IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
PAUL DENT, On Behalf of Himself and All
Others Similarly Situated, )
)
)
Plaintiff, )
)
v. ) C.A. No. 7950-VCP
)
RAMTRON INTERNATIONAL )
CORPORATION, ERIC A. BALZER, )
)
THEODORE J. COBURN, JAMES E. DORAN, )
WILLIAM L. GEORGE, WILLIAM G. )
HOWARD Jr., ERIC KUO, CYPRESS )
SEMICONDUCTOR CORPORATION and )
)
RAIN ACQUISITION CORP., )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: March 25, 2014
Date Decided: June 30, 2014
James R. Banko, Esq., Raj Srivstan, Esq., FARUQI & FARUQI, LLP, Wilmington,
Delaware; Attorneys for Plaintiff Paul Dent.
Raymond J. DiCamillo, Esq., Brock E. Czeschin, Esq., Scott W. Perkins, Esq., Nicole C.
Bright, Esq., RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Attorneys for Defendants Ramtron International Corporation, Eric A. Balzer, Theodore
J. Coburn, James E. Doran, William L. George, William G. Howard Jr. and Eric Kuo.
A. Thompson Bayliss, Esq., ABRAMS & BAYLISS, LLP, Wilmington, Delaware;
Steven Guggenheim, Esq., WILSON SONSINI GOODRICH & ROSATI, Palo Alto,
California; Attorneys for Defendants Cypress Semiconductor Corporation and Rain
Acquisition Corp.
PARSONS, Vice Chancellor.
This action arises from the acquisition of a technology company by a third party,
strategic buyer. The plaintiff, a former stockholder of the acquired entity, makes the
same allegations that have become routine in the ubiquitous shareholder litigation that
immediately follows the announcement of any public company merger or acquisition
transaction: the target board breached its fiduciary duties by failing to maximize the value
of the entity, locking up the deal impermissibly in the acquirer‟s favor, and disseminating
a proxy statement containing material misstatements or omissions, and the acquiring
company aided and abetted those breaches. The challenged transaction was completed in
2012. At this time, the plaintiff seeks, among other monetary relief, quasi-appraisal to
obtain an award of the fair value of his shares as of the date of the acquisition.
Two groups of defendants, the target company‟s board of directors and the
acquirer, each have moved to dismiss the complaint on the grounds that the plaintiff has
failed, in every count of the complaint, to state a claim upon which relief can be granted.
Having considered the parties‟ briefs and heard argument on the motions, I
conclude that the defendants‟ motions to dismiss should be granted, and the complaint
dismissed in its entirety.
I. BACKGROUND
A. The Parties
Plaintiff, Paul Dent, is a stockholder of Ramtron International Corporation
(“Ramtron,” or the “Company”), and purportedly has been a Ramtron stockholder at all
times relevant to this litigation.
1
Defendant Ramtron is a Delaware corporation engaged in the business of
designing, developing, and marketing specialized semiconductor products. Ramtron is
named as a necessary party in connection with Dent‟s request for equitable relief.
Defendants Eric A. Balzer, Theodore J. Coburn, James E. Doran, William L.
George, William G. Howard, and Eric Kuo (collectively, the “Individual Defendants”)
comprised Ramtron‟s Board of Directors (the “Board”) until October 10, 2012. On that
date, Belzer, Doran, and Kuo resigned from the Board.1
Defendant Cypress Semiconductor Corporation (“Cypress”) is a Delaware
corporation headquartered in San Jose, California. Cypress is a world leader in USB
controllers and SRAM memories and operates in numerous market segments, including
consumer, mobile handsets, industrial, and military. Ramtron is now a wholly owned
subsidiary of Cypress.
Defendant Rain Acquisition Corp. (“Rain,” and together with Ramtron, the
Individual Defendants, and Cypress, “Defendants”) is a wholly owned Cypress
subsidiary, which was formed to effectuate the merger between Cypress and Ramtron.
1
Jack L. Saltich is not listed in the caption of this litigation as a defendant. He is
identified as a defendant, however, in paragraph 20 of the Verified Second
Amended Class Action Complaint (the “Complaint”). According to Defendants,
the claims against Saltich should be dismissed because he ceased being a director
of Ramtron before the Board approved the merger at issue in this litigation.
Plaintiff did not respond to Defendants‟ argument in this regard either in its
briefing or at oral argument. Therefore, Plaintiff has waived its right to challenge
Saltich‟s dismissal. See Emerald Partners v. Berlin, 726 A.2d 1215, 1224 (Del.
1999) (“Issues not briefed are deemed waived.”).
2
B. Facts2
1. Cypress first approaches Ramtron
On March 8, 2011, Cypress made an unsolicited offer to acquire Ramtron for
$3.01 per share, which represented a 37% premium to the Company‟s share price at the
time. In response, on March 11, Ramtron created a Strategic Transaction Committee (the
“2011 Committee”) consisting of Howard, Balzer, Kuo, and Coburn to evaluate
Cypress‟s offer. After meeting on several occasions with the Company‟s outside legal
and financial advisors, on March 21, 2011, the 2011 Committee informed Cypress that it
had rejected Cypress‟s offer as inadequate and that the Company would not be making a
counterproposal.
Soon thereafter, the Company raised additional capital through a dilutive public
stock offering at a net price of $1.79 per share. After the public offering, Ramtron‟s
stock price traded as low as $1.65 per share.
2. Cypress approaches Ramtron again
Over a year after having its initial offer rejected, on June 12, 2012, Cypress
renewed its efforts to acquire Ramtron with a cash offer of $2.48 per share. Similar to
Cypress‟s March 2011 offer, the June 2012 offer represented a 37% premium to the
Company‟s share price at the time. In its offer, which was made public, Cypress
indicated that it preferred to proceed through a negotiated agreement, but that it was
2
The facts are derived from Dent‟s complaint, and the documents integral to it.
Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 96 n.2 (Del. 2013).
3
prepared to take the necessary actions to acquire Ramtron even if an agreement could not
be reached.
In response, the Board formed a new Strategic Transaction Committee (the “2012
Committee”) consisting of Defendants Howard, Balzer, Coburn, Doran, and George to
consider, among other things, Cypress‟s new offer. On June 17, the 2012 Committee
decided to reject the offer, and authorized Needham & Company (“Needham”), the
Company‟s financial advisor, to begin contacting third parties who potentially would be
interested in engaging in a transaction with Ramtron. The following day, the Company
filed a Schedule 14D-9 with the U.S. Securities and Exchange Commission (“SEC”)
advising its stockholders not to tender their stock to Cypress at the $2.48 per share tender
price.
Also on June 18, Ramtron invited Cypress to participate in its evaluation of
strategic alternatives, and sent a draft confidentiality agreement to Cypress‟s financial
advisor to initiate such a process. Cypress, however, declined to execute the
confidentiality agreement or otherwise participate in the Company‟s review of strategic
alternatives.
On June 21, 2012, Cypress commenced a tender offer for Ramtron‟s shares at a
price of $2.68 per share. In a July 5, 2012, Schedule 14D-9 filing, the Company again
recommended that its stockholders reject Cypress‟s offer. The June 21 tender offer was
scheduled to expire on July 19, 2012, but was renewed on July 20, August 6, and August
20, 2012, after failing to generate sufficient interest from the Company‟s stockholders.
4
During this same timeframe, the Company continued to explore various strategic
alternatives. This included contacting 24 potential purchasers, and entering into
confidentiality agreements with seven entities that showed interest in completing a deal
with Ramtron. At no time did any of these, or any other, entities make an offer to acquire
the Company.
On August 27, 2012, Cypress again raised its offer to acquire Ramtron, this time
to $2.88 per share. On September 4, the 2012 Committee authorized Needham to inform
Cypress‟s financial advisor that an offer of $3.50 per share would position Cypress well
among the Company‟s strategic alternatives. Cypress, however, never so much as even
countered this overture. On September 8, 2012, after discussing Cypress‟s most recent
proposal with its legal and financial advisors, the Board voted unanimously to reject that
offer and recommend that its stockholders not tender their shares at the price Cypress was
offering. The Board disclosed this decision and recommendation in a September 10,
2012 Schedule 14D-9 filing.
3. Cypress and Ramtron negotiate and reach an agreement
On September 15, 2012, Ramtron‟s Board authorized Needham to make a
counterproposal under which Cypress would acquire the Company for $3.25 per share.
