco to repurchase her shares in connection with the termination of her employment. Ms Laidler was offered $180 per share by Hesco for her stock and she chose not to exercise her put at that time. Two other minority stockholders (each holding a 10% interest in Hesco) tendered their shares to respondent for $207.50 per share. Ms. Laidler was similarly offered $207.50 per share in connection with the short-form merger. Ms. Laidler declined the consideration offered and filed a petition for appraisal. In connection with seeking an appraisal Petitioner obtained an expert valuation, which valued the shares as of December 31, 2011 at $515 per share.

Chen v. Howard-Anderson, C.A. No. 5878-VCL, decided on April 8, 2014

Apr 10 2014

By Annette Becker and Jason Jones

In Chen v. Howard-Anderson, Vice Chancellor Laster considered a motion for summary judgment brought by certain officers and the Board of Directors of Occam Networks, Inc., (“Occam”), a public Delaware corporation seeking a determination by the Court that they did not breach their fiduciary duties. The plaintiffs (former stockholders of Occam) claim that the defendants breached their fiduciary duties “by (i) making decisions during Occam’s sale process that fell outside the range of reasonableness (the “Sale Process Claim”) and (ii) issuing a proxy statement for Occam’s stockholder vote on the Merger that contained materially misleading disclosures and material omissions” (the “Disclosure Claim”).

In 2009, Calix, Inc. and Occam (competitors in the broadband market) began discussing a potential business combination. In response, the Board of Occam determined that formal discussions with Calix were not appropriate at that time and retained Jeffries & Company for advice on strategic alternatives. By June 2010, Occam proposed to acquire Keymile International GmbH (“Keymile”) for $80 million, and Calix submitted a term sheet proposing to purchase Occam for $156 million (in a mix of cash and stock). Another suitor, Adtran, presented a third option by offering a slightly higher cash offer price to acquire Occam as compared with the Calix offer. Occam had a cool reaction to Adtran. Occam prepared April and June financial projections for 2010, 2011, and 2012 which were more positive than the estimates of the two public analysts who followed Occam. The projections were not shared with Adtran, and were materially higher than Adtran’s internal projections for Occam, and later projections that Adtran would create. Occam did not provide Calix with the June financial projections. On June 23, 2010 Calix submitted a revised term sheet increasing its offer to purchase Occam to $171.1 million (to be paid in a mix of cash and stock). Adtran confirmed its interest in acquiring Occam and on June 24, 2010 proposed an all cash offer at a premium of approximately 11% over Calix’s bid. On June 24, 2010 the Board met to consider the various alternatives – the cash and stock merger with Calix, the cash sale to Adtran, or remaining independent and acquiring Keymile. It was not clear that the Board was aware that Adtran’s bid was 11% higher than Calix’s offer. The Board directed Jeffries to conduct a 24 hour “market check.”

Frank v. Elgamal, C.A. No. 6120-VCN (March 10, 2014) (Noble, V.C.)

Mar 14 2014

By Annette Becker and Claire White

In this opinion, Vice Chancellor Noble considered defendants’ motion for summary judgment in connection with various breach of fiduciary duty claims asserted by a former stockholder, Richard Frank, against the Board of Directors and two employees of American Surgical Holdings, Inc. (“ASH”), a public company, in connection with the merger of ASH with an affiliate of Great Point Partners I, L.P. (“GPP”). In connection with the motion the Chancery Court examined:

• the “entire fairness” standard of review;

• the effect of a special committee on the standard of review;

• the standard of review for Revlon claims upon a motion for summary judgment, particularly where the target’s charter includes an exculpatory clause;

• a special committee’s examination of projections underlying a fairness opinion, including where multiple sets of projections are prepared; and

• the interaction between a shareholder’s unjust enrichment and breach of fiduciary duty claims upon a motion for summary judgment.

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