In Re Trados, Inc. Shareholder Litigation

Facts

This is a purported class action brought by a former stockholder of Trados Incorporated (“Trados,” or the for breach of fiduciary duty arising out of a transaction whereby Trados became a wholly owned subsidiary of SDL, plc. Of the $60 million paid, the preferred stockholders received approximately $52 million. The remainder was distributed to the Company’s executive officers pursuant to a previously approved bonus plan. The common stockholders received nothing for their common shares. Plaintiff contends that this transaction was undertaken at the behest of certain preferred stockholders and that the Trados board favored the interests of the preferred stockholders, either at the expense of the common stockholders or without properly considering the effect of the merger on the common stockholders. P alleges that the four directors designated by preferred stockholders had other relationships with preferred stockholders and were incapable of exercising disinterested and independent business judgment. Plaintiff alleges that two Trados directors who were also employees of the Company received material personal benefits as a result of the merger and were therefore also incapable of exercising disinterested and independent business judgment. The Trados board began to discuss a potential sale of the Company, and later formed a mergers and acquisitions committee, consisting of Stone, Gandhi, and Scanlan, to explore a sale or merger of Trados. The Company’s President and CEO was terminated, and Hummel was appointed as an interim President but instructed him to consult with Gandhi and Scanlan before taking material action on behalf of the Company. Campbell was hired as the Company’s CEO. The Company was losing money and had little cash to fund continuing operations. At a July 7, 2004 meeting, Trados’ board determined that the fair market value of Trados’ common stock was $0.10 per share. JMP Securities, LLC was hired to identify potential alternatives for a merger or sale of the Company. They identified twenty-seven potential buyers of Trados. By August 2004, JMP Securities had conducted discussions with SDL CEO Mark Lancaster, who made an acquisition proposal in the $40 million range. Campbell terminated negotiations as the price was too low. The board instructed Scanlan to develop a bonus plan to address these concerns related to key employee retention and the dominating position of the preferred shares in liquidation. A Management Incentive Plan as approved. The financial condition improved markedly during the fourth quarter of 2004, in part due to Campbell’s efforts to reduce spending and bring in additional cash through debt financing. The board continued to work toward a sale of the Company. Campbell presented positive financial results from the fourth quarter of 2004, including record revenue and profit from operations. In January 2005, SDL initiated renewed merger discussions with Campbell. Eventually, it seemed that $60 million would make the deal work. P alleges that there was no need to sell Trados at the time because the Company was well financed and experiencing improved performance under Campbell’s leadership. By February 2005 Trados was beating its revenue budget for the year, a trend that continued as Trados beat its revenue projections for the first quarter of 2005 and through the end of May 2005. By that time, Campbell and Lancaster agreed to the basic terms of a merger at $60 million. In April 2005, SDL and Trados signed the letter of intent for the merger at the $60 million price. The director defendants unanimously approved the merger, and approximately $7.8 million would go to management pursuant to the MIP, and the remainder would go to the preferred stockholders in partial satisfaction of their $57.9 million liquidation preference. On July 21, 2005, P filed a petition for appraisal, seeking payment of the fair value of his stock as of the date of the merger. Almost three years later, on July 3, 2008, plaintiff commenced a second action, both individually and purportedly on behalf of a class of former stockholders of Trados, against the director defendants. P alleges that Campbell and Hummel received benefits as a result of the merger. Ds have moved for dismissal of the Complaint for failure to state a claim upon which relief may be granted.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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