In negotiations the following day, Cypress offered to raise its bid for Ramtron to $3.01.
Ramtron and Cypress continued to negotiate, and on September 19, 2012, the parties
5
issued a joint press release stating that they had reached an agreement for Cypress to
purchase the Company for $3.10 per share in an all-cash tender offer (the “Initial TO”).3
On September 25, 2012, Ramtron filed a schedule 14D-9 recommending that its
stockholder tender their shares into the Initial TO. The Initial TO then was launched, and
it expired at midnight on October 9, 2012. The following day, Cypress issued a press
release stating that it had acquired 23.3 million Ramtron shares through the Initial TO,
thus increasing its ownership position in the Company to 72%. Cypress also announced
that it would be commencing a subsequent offering period (the “Subsequent TO”),
expiring on October 17, 2012, for all remaining untendered Ramtron shares.
On October 18, 2012, Cypress announced that it acquired only an additional 6% of
Ramtron‟s shares in the Subsequent TO. Because at 78% ownership Cypress did not
have sufficient shares to effectuate a short-form merger with Ramtron under Delaware
law, it filed an amendment to its Schedule TO stating that Defendants would be
scheduling a vote for Ramtron‟s stockholders to vote on a long-form merger.
Ramtron filed its definitive Proxy related to the stockholder vote on October 29,
2012 (the “Proxy”). The Proxy contained summaries of four financial analyses
conducted by Needham, including a discounted cash flow (“DCF”) analysis based on
Ramtron‟s management projections. The projections were not included in the Proxy. Of
3
Cypress‟s offer of $3.10 per share represented a 71% premium over the closing
price of Ramtron‟s stock on June 11, 2012, the last trading day before the public
announcement of Cypress‟s offer to acquire the Company and an 8% premium
over the closing price of Ramtron‟s stock on September 18, 2012, the last trading
day before the announcement of the Initial TO.
6
the four analyses, the transaction consideration of $3.10 was below only the $3.57 to
$5.01 per share valuation range implied by the DCF.
On November 20, 2012, Ramtron‟s stockholders approved the Company‟s merger
with Cypress.4
C. Procedural History
Dent filed his initial complaint together with a motion for expedited proceedings
on October 15, 2012. He amended his complaint one week later on October 22. On
November 5, 2012, Dent moved for a preliminary injunction to enjoin the proposed
merger between Ramtron and Cypress. Later that same day, in a bench ruling, I granted
Dent‟s motion for expedition and scheduled a preliminary injunction hearing on
November 19, 2012. After full briefing, I heard argument on Dent‟s motion for
preliminary injunctive relief on November 19 and, in a bench ruling, I denied that
motion. On January 11, 2013, Dent filed the Complaint, which, on January 24, 2013, the
Individual Defendants and Cypress moved separately to dismiss. After full briefing, I
heard argument on those motions on March 25, 2014. This Memorandum Opinion
constitutes my ruling on Defendants‟ motions to dismiss.
D. Parties’ Contentions
Dent asserts three claims against various combinations of Defendants. In Count I,
Dent alleges that the Individual Defendants breached their fiduciary duties by failing to
engage in a competitive sales process that maximized shareholder value (i.e., breached
4
Because by this time Cypress had obtained ownership of over 50% of Ramtron‟s
shares, the outcome of the vote was guaranteed to be in favor of the transaction.
7
their Revlon duties) and by failing to fully disclose material information in the Proxy.
Count II is a claim against Cypress and Rain for aiding and abetting the Individual
Defendants‟ alleged breaches of their fiduciary duties. Finally, in Count III, Dent
contends that he and Ramtron‟s other stockholders are entitled to quasi-appraisal for their
shares because the deficient Proxy deprived the Company‟s stockholders of the ability to
make an informed decision about whether to dissent from the transaction and perfect their
appraisal rights.
Defendants have moved to dismiss under Court of Chancery Rule 12(b)(6). As to
Dent‟s breach of fiduciary duty claim, the Individual Defendants argue that the
Complaint does not support an inference that they breached any of their duties to the
Company, and that, at most, the Complaint states a claim for breach of the duty of care
for which Dent cannot recover monetary damages because of the Company‟s 102(b)(7)
exculpatory charter provision. Regarding the claim for aiding and abetting, Cypress and
Rain assert that the Complaint fails to allege adequately any underlying breach of
fiduciary duty, and that in any event, the Cypress-Ramtron negotiation was conducted at
arm‟s-length, which negates any inference that Cypress or Rain knowingly participated in
any breach of fiduciary duty by the Individual Defendants. Finally, as to Dent‟s claim for
quasi-appraisal, Defendants aver that the Company‟s stockholders received adequate
information in the Proxy to make an informed decision about whether to accept the
transaction consideration or to seek appraisal, and thus, have failed to state a viable cause
of action in that regard.
8
II. ANALYSIS
A. Legal Standard
Pursuant to Rule 12(b)(6), this Court may grant a motion to dismiss for failure to
state a claim if a complaint does not assert sufficient facts that, if proven, would entitle
the plaintiff to relief. As recently reaffirmed by the Delaware Supreme Court,5 “the
governing pleading standard in Delaware to survive a motion to dismiss is reasonable
„conceivability.‟”6 That is, when considering such a motion, a court must:
accept all well-pleaded factual allegations in the Complaint as
true, accept even vague allegations in the Complaint as “well-
pleaded” if they provide the defendant notice of the claim,
draw all reasonable inferences in favor of the plaintiff, and
deny the motion unless the plaintiff could not recover under
any reasonably conceivable set of circumstances susceptible
of proof.7
This reasonable “conceivability” standard asks whether there is a “possibility” of
recovery.8 If the well-pled factual allegations of the complaint would entitle the plaintiff
to relief under a reasonably conceivable set of circumstances, the court must deny the
motion to dismiss.9 The court, however, need not “accept conclusory allegations
unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-
5
See Winshall v. Viacom Int’l, Inc., 2013 WL 5526290, at *4 n.12 (Del. Oct. 7,
2013).
6
Central Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
536 (Del. 2011) (footnote omitted).
7
Id. (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
8
Id. at 537 & n.13.
9
Id. at 536.
9
moving party.”10 Moreover, failure to plead an element of a claim precludes entitlement
to relief and, therefore, is grounds to dismiss that claim.11
B. Individual Defendants’ Breach of Fiduciary Duty
1. Revlon claim
a. Legal standard
Corporate directors have “an unyielding fiduciary duty to protect the interests of
the corporation and to act in the best interests of its shareholders.” 12 When directors have
commenced a transaction process that will result in a change of control, a reviewing court
will examine whether the board has reasonably performed its fiduciary duties “in the
service of a specific objective: maximizing the sale price of the enterprise.”13 So-called
Revlon duties are only a specific application of directors‟ traditional fiduciary duties of
care and loyalty in the context of control transactions.14 In that regard, if the
corporation‟s certificate contains an exculpatory provision pursuant to 8 Del. C.
10
Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
11
Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 972 (Del. Ch. 2000) (Steele,
V.C., by designation).
12
Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 360 (Del. 1993) (citations
omitted).
13
Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001) (citing, among other
cases, Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 182–83
(Del. 1986)).
14
Wayne Cty. Empls.’ Ret. Sys. v. Corti, 2009 WL 2219260, at *10 (Del. Ch. July
24, 2009) (citing McMillan v. Intercargo Corp., 768 A.2d 492, 502 (Del. Ch.
2000)), aff’d, 966 A.2d 795 (Del. 2010) (TABLE).
10
§ 102(b)(7) barring claims for monetary liability against directors for breaches of the duty
of care, the complaint must state a nonexculpated claim, i.e., a claim predicated on a
breach of the directors‟ duty of loyalty or bad faith conduct.15
A factual showing that, for example, a majority of the board of directors was not
both disinterested and independent would provide sufficient support for a claim for
breach of loyalty to survive a motion to dismiss.16 “A director is considered interested
where he or she will receive a personal financial benefit from a transaction that is not
equally shared by the stockholders.”17 “Independence means that a director‟s decision is
based on the corporate merits of the subject before the board rather than extraneous
considerations or influences,”18 such as where one director effectively controls another.19
Moreover, as to any individual director, the disqualifying self-interest or lack of
independence must be material, i.e., “reasonably likely to affect the decision-making
process of a reasonable person . . . .”20
15
See Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 239–40 (Del. 2009); Corti, 2009
WL 2219260, at *10.
16
In re NYMEX S’holder Litig., 2009 WL 3206051, at *6 (Del. Ch. Sept. 30, 2009)
(citing In re Lukens S’holders Litig., 757 A .2d 720, 728 (Del. Ch. 1999)).
17
Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993) (citing Aronson v. Lewis, 473
A.2d 805, 812 (Del. 1984)).
18
Aronson, 473 A.2d at 816.
19
Orman v. Cullman, 794 A.2d 5, 24 (Del. Ch. 2002).
20
Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993).
11
Well-pled allegations that the board did not act in good faith also would state a
claim for breach of the duty of loyalty sufficient to survive a motion to dismiss. 21 In
general, “bad faith will be found if a „fiduciary intentionally fails to act in the face of a
known duty to act, demonstrating a conscious disregard for his duties.‟”22 Alternatively,
notwithstanding approval by a majority of disinterested and independent directors, a
claim for breach of duty may exist “where the decision under attack is so far beyond the
bounds of reasonable judgment that it seems essentially inexplicable on any ground other
than bad faith.”23
b. Dent has failed to allege a viable Revlon claim against the Individual
Defendants
It is undisputed that at all times relevant to this litigation Ramtron‟s charter
contained a 102(b)(7) exculpatory provision. Because Ramtron and Cypress were
unrelated and independent of one another before agreeing to the transaction, Dent‟s
Revlon claim against the Individual Defendants can survive a motion to dismiss only if
the Complaint supports a reasonable inference that the Individual Defendants breached
their duty of loyalty or acted in bad faith (i.e., committed a nonexculpated breach of
fiduciary duty). The Complaint fails to allege sufficiently any such nonexculpated
21
In re NYMEX S’holder Litig., 2009 WL 3206051, at *6 (footnote omitted).
22
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (quoting In re Walt
Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)).
23
Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 981 (Del. Ch. 2000) (quoting
Parnes v. Bally Entm’t Corp., 722 A.2d 1243, 1247 (Del. 1999)).
12
breach, and, therefore, Dent‟s Revlon claim against the Individual Defendants must be
dismissed.
As to the duty of loyalty, Dent alleges no facts that call into question the
independence or disinterestedness of a majority of the Board. There are no allegations
that any director stood on both sides of the transaction or that any director received any
consideration from the transaction that was not shared pro rata among Ramtron‟s other
stockholders. In addition, there are no allegations that any of the Individual Defendants‟
directorships were material to them or that any one of the Individual Defendants
dominated or otherwise controlled the Ramtron Board.24 Based on the absence of well-
pled allegations that a majority of Ramtron‟s board lacked independence or had an
impermissible personal interest in the transaction with Cypress, Dent has failed to allege
sufficiently that the Individual Defendants‟ agreement to a deal with Cypress implicates
the duty of loyalty.
The Complaint is equally deficient with respect to allegations that the Individual
Defendants approved the transaction with Cypress in bad faith. Under Delaware law,
“there is a vast difference between an inadequate or flawed effort to carry out fiduciary
24
There is an allegation, discussed in greater detail infra, that Defendant George was
a member of a “manufacturing advisory board” at Cypress when Ramtron and
Cypress agreed to a transaction. Compl. ¶ 11. Even assuming the truth of this
allegation, which the briefing suggests is unlikely, and even assuming further that
George‟s role on the manufacturing advisory board was material to him, George
was one of six members of Ramtron‟s board, and there are no allegations that
George, in any way, controlled or dominated any of the other indisputably
independent and disinterested directors.
13
duties and a conscious disregard for those duties.”25 In that regard, an “extreme set of
facts” is “required to sustain a disloyalty claim premised on the notion that disinterested
directors were intentionally disregarding their duties.”26 Here, Cypress‟s public efforts to
acquire the Company spanned nearly two years. Over that period of time, the Individual
Defendants, among other things, retained outside legal and financial advisors, rejected
two Cypress offers as inadequate, contacted 24 potential purchasers with the assistance of
their legal and financial advisors, and negotiated an increase in Cypress‟s offer price from
$2.88 to $3.10 per share. Based on the Individual Defendants‟ actions, it is not
reasonably conceivable that Dent could prove on a full evidentiary record that the Board
consciously disregarded its fiduciary duties to Ramtron‟s stockholders when considering,
and eventually agreeing to, a sale of the Company to Cypress.
The allegations that the Company repeatedly rejected Cypress‟s advances
impermissibly do not compel a different conclusion. There are no allegations that when
Cypress first approached the Company in 2011 the Board already had decided to sell
Ramtron or effectuate a change of control transaction. In other words, the “duty of the
[B]oard had [not] changed from the preservation of [Ramtron] as a corporate entity to the
maximization of the [C]ompany‟s value at a sale for the stockholder‟s benefit,”27 and the
Board‟s conduct was subject to business judgment, not Revlon, scrutiny. Dent has
25
Id.
26
Id.
27
Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 182 (Del.
1986).
14
alleged no facts that would support a reasonable inference that he could overcome the
presumptions of the business judgment rule with respect to the Ramtron Board‟s
independent and disinterested decision to reject Cypress‟s offer to purchase the Company
at a time when the Company was not for sale.
Dent‟s argument in this regard fares no better in the context of the 2012 sales
process, by which time the Board had assumed Revlon duties. Initially, at least, the
Board continued to “say no” to Cypress, and its conduct appears to have contributed to
Cypress raising its offer for the Company. At the same time, however, it also was
conducting board meetings, meeting with its advisors, and reaching out to 24 other
potential acquirers with the assistance of its outside legal and financial advisors. Even if
imperfect, the Board‟s alleged conduct does not support a reasonable inference that it
consciously disregarded its duties to Ramtron‟s stockholders. Plaintiff‟s argument that
the Company should have engaged Cypress earlier in the sales process amounts to little
more than an ex post quibble with the independent and disinterested Board‟s negotiation
strategy. Even assuming that the Board undertook the wrong strategy, however, that fact,
without more, does not make it reasonably conceivable that the Board‟s decision to sell
the Company to Cypress was made in bad faith. Therefore, I reject this aspect of Dent‟s
Revlon claim.
Dent also emphasizes that the $3.10 per share transaction consideration was
below Needham‟s DCF value range. That fact, in the context of this dispute, however,
does not support a reasonable inference that the price was “so far out of bounds” that it
could only be explained by bad faith. Taking as true the allegations in the Complaint,
15
Needham conducted three other valuation analyses in addition to the DCF, and the
transaction price of $3.10 fell within the valuation range implied by each of those other
analyses. Moreover, the Board did not simply accept a price of $3.10 per share; it made
multiple counterproposals, and, even without the leverage of another offer, got Cypress to
increase its offer significantly from its original June 2012 bid. Accordingly, I conclude
that the allegations in the Complaint fall well short of what is necessary to support a
reasonable inference that the Individual Defendants conceivably acted in bad faith by
agreeing to a transaction with Cypress at $3.10 per share.
c. The purported deal protection devices also do not support a reasonable
inference of bad faith
In the Complaint, Dent alleges that the Board adopted several “preclusive” and
“draconian” deal protection devices, in breach of their fiduciary duties, to ensure the
transaction with Cypress was completed. These deal protection devices were: (1) a no-
solicitation provision; (2) a standstill provision; (3) a change in recommendation
provision; (4) information rights for Cypress; and (5) a $5 million termination fee.28 But,
none of these deal protection devices, considered separately or together, support a
reasonable inference that the Individual Defendants acted in bad faith.
Before examining the actual deal protection devices at issue here, I note two
salient contextual points that strongly weigh against finding that Dent has alleged
adequately that the deal protection devices support a reasonable inference of bad faith.
First, Ramtron was “in play” for several months before ever agreeing to a transaction
28
The termination fee equated to 4.5% of the deal‟s total equity value.
16
with Cypress. Up to the time that Ramtron and Cypress agreed to a deal, there were no
deal protection devices in place, and, thus, there was nothing preventing or inhibiting any
of the 24 entities that Ramtron contacted from making a viable offer for the Company or
any other entity from making an unsolicited offer. Yet, notwithstanding the fact that
Cypress‟s pursuit of Ramtron was known publicly and there was nothing restricting any
entity from approaching the Company or the Company‟s ability to consider any such
approach, no one appears to have met or exceeded Cypress‟s offer. Thus, it is unclear
what other realistic opportunities the Board precluded itself from by accepting the deal
protection devices contained in the agreement with Cypress.
Second, while the Complaint half-heartedly makes the conclusory accusations that
the deal protection devices were “draconian” and “preclusive,” Dent makes no effort to
explain how the devices at issue work in such a harmful manner. Instead, the Complaint
contains long block quotes of the relevant sections of the merger agreement without any
non-conclusory justification for Dent‟s assertion that those provisions are problematic
under Delaware law. While the unacceptably conclusory nature of Dent‟s allegations
alone may provide an adequate basis to dismiss his claims with respect to the deal
protection devices, I nevertheless have reviewed the relevant provisions of the merger
agreement and find that Dent has failed to state a viable claim in this regard.
The no-solicitation provision at issue does not appear to deviate in any meaningful
way from similar types of provisions that repeatedly have been approved by this Court. 29
29
See ACE Ltd. v. Capital Re Corp., 747 A.2d 95, 106 (Del. Ch. 1999) (describing
the no-solicitation clause at issue as a type of restriction that “is perfectly
17
Moreover, the no-solicitation provision is coupled with a reasonable “fiduciary out”
clause, which mitigates any “preclusive” restrictions on the Board‟s ability to consider
other potentially value-maximizing transactions. Thus, Dent‟s argument that this feature
of the merger agreement supports a reasonable inference that the Individual Defendants
consciously disregarded their fiduciary duties is without merit.30
Dent also has made no effort to explain why the merger agreement‟s change in
recommendation section was impermissible. By its plain terms, the Board was permitted
to change its recommendation on the Cypress transaction if it believed in good faith that
another offer was better for the Company‟s stockholders. This right was subject to the
unremarkable and customary procedural restraints of notice and matching rights in favor
of Cypress. Dent has cited no authority in support of his argument that these restraints
were unreasonable. To the contrary, there is ample precedent for the proposition that the
three-day notice period31 and matching rights32 given to Cypress were reasonable under
understandable, if not necessary, if good faith business transactions are to be
encouraged”); McMillan v. Intercargo Corp., 768 A.2d 492, 506 (Del. Ch. 2000)
(stating that “[t]he presence of [a standard no-shop] type of provision in a merger
agreement is hardly indicative of a Revlon (or Unocal) breach.”) (internal citations
omitted).
30
The same holds true for the merger agreement‟s “standstill” provision. Dent does
not cite any authority or present any cogent argument as to how the standstill
provision at issue, which also included a reasonable fiduciary out, was atypical or
unreasonable.
31
See In re Micromet, Inc. S’holders Litig., 2012 WL 681785, at *9 (Del. Ch. Feb.
29, 2012) (upholding four-day notice period).
32
In re Smurfit-Stone Container Corp. S’holder Litig., 2011 WL 2028076, at *21
n.141 (Del. Ch. May 20, 2011) (“no shop and matching rights clauses of the kind
18
the circumstances of this litigation.33 Even assuming these restraints were problematic,
however, there is nothing about them that would enable this Court to draw a reasonable
inference that they were adopted or agreed to in bad faith.
The assertion that the termination fee in this case supports an inference that the
Individual Defendants acted in bad faith is similarly unavailing. At 4.5% of the
transaction‟s equity value, it is highly unlikely that the termination fee here was
unreasonably high.34 Moreover, even if the termination fee were deemed excessive, it
certainly does not approach a level that would suggest the Company‟s board consciously
disregarded their duties to Ramtron‟s stockholders in agreeing to it. Nor can it be said
that the termination fee was so egregious that it only can be explained by the Individual
Defendants having acted in bad faith. Thus, the termination fee cannot form the basis of
an actionable claim against the Individual Defendants for money damages.
included in the Merger Agreement are customary in public company mergers
today.”); In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1017 (Del. Ch.
2005) (“neither a termination fee nor a matching right is per se invalid. Each is a
common contractual feature”).
33
There also is nothing unreasonable about Cypress‟s information rights in the
agreement. In essence, Cypress has the right to be notified if another entity
expresses interest in acquiring Ramtron. Dent offers no support for his assertion
that this facially reasonable provision somehow endows Cypress with an
unreasonable advantage over other potential acquirers of Ramtron.
34
In re Topps Co. S’holders Litig., 926 A.2d 58, 86 (Del. Ch. 2007) (upholding 4.3%
termination fee); In re 3Com S’holders Litig., 2009 WL 5173804, at *7 (Del. Ch.
Dec. 18, 2009) (“The provisions that plaintiffs attack [including a termination fee
of over 4% of the merger‟s equity value] have been repeatedly upheld by this
Court.”).
19
Finally, when considered together, the deal protection devices challenged here do
not support a reasonable inference that the Individual Defendants conducted themselves
in bad faith. Similar, if not more potent, combinations of deal protection devices often
have been upheld by this Court.35 Moreover, to the extent the deal protection devices at
issue in this dispute go beyond those that previously have been upheld, there are no well-
pled allegations that would support a reasonable inference that any such departure was
significant enough to constitute bad faith.
In sum, it is not reasonably conceivable based on the Complaint‟s allegations that
Dent could prove on a full record that the Individual Defendants acted in bad faith or
otherwise breached their duty of loyalty by agreeing to the transaction with Cypress.
Moreover, the Board‟s decision to sell the Company at a 71% premium to its unaffected
stock price after a lengthy and public sales process was not “so far beyond the bounds of
35
In re BioClinica, Inc. S’holder Litig., 2013 WL 5631233, *8 (Del. Ch. Oct. 16,
2013) (rejecting Revlon claim and dismissing complaint where merger agreement
contained a no-solicitation provision, a poison pill, a 5.3% termination and
expense reimbursement fee, information rights, and a top-up option); In re BJ’s
Wholesale Club, Inc. S’holders Litig., 2013 WL 396202, at *13 (Del. Ch. Jan. 31,
2013) (dismissing complaint challenging merger agreement that included a no-
shop provision, matching and information rights, a 3.1% termination fee, and a
force-the-vote provision because they “have routinely been upheld as reasonable”
by Delaware courts); In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1048 (Del.
Ch. 2012) (dismissing complaint challenging a no-solicitation provision, a 3.05%
termination fee, matching rights, a force-the-vote provision, and a voting
agreement that locked up at least 33% of the company‟s shares in favor of the
merger); In re Orchid Cellmark Inc. S’holder Litig., 2011 WL 1938253, at *7
(Del. Ch. May 12, 2011) (noting that comparable deal protections “are
unremarkable,” that “the no-shop provision . . . is balanced by a fiduciary out,”
and that the “matching and informational rights” as well as a termination fee,
“would not preclude a serious bidder from stepping forward.”).
20
reasonable judgment that it seems essentially inexplicable on any grounds other than bad
faith.”36 At most, the Complaint states a claim that the Individual Defendants breached
their duty of care in agreeing to a transaction with Cypress at $3.10 per share and
agreeing to the deal protection devices contained in their merger agreement. Because the
Company has an exculpatory charter provision, however, that is not sufficient to state a
viable claim for monetary damages. Thus, Dent‟s claim in this respect must be
dismissed.
I turn next to Dent‟s claim that the Individual Defendants are liable for breaching
their duty of candor.
2. Duty of candor claim
a. Legal standard
The duty of disclosure is a specific application of corporate directors‟ fiduciary
duties of care and loyalty,37 requiring directors “to disclose fully and fairly all material
information within the board‟s control when it seeks shareholder action.”38 “An omitted
fact is material if there is a substantial likelihood that a reasonable shareholder would
consider it important in deciding how to vote.”39 Stated another way, there must be “a
substantial likelihood that the disclosure of the omitted fact would have been viewed by
the reasonable investor as having significantly altered the „total mix‟ of information made
available.”40 In that regard, Delaware law does not require information to be disclosed
simply because that information “might be helpful.”41 Furthermore, courts must “guard
36
In re Alloy, Inc., 2011 WL 4863716, at *10 (Del. Ch. Oct. 13, 2011).
21
against the fallacy that increasingly detailed disclosure is always material and beneficial
disclosure.”42
To plead adequately a disclosure claim, a plaintiff “must allege that facts are
missing from the Proxy, identify those facts, [and] state why they meet the materiality
standard and how the omission caused injury.”43 The plaintiff bears the burden of
demonstrating materiality.44
b. It is not reasonably conceivable that Dent has a viable claim for breach of the
duty of candor against the Individual Defendants
Dent‟s disclosure claims can be categorized into four groups based on the subject
matters addressed by the challenged disclosures. Those groups are: the Company‟s
management projections; the summary of Needham‟s analyses in the Proxy; the Proxy‟s
description of the events leading up to the Cypress-Ramtron transaction; and conflicts
37
Malpiede v. Townson, 780 A.2d 1075, 1086 (Del. 2001).
38
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
39
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus.,
Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) and adopting TSC‟s materiality
standard as Delaware law).
40
Id.
41
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000).
42
Zirn v. VLI Corp., 1995 WL 362616, at *4 (Del. Ch. June 12, 1995).
43
Wayne Cty. Employees’ Ret. Sys. v. Corti, 954 A.2d 319, 330 (Del. Ch. 2008)
(quoting Skeen, 750 A.2d at 1174).
44
In re Siliconix Inc. S’holders Litig., 2001 WL 716787, at *9 (Del. Ch. June 19,
2001).
22
faced by Defendant George. I address these categories in turn, and conclude that none of
them state a viable disclosure claim.
c. Ramtron’s management projections
Dent‟s primary disclosure-related argument pertains to Ramtron management
projections for the years 2012 to 2016. Although Needham was given these projections
and relied on them in conducting its DCF analysis, the projections were not disclosed to
Ramtron‟s stockholders in the Proxy. Dent avers that these projections are material to the
Company‟s stockholders and the Individual Defendants breached their duty of candor in
failing to disclose them. I disagree.
There is no per se duty under Delaware law to disclose to stockholders financial
projections given to and relied on by a financial advisor.45 This is because the question
of materiality under Delaware law is a context-specific inquiry, and “[t]he myriad of
detailed information that must be furnished to shareholders necessarily differs from
merger to merger.”46 In a bench ruling denying Dent‟s motion for a preliminary
injunction to enjoin the Cypress-Ramtron merger, I held that these same management
projections were not material.47 I adhere to that prior holding.48
45
Cty. of York Emps. Ret. Plan v. Merrill Lynch & Co., 2008 WL 4824053, at *12
n.72 (Del. Ch. Oct. 28, 2008); McMillan v. Intercargo Corp., 1999 WL 288128, at
*6 (Del. Ch. May 3, 1999).
46
Glassman v. Wometco Cable TV, Inc., 1989 WL 1160, at *5 (Del. Ch. Jan. 6,
1989).
47
Prelim. Inj. Hr‟g Tr. 69–72.
23
It is undisputed that, because of Cypress‟s 78% interest in Ramtron at the time of
the vote on the transaction, there was no doubt that Cypress would complete its
acquisition of Ramtron. Thus, Ramtron‟s remaining stockholders were not being asked
to weigh the transaction consideration versus the Company‟s future prospects. Rather,
those stockholders were going to be cashed out regardless of how they voted, and the
only question they faced was whether they wished to accept the merger consideration or
seek appraisal pursuant to 8 Del. C. § 262.49 To assist them in making that decision, the
Proxy summarized four financial analyses conducted by Needham, including a DCF.
While the Company‟s stockholders were not given the management projections, the
Proxy disclosed that the merger consideration was: (1) in the valuation range implied by
three of the four financial analyses; and (2) well below the DCF‟s valuation range of
48
Because the record in this case has not changed since the preliminary injunction
hearing, I arguably need not reexamine Dent‟s claim. See McMillan v. Intercargo
Corp., 768 A.2d 492, 507 n.67 (Del. Ch. 2000) (noting that where the record has
not changed since a disclosure claim was found to be without merit on a motion
for a preliminary injunction, the Court need not reconsider its prior analysis).
Nevertheless, in the circumstances of this case, I believe it would be helpful to
explain briefly my rationale for rejecting Dent‟s claim as to Ramtron‟s
management projections.
49
In that regard, this case is different from both In re Netsmart Techs., Inc. S’holders
Litig., 924 A.2d 171 (Del. Ch. 2007) and Maric Capital Master Fund, Ltd. v.
PLATO Learning, Inc., 11 A.3d 1175 (Del. Ch. 2010). In each of those cases, the
stockholders were being asked to decide whether to tender their shares in return
for a fixed sum of cash or remain stockholders in an ongoing business. Moreover,
I carefully considered both of those cases in deciding Dent‟s motion for a
preliminary injunction, and found them not to be controlling in this dispute.
Prelim. Inj. Hr‟g Tr. 71.
24
$3.57 to $5.01 per share. The remaining stockholders also were told explicitly that the
DCF analysis was based on Ramtron‟s management projections.
In this context, other than making the conclusory allegation that the projections are
“crucial” to stockholders, Dent has failed to explain how disclosing the Company‟s
management projections used in the DCF would significantly alter the total mix of
information available to the Company‟s stockholders. Because the stockholders were
informed that the transaction consideration was lower than the DCF range, by how much
it was lower, and that the DCF range was based on management projections, a reasonable
stockholder could infer that the transaction consideration was lower than the Company‟s
estimate of its own future earning potential.50 In this case, therefore, disclosing the
projections themselves would not provide stockholders with any meaningful additional
information or insight as to whether they should tender their shares or seek appraisal.
I note also that during the course of expedited discovery related to the preliminary
injunction hearing, Dent was given a copy of the projections that are the subject of this
dispute. Importantly, notwithstanding his possession of the projections, Dent has made
no allegation that the undisclosed projections are in any way inconsistent with, or
otherwise significantly different from, the information that was disclosed. The Delaware
50
It also was disclosed in the Proxy that Ramtron made two counterproposals to
Cypress, one at $3.50 per share and one at $3.25 per share. This information
could help stockholders assess how reliable the Company believed its projections
were.
25
Supreme Court has held that such a failure can be fatal to a claim for breach of the duty
of candor.51
At most, the Complaint supports a reasonable inference that Ramtron‟s
management projections may have been helpful to the Company‟s stockholders in
electing whether to accept the transaction consideration or to seek appraisal. For omitted
information to form the basis of a viable disclosure claim under Delaware law, however,
that information must be material, not merely helpful. Ramtron‟s stockholders were
given summaries of multiple financial analyses performed by the Company‟s financial
advisor to help them make their decision, and were informed explicitly that one of those
analyses indicated that the transaction consideration was below what the Company‟s
internal projections would imply its value to be. Here, the details of those projections
would not significantly alter the total mix of information available to the Company‟s
stockholders. Therefore, the fact that the projections were omitted from the Proxy does
not constitute a viable disclosure claim under Delaware law.
d. Summary of Needham’s financial analyses
Recognizing the questionable strength of his remaining disclosure claims, Dent
spent less than two pages in his brief discussing the proverbial laundry list of issues he
raised in the Complaint, and devoted much of that limited discussion simply to quoting
the claims made in the Complaint itself. Unsurprisingly, none of these alleged disclosure
violations can serve as the basis for a viable claim against the Individual Defendants.
51
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000).
26
First, Dent challenges the completeness of the “Selected Company Analysis”
included as part of Needham‟s fairness opinion. The Proxy discloses the names of the
eight publicly traded companies used in that analysis, the high, low, mean, and median
multiples of those eight companies, as a group, for certain valuation metrics, and
Ramtron‟s projected multiple for each of those valuation metrics based on the proposed
transaction with Cypress. Dent argues that a material omission exists as to the summary
of this analysis because it does not provide the multiples for each of the eight individual
companies, and without that information, stockholders cannot determine whether the
eight companies actually are comparable to Ramtron.
This assertion is both inaccurate and irrelevant. It is inaccurate because the Proxy
identified the eight publicly traded companies used in the analysis and any Ramtron
stockholder that wished to determine independently the “comparability” of those
companies simply had to access their public filings with the SEC. It is irrelevant because
stockholders are entitled only to a fair summary of a financial advisor‟s work, not the
data to make an independent determination of fair value. Dent has not articulated
sufficiently in what way the reasonably comprehensive disclosures relating to the
Selected Company Analysis fall short of providing a fair summary of the analysis
Needham conducted in that regard. Moreover, Dent has not offered any cogent
explanation as to how the additional granularity he seeks is anything more than helpful or
cumulative to the information already disclosed, or how the individual company
multiples would alter significantly the total mix of information available to Ramtron‟s
27
stockholders. Therefore, Dent‟s allegations of a disclosure violation as to the Selected
Company Analysis fail as a matter of law.
Second, Dent challenged the adequacy of the Proxy‟s description of Needham‟s
“Selected Transaction Analysis.” He argues, as he did regarding the Selected Company
Analysis, that the relevant valuation multiples are presented as a range and not on an
individual company or transaction basis. Dent‟s attempt to retread his unpersuasive
argument in this context is unavailing for the same reasons discussed above. The Proxy
disclosed the acquirer and publicly traded target for each of the 13 deals Needham used
in its analysis, as well as the range of two relevant valuation multiples over those same
transactions. Dent has not cited any Delaware case law that supports his contention that
the valuation multiples of each individual transaction needed to be disclosed here.
Accordingly, I conclude it is not reasonably conceivable that Dent could prove on a full
evidentiary record that the Selected Transaction Analysis contains a material omission
because it does not include the valuation multiples for each of the individual deals on
which the analysis is based.
Third, Dent disputes the completeness of the summary of Needham‟s “Stock Price
Premium Analysis.” According to Plaintiff this analysis contains material omissions
because it “fails to disclose which transactions were analyzed, what information was
relied upon and how Needham chose the sources of information upon which it chose to
rely.”52 As to the allegation that the Proxy does not disclose what information Needham
52
Compl. ¶ 75(c).
28
relied on, I find that allegation to be false. The Proxy states that “[Needham] analyzed
the premium of consideration offered to the acquired company‟s stock price one trading
day and five trading days prior to the announcement of the transaction.”53 Regarding
Dent‟s assertion that the Proxy should have disclosed how Needham selected the sources
of information it relied on, he cites no authority nor provides any rationale in support of
his argument that such information would be material to Ramtron‟s stockholders in
considering whether to accept the transaction consideration or seek appraisal. This is
simply a “tell me more” request that, unlike a viable disclosure claim, fails to identify
how the analysis is misleading or incomplete if it does not disclose specifically which
publicly available source of information Needham used to do its work.54
Additionally, the allegation that the identity of the companies in the 22
transactions that were used in the analysis is material ignores the disclosures actually
made in the Proxy. Ramtron‟s stockholders were informed that Needham “analyzed
publicly available financial information for 22 merger and acquisition transactions that
represent transactions involving publicly-traded technology and technology-enabled
services companies completed since January 1, 2010 with transaction equity values of
53
Proxy 38. In that regard, I note that all of the transactions in the analysis involved
publicly traded companies for which certain financial information is readily
available.
54
See In re Best Lock Corp. S’holder Litig., 845 A.2d 1057, 1073 (Del. Ch. 2001)
(“Delaware courts have held repeatedly that a board need not disclose specific
details of the analysis underlying a financial advisor‟s opinion.”).
29
between $50 million and $200 million.”55 Thus, the universe of companies that were
included in the analysis was sufficiently defined that those companies were readily
identifiable through publicly available information. While conceivably it might have
been helpful to Ramtron‟s stockholders to identify the companies involved on an
individual basis, such supplemental disclosures would not have significantly altered the
total mix of information available to them. Accordingly, Dent‟s allegations with respect
to the Stock Price Premium Analysis fail to state a viable disclosure claim.
Fourth, Dent avers that the summary of Needham‟s DCF analysis failed
impermissibly to disclose the manner in which stock-based compensation was treated and
how any Net Operating Losses (“NOLs”) were treated. The Complaint does not allege
that Ramtron actually had any NOLs, nor does Dent allege that Needham used either of
these potential inputs in an inconsistent, atypical, or unexpected manner, such as, for
example, by treating stock-based compensation as a cash expense.56 Here, stockholders
were informed that the transaction consideration fell well below the valuation range of
Ramtron implied by Needham‟s DCF analysis. Plaintiff has not explained how knowing
the details of how Needham treated those two inputs would be material to Ramtron‟s
stockholders.
In fact, Dent made no effort, in his Complaint, in briefing, or at argument, to
explain how the non-disclosed information would significantly alter the total mix of
55
Id.
56
See Laborers Local 235 Benefit Funds v. Starent Networks, Corp., 2009 WL
4725866, at *1 (Del. Ch. Nov. 18, 2009).
30
information available to stockholders other than making the conclusory assertion that,
without that information, Ramtron‟s stockholders “are unable to determine whether the
DCF is reliable.”57 This, however, appears to be a transparent attempt to repackage the
argument that disclosures must contain enough information to enable a stockholder to
make an independent determination of fair value. But, this argument has been rejected
explicitly by our Supreme Court.58 Having failed to adduce any cogent explanation that
the increased granularity he seeks is material, and not simply helpful, to Ramtron‟s
stockholders, Dent‟s allegations fail to state a legally cognizable claim for the breach of
the duty of candor.
Finally, Dent argues that the summary of Needham‟s DCF is materially
incomplete because the Proxy does not explain how Needham determined to use discount
rates ranging from 20% to 23% or why it applied multiples ranging from 5x to 7x to
calculate a range of illustrative terminal values. This assertion ignores settled Delaware
law and lacks merit for at least two reasons. First, this Court has held repeatedly that
asking “why” does not state a meritorious disclosure claim.59 Second, the exact details of
57
Compl. ¶ 75(d).
58
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000) (“Appellants are
advocating a new disclosure standard in cases where appraisal is an option. They
suggest that stockholders should be given all the financial data they would need if
they were making an independent determination of fair value. Appellants offer no
authority for their position and we see no reason to depart from our traditional
standards.”).
59
In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1131 (Del. Ch. 2011); see
also Loudon v. Archer–Daniels–Midland Co., 700 A.2d 135, 145 (Del. 1997)
31
how and why a financial advisor chooses certain discount rates or multiple ranges when
conducting a DCF analysis goes well beyond the “fair summary” that is required under
our law. In essence, Dent seeks additional disclosures that would support his belief that
Needham erred in conducting its DCF analysis. The issue of whether Needham used the
correct rates and multiples, however, is an entirely distinct issue from whether the Proxy
contains a fair summary of the analysis that Needham actually conducted. Ramtron‟s
stockholders undeniably were told what ranges Needham used in its analysis and, thus,
were given sufficient information to understand what Needham did in its DCF analysis.
Therefore, I dismiss Dent‟s disclosure claim predicated on a lack of information
concerning how and why Needham used the discount rates and multiples that it did in its
DCF analysis.
e. Summary of events leading up to the transaction
Dent also has challenged the completeness of the disclosures in the Proxy
regarding the events leading up to the Board‟s recommendation that the Company‟s
stockholders approve the transaction with Cypress. The Proxy contains seventeen single-
spaced pages of detailed descriptions of the key events leading up to the Cypress
transaction. Plaintiff nevertheless alleges four deficiencies. Having reviewed carefully
the Proxy, I conclude that Dent has failed to allege a viable disclosure claim as to the key
events leading up to the Ramtron-Cypress transaction.
(affirming dismissal of a claim that did not identify disclosure violations but rather
“pose[d] a question”).
32
The first purported omission relates to a January 28, 2011 meeting between
Cypress executives and certain Ramtron directors in which “the potential synergies
between a business combination of Ramtron and Cypress was discussed.” 60 According to
Dent, the Proxy is deficient because it does not disclose what, if any, discussions
Ramtron and Cypress had about potential business combinations before January 28,
2011, and the amount of the synergies that were discussed at the January 28 meeting.
Dent offers no explanation as to why this requested information is material. There are no
allegations that Ramtron and Cypress ever had any meaningful merger-related
discussions before January 2011, and even if they had, it is not reasonably conceivable
that preliminary conversations that occurred over eighteen months before the transaction
was agreed to would significantly alter the total mix of information available to
Ramtron‟s stockholders. This is particularly true in this case, because between January
2011 and September 2012, Ramtron rebuffed Cypress‟s takeover efforts on numerous
occasions. That fact alone suggests that the January 2011 (or earlier) discussions,
including any discussion of potential synergies, had little, if any, impact on what Cypress
and Ramtron agreed to well over a year and a half later. Consequently, Dent has failed to
state a viable disclosure claim in this regard.
Next, Dent argues that the Proxy is deficient because it fails to disclose the exact
nature of the “several tactical considerations” the Board discussed with Needham during
a June 13, 2012 meeting. The June 2012 meeting was one of several in which the Board
60
Proxy 15.
33
discussed its strategy for conducting the sales process, generally, and dealing with
Cypress, specifically, with its financial advisor. Because the Board had a number of
similar meetings, it is unclear why a more granular understanding of the particular
“tactical considerations” discussed at one specific meeting would be material to
Ramtron‟s stockholders. Moreover, “Delaware law does not require management „to
discuss the panoply of possible alternatives to the course of action it is proposing,‟” in
part because “stockholders have a veto power over fundamental corporate changes (such
as a merger) but entrust management with evaluating the alternatives and deciding which
fundamental changes to propose.”61 Therefore, the lack of specificity in the Proxy as to
the “several tactical considerations” discussed during the June 13, 2013 meeting is
insufficient to support a viable disclosure claim.
Third, Dent avers that the Proxy lacks sufficient details regarding the strategic
alternatives the Company considered, how the Company evaluated those alternatives, and
as to the 24 entities that were contacted, what types of entities made an offer and what the
value of those offers were. As acknowledged in the Complaint itself, the Proxy states
that the Board convened “many times” to discuss developments in the sales process and
possible strategic alternatives to the Cypress deal. Here, too, Dent has not advanced any
persuasive rationale for asserting that more details regarding these “many” meetings
would be material to the Company‟s stockholders. The details provided in the Proxy
61
In re 3Com S’holders Litig., 2009 WL 5173804, at *5 (Del. Ch. Dec. 18, 2009)
(quoting Seibert v. Harper & Row, Publishers, Inc., 1984 WL 21874, at *5 (Del.
Ch. Dec. 5, 1984).
34
sufficiently describe the sales process and potential strategic alternatives to allow the
stockholders to draw their own conclusions about the transaction. Because I do not
consider it reasonably conceivable that the “blow-by-blow” disclosures that Dent requests
would significantly alter the total mix of information available to Ramtron‟s
stockholders, the absence of those disclosures from the Proxy does not constitute an
actionable disclosure violation.62
The same holds true for Dent‟s allegations regarding the 24 companies that
Ramtron contacted during the sales process. Because Cypress had gained majority
control of Ramtron through its tender offers, the close of the long-form merger was a fait
accompli. Thus, when the Proxy was disseminated to Ramtron‟s stockholders, the only
question they faced was whether to accept the merger consideration or seek appraisal.
The types of companies that may or may not have made an offer for Ramtron during the
sales process has no bearing on the issue of whether or not to seek appraisal.
Furthermore, there are no allegations that any company made an offer for Ramtron that
was of equal or greater value to the Cypress offer. Dent has failed to allege adequately
how including the details of rejected offers that offered less value for the Company than
the Cypress bid would be material to a Ramtron stockholder in determining whether or
not to seek appraisal. Accordingly, I conclude that this aspect of Dent‟s disclosure claim
also fails to state a claim upon which relief can be granted.
62
Matador Capital Mgmt. Corp. v. BRC Hldgs., Inc., 729 A.2d 280, 295 (Del. Ch.
1998) (“The application of [the reasonable investor] standard does not require a
blow-by-blow description of events leading up to the proposed transaction.”).
35
Finally, Dent complains that the Proxy fails to disclose the members of a subset of
the Board that authorized Needham to deliver a counterproposal to Cypress and the
process by which those Board members were authorized to take such actions.63 It is
dubious whether the information Dent seeks here even is relevant or helpful, let alone
material. At best, the additional disclosures Dent requests on this subject amount to
needlessly cumulative “play-by-play” information that this Court repeatedly has
eschewed requiring companies to disclose.64 Thus, these allegations also fail to state a
legally sufficient claim for a disclosure violation.
Overall, Dent‟s challenges to the adequacy of the summary of key events leading
up to the Cypress transaction are premised on a fallacy that this Court has long
recognized and long rejected -- i.e., that increasingly detailed disclosure is always
material and beneficial disclosure.65 The allegations in the Complaint and the content of
63
The Complaint also alleges that the Proxy fails to disclose the amount of the
counterproposal. Compl. ¶ 74. This allegation, however, is demonstrably false as
the Proxy explicitly states that Ramtron made a counterproposal of $3.25 per
share. Proxy 29.
64
Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *14 (Del. Ch.
Nov. 30, 2007) (“a full and fair characterization [of background to a transaction]
does not require . . . a „play-by-play description of merger negotiations.‟”).
65
Abrons v. Maree, 911 A.2d 805, 813 (Del. Ch. 2006) (stating that this Court must
“guard against” such a fallacy); Zirn v. VLI Corp., 1995 WL 362616, at *4 (Del.
Ch. June 12, 1995), aff’d, 681 A.2d 1050 (Del. 1996) (same). See also In re 3Com
S’holders Litig., 2009 WL 5173804, at *5 (recognizing “that too much information
can be as misleading as too little.”); Ryan v. Lyondell Chem. Co., 2008 WL
2923427, at *19 n.115 (Del. Ch. July 29, 2008), rev’d on other grounds, 970 A.2d
235 (Del. 2009) (“[A] lenient standard for materiality poses the risk that the
corporation will bury the shareholders in an avalanche of trivial information, a
36
the Proxy do not support a reasonable inference that the unnecessary “play-by-play”
disclosures Dent seeks would significantly alter the total mix of information available to
the Company‟s stockholders. Therefore, Dent has not advanced a viable disclosure claim
regarding the Proxy‟s summary of the key events leading up to the Ramtron-Cypress
transaction.
f. Defendant George’s alleged conflict
In the Complaint, Dent alleges that the Proxy failed to disclose that Defendant
George served on a “manufacturing advisory board” associated with Cypress, and, thus,
that he had a material conflict as to the Ramtron-Cypress transaction. In support of this
allegation, the Complaint cites to a June 2009 public filing of Power Integrations, Inc., an
entity not otherwise involved in this dispute.66 Nowhere in the Complaint is it alleged
that George was a member of the manufacturing board at the time he was appointed to
the 2012 Committee or when the Proxy was disseminated to Ramtron‟s stockholders.
Instead, the Complaint misleadingly alleges that George was “retained as a member of
Cypress‟ Manufacturing Advisory Board,” “while acting in his role as a Ramtron Board
member.”67 Moreover, Defendants argue that George resigned from the Cypress
result that is hardly conducive to informed decisionmaking.”) (internal quotation
marks and citation omitted).
66
Compl. ¶ 67.
67
Id. ¶ 66. Because George was on the Ramtron Board from 2005 until at least
2012, he was simultaneously a member of the Ramtron and Cypress
manufacturing advisory boards in 2009. It does not follow, however, that he was a
member of both boards in 2012, when he had a role on behalf of Ramtron in the
events relevant to this litigation.
37
advisory board in April 2011, over a year before he was appointed to the 2012
Committee, and that Defendants provided Dent with documentary evidence to that
effect.68 Although Defendants discussed this issue in their opening brief, Dent did not
address this issue in either his answering brief or at argument. As such, I find that Dent
effectively has conceded that George was no longer a member of the Cypress advisory
board after April 2011.
Because George was not a member of the Cypress advisory board after April
2011, Dent has failed to allege adequately that George‟s prior relationship with Cypress
is material to Ramtron‟s stockholders. There are no allegations in the Complaint that
would support a reasonable inference that George controlled, dominated, or otherwise
exercised disproportionate influence over Ramtron‟s sales process. George was one of
five members of the 2012 Committee. Because there are no allegations that he controlled
or directed the 2012 Committee, it is unclear why George‟s past association with Cypress
even would be relevant to stockholders weighing the choice between accepting the
transaction consideration and seeking appraisal. In any event, based on allegations in the
Complaint, it is not reasonably conceivable that such a prior relationship would have
significantly altered the total mix of information available to Ramtron‟s stockholders. 69
68
Defs.‟ Opening Br. 40–41.
69
See Weinberger v. Rio Grande Indus., Inc., 519 A.2d 116, 123 (Del. Ch. 1986)
(holding that failure to disclose certain director‟s potentially conflicting board
positions did not state a claim because “at the time of the [] merger agreement,
there was no relationship . . . that might give rise to a potential conflict.”) Also as
in Rio Grande, Dent has not shown here “in what manner such a potential conflict
38
In sum, the non-conclusory allegations in the Complaint do not support an
inference that it is reasonably conceivable that Dent could prove on a full evidentiary
record that any of the purported inadequate disclosures in the Proxy as to Ramtron‟s
management projections, the summary of Needham‟s analysis, the description of the
process leading to the Ramtron-Cypress transaction, and Defendant George‟s conflict are
actionable disclosure violations. Therefore, I dismiss Dent‟s breach of fiduciary duty
claim premised on the disclosures in the Proxy.70
C. Aiding and Abetting
1. Legal standard
To state a claim for aiding and abetting, a plaintiff must allege: (1) the existence of
a fiduciary relationship; (2) a breach of the fiduciary‟s duty; (3) knowing participation in
that breach by the defendants; and (4) damages proximately caused by the breach. 71 The
key inquiry in the aiding and abetting claim here is whether Dent has pled adequately the
second element, knowing participation. Although there is no requirement that knowing
would have been important to a [Ramtron] stockholder considering whether or not
to tender his shares to [Cypress] . . . .” Id.
70
Because Dent has not alleged adequately a disclosure violation, I also dismiss
Count III of the Complaint for the remedy of quasi-appraisal, which is based on
the allegation that Ramtron‟s stockholders were not provided with adequate
information in the Proxy to make an informed decision as to whether or not they
should seek appraisal. Similarly, I dismiss the portion of Dent‟s aiding and
abetting claim in Count II of the Complaint related to the Individual Defendants‟
alleged breach of their duty of candor because Dent has not alleged sufficiently an
underlying breach of fiduciary duty. DiRienzo v. Lichtenstein, 2013 WL 5503034,
at *36 (Del. Ch. Sept. 30, 2013).
71
Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001).
39
participation be pled with particularity, a plaintiff must allege facts from which knowing
participation may be inferred in order to survive a motion to dismiss.72 Significantly,
however, “[t]his Court has consistently held that evidence of arm‟s-length negotiation
with fiduciaries negates a claim of aiding and abetting, because such evidence precludes a
showing that the defendants knowingly participated in the breach by the fiduciaries.73
2. It is not reasonably conceivable that Cypress74 aided and abetted any failure
by the Ramtron Board to maximize the Company’s sale price
At the outset, in terms of the sale process, I note the only reasonable inference that
the Complaint supports is that Cypress and Ramtron negotiated their transaction at arm‟s-
length. Dent has pled no non-conclusory facts that Cypress created or exploited conflicts
of interest in the Ramtron Board, conspired in any way with the Ramtron Board, used
knowledge of a breach of a fiduciary duty to gain an advantage in negotiations with
Ramtron, or participated in a transaction where the terms were so egregious or contained
side deals, the magnitude of which, were “so excessive as to be inherently wrongful.”75
Rather, the Complaint alleges that over a period of more than 19 months, Ramtron
engaged Cypress, an independent third party, in contentious arm‟s-length bargaining,
which resulted in Cypress increasing its offer for the Company numerous times.
72
In re Telecommunications, Inc., 2003 WL 21543427, at *2 (Del. Ch. July 7, 2003).
73
In re Frederick’s of Hollywood, Inc., 1998 WL 398244, at *3 n.8 (Del. Ch. July 9,
1998). See also In re Gen. Motors S’holder Litig., 2005 WL 1089021, at *26
(Del. Ch. May 4, 2005) (same).
74
For purposes of this Section, all references to Cypress are inclusive of Rain.
75
In re Telecommunications, Inc., 2003 WL 21543427, at *2.
40
Moreover, the Complaint acknowledges that Ramtron genuinely explored interest from
other potential acquirers, and contains no allegations that suggest that Cypress was
somehow favored over any of these other potential acquirers. In short, Dent faces a
heavy burden in arguing that Cypress knowingly participated in any breaches of fiduciary
duty by the Individual Defendants because there can be no dispute that the Cypress-
Ramtron deal was negotiated at arm‟s-length.
As discussed supra, to the extent the Complaint conceivably supports a reasonable
inference that the Individual Defendants breached their fiduciary duties by not
maximizing Ramtron‟s sale price, any such breach was of the duty of care only.76 Even
assuming the Complaint states a claim for breach of fiduciary duty in this regard, Dent‟s
aiding and abetting claim still fails because he has not alleged adequately that Cypress
knowingly participated in this alleged breach. From the allegations in the Complaint, it
does not appear that Cypress did anything more than engage Ramtron in arm‟s-length
bargaining, in which it had every right to pursue the best possible deal for itself. Before
reaching an agreement with Ramtron, Cypress did nothing to interfere with the
Company‟s pursuit of other strategic alternatives or the Company‟s ability to evaluate
sufficiently the adequacy of the offer it was making. In addition, none of the Board‟s
actions, either before or after the Company agreed to a transaction with Cypress, were so
76
Although the Individual Defendants are covered by the Company‟s exculpatory
provision, Cypress, as an independent third party, is not. Consequently, it is
possible for Cypress to be liable for monetary damages for aiding and abetting a
breach of the duty of care even if the directors responsible for the breach itself
cannot be held liable for such conduct. See generally In re Rural Metro Corp., 88
A.3d 54 (Del. Ch. 2014).
41
unreasonable that it would support an inference that Cypress knew the Board was
breaching its fiduciary duties and that it wished to facilitate any such breaches. Because
Dent has not alleged sufficiently knowing participation, a requisite element of his aiding
and abetting claim, his claim in this regard does not pass muster under Rule 12(b)(6).
Finally, Dent argues that Cypress knowingly participated in the Individual
Defendants‟ breach of their duty of care because Cypress knew that the consideration
being offered to Ramtron‟s stockholders was below the $3.57 to $5.01 per share
valuation range for the Company determined by Needham in its DCF. This assertion,
however, is without merit.
As an initial matter, I note that Dent has not alleged that Cypress had any
knowledge of Ramtron‟s projections or the results of Needham‟s analysis before signing
a merger agreement with Ramtron or that Needham‟s DCF analysis was the only method
used to value Ramtron. In fact, the allegations in the Complaint that Cypress expressly
declined to execute a confidentiality agreement with Ramtron and review its projections
and that Needham presented several different financial analyses to Ramtron‟s Board
support the opposite conclusion. Of greater significance, however, is the fact that the
Cypress-Ramtron transaction indisputably was an arm‟s-length transaction between
unrelated parties. In arguing that Cypress aided and abetted the Individual Defendants‟
breach of their fiduciary duties by obtaining a price below a financial advisor‟s valuation
range, Dent essentially is arguing that Cypress got too good a deal, and that such conduct
amounts to tortious conduct. Delaware courts expressly and repeatedly have rejected this
42
argument,77 and Dent has not stated any cogent reason to depart from settled Delaware
law on this point.
3. It is not reasonably conceivable that Cypress aided and abetted any breach of
fiduciary duty by the Ramtron Board related to the deal protection measures
Even assuming, as Dent asserts, that the Ramtron Board breached its fiduciary
duties by agreeing to the deal protection measures that were used in the transaction with
Cypress, the Complaint falls well short of alleging adequately that Cypress knowingly
participated in any such breaches. Considered separately or together, Dent has failed to
identify any aspect of any of the deal protection devices that was so untoward or
egregious that it would support an inference that an independent third party, such as
Cypress, knowingly participated in the Individual Defendants‟ breach of fiduciary duty.
The Complaint supports a reasonable inference that Cypress and Ramtron negotiated
their transaction at arm‟s-length, with each attempting to obtain the greatest possible
benefit for themselves. The fact that Cypress may have obtained favorable deal
protection measures through bargaining in this instance does not support a reasonable
77
See Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001) (“a bidder‟s attempts
to reduce the sale price through arm‟s-length negotiations cannot give rise to
liability for aiding and abetting”); Morgan v. Cash, 2010 WL 2803746, at *8 (Del.
Ch. July 16, 2010) (“Under our law, both the bidder‟s board and the target‟s board
have a duty to seek the best deal terms for their own corporations when they enter
a merger agreement. To allow a plaintiff to state an aiding and abetting claim
against a bidder simply by making a cursory allegation that the bidder got too
good a deal is fundamentally inconsistent with the market principles with which
our corporate law is designed to operate in tandem.”); In re Lukens Inc. S’holders
Litig., 757 A.2d 720, 735 (Del. Ch. 1999) (“it should be obvious that „an offeror
may attempt to obtain the lowest possible price for stock through arm‟s-length
negotiations.‟”).
43
inference that Cypress knowingly participated in any breach of fiduciary duty by
Ramtron‟s Board. Therefore, I conclude that Dent‟s aiding and abetting claim against
Cypress in this respect must be dismissed.
III. CONCLUSION
For the foregoing reasons, Defendants‟ motions to dismiss are granted in their
entirety. The Complaint is dismissed with prejudice.
IT IS SO ORDERED.
44
Dent v. Ramtron
Combined Opinion