IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LAURA PERRYMAN and GARY )
PERRYMAN )
)
Petitioners, )
)
v. ) C.A. No. 2020-0079-SG
)
STIMWAVE TECHNOLOGIES )
INCORPORATED, )
)
Respondent. )
MEMORANDUM OPINION
Date Submitted: November 13, 2020
Date Decided: December 9, 2020
Steven L. Caponi and Matthew B. Goeller, of K&L GATES LLP, Wilmington,
Delaware; OF COUNSEL: Justin H. Roeber and Thomas A. Warns of K&L GATES
LLP, New York, New York, Attorneys for Petitioners Laura Perryman and Gary
Perryman.
Richard P. Rollo, Kevin M. Gallagher, Travis S. Hunter, Angela Lam, Nicole M.
Henry, and Christian C.F. Roberts, of RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware, Attorneys for Respondent Stimwave Technologies
Incorporated.
GLASSCOCK, Vice Chancellor
The DGCL permits corporations to extend to indemnified officers and
directors rights to advancement of litigation costs relating to their service. 1 Such
benefits are a recognition of the fact that such individuals may, as a function of their
corporate positions, find themselves faced with legal costs that are burdensome or
insupportable. Advancement is a benefit extended to these employees to induce
them to provide their services to the corporation.
Such advancement comes with a requirement that the indemnified individual
undertake to repay the corporation if the cost of the matter in litigation proves
ultimately not to be indemnifiable. 2 This permits advancement so that the individual
may afford to litigate before the matter of indemnifiability is ultimately determined,
by which point any advancement right would be nugatory. The undertaking, in
theory, allows the corporation to recoup advanced sums that prove not
indemnifiable.3
While the contractual rights to advancement are often straightforward, these
benefits have generated an inordinate amount of litigation. The reason is easy to
identify; where the corporation itself is suing an indemnified individual for what it
believes to be malfeasance or breach of duty to the corporation, its principals find it
galling to be footing both the costs of prosecuting, and defending, the same litigation.
1
8 Del. C. § 145(e).
2
Id.
3
I say in theory, because as a practical matter the individual may prove unable to make repayment.
1
Given the contractual rights involved, however, it is unusual in my experience for a
defense to a demand for advancement to be wholly successful.
This advancement matter turns on two deceptively simple-sounding
questions: (1) does Respondent Stimwave’s certificate of incorporation, post a 2018
amendment, require approval of indemnification agreements by the company’s
Series D equity holders, and (2) if so, did the Petitioners, Laura Perryman, the former
CEO of Respondent Stimwave, and her husband, Stimwave Director Gary
Perryman, 4 sign and execute their indemnification agreements before the
amendment? If I find that the amended charter does not require approval, then the
inquiry ends and the Perrymans are entitled to advancement. But if I find that the
amended charter does require Series D approval, the question becomes one of
timing. If I find that the Perrymans executed their indemnification agreements
before the charter was amended on April 23, 2018, again, their agreements are valid.
But if I find that they executed their agreements after Stimwave’s July 17, 2018
charter amendment, their agreements are invalid, because, pursuant to the charter
amendment, extension of such benefits are void without the required the approval of
Series D stockholders, which no party attempted to obtain.5
4
I refer to the Perrymans individually in this Memorandum Opinion by their first names, in aid of
clarity. I intend no disrespect thereby.
5
The April 2018 charter amendment required Series D approval for extension of benefits, but did
not provide that unauthorized extensions were void ab initio, as did the July amendment. Because
of my decision here, I need not analyze the effect of an extension of benefits purported to have
been made under the terms of the April charter amendment.
2
The parties tried this issue; in this Memorandum Opinion, I find that Gary’s
agreement regarding advancement is valid and enforceable, and that Laura’s is not.
I. BACKGROUND 6
A. The Parties
Respondent Stimwave Technologies Incorporated (“Stimwave”) is a
Delaware corporation. 7
Petitioner Laura Perryman is the founder and former CEO of Stimwave; she
is and has been a director of Stimwave since its founding in 2010. 8 Petitioner Gary
Perryman is Laura Perryman’s husband and is and has been a director of Stimwave
since 2013. 9
B. Factual Overview
1. Stimwave’s Bylaw, Charter, and Amendments Thereto
Stimwave was founded in 2010 as Neural Micro Incorporated.10 Article X,
Section 2 of the Company’s Certificate of Incorporation (the “Certificate of
Incorporation” or the “Charter”) provides that “[a] right to indemnification or to
advancement of expenses arising under a provision of this Certificate of
6
The facts, except where otherwise noted, are drawn from exhibits jointly submitted at trial and
are referred to according to the numbers provided on the parties’ joint exhibit list (“JX __”).
7
JX 13; JX 67; JX 19.
8
JX 67.
9
JX 67.
10
JX 13; JX 67; JX 19.
3
Incorporation or a bylaw of the Corporation shall not be eliminated or impaired by
an amendment to this Certificate of Incorporation after the occurrence of an act or
omission that is the subject of the civil, criminal, administrative, or investigative
action, suit, or proceeding.” 11 The Company’s bylaws (the “Bylaws”), which were
filed on December 9, 2010, provide in Article VIII, Section 1, that “[t]he Corporation
shall indemnify any and all of its directors or officers, including former directors or
officers . . . to the fullest extent permitted under and in accordance with the laws of
the State of Delaware.” 12
In April of 2018, Echo Vibrations invested $5 million in Stimwave in
exchange for Series D shares. 13 In connection with that investment, on April 20,
2018, Stimwave resolved to, among other things, both approve a form of
indemnification agreement (“IA”) and amend its Certificate of Incorporation.14
Accordingly, the Company amended its Certificate of Incorporation on April 23,
2018 (the “April 2018 Amended Charter”). 15 Article V, Section 6(d) of the April
2018 Amended Charter provides that:
As long as any shares of the Series D Preferred Stock shall be issued
and outstanding . . ., the Corporation shall not, without first obtaining
the approval (by vote or written consent as provided by law) of the
holders of sixty-eight percent (68%) of the outstanding shares of the
11
Petitioners’ Opening Post-Trial Br. 27–28 (quoting JX 19), Dkt. No. 106; see 8 Del. C. § 145(f).
12
JX 13, at Art. VIII, Section 1.
13
JX 17.
14
JX 16, at 3, 5.
15
JX 16; JX 19.
4
Series D Preferred Stock, voting as a separate class: . . . (xiii) enter into
or effect any Affiliate Transaction . . . [or] (xviii) adopt or amend any
cash bonus, severance agreement, employment agreement or similar
agreement or terms of compensation or benefits with respect to any
executive officer . . . . 16
An “Affiliate Transaction” is defined as “any transaction with an officer, director,
employee or stockholder of the Corporation, or any of their affiliates, outside of the
ordinary course of business.”17
In July of 2018, SV Health Investors (“SV”) invested $15 million in Stimwave
in exchange for Series D shares. 18 That investment was also accompanied by and
conditioned upon an amendment of Stimwave’s charter. 19 Accordingly, on July 17,
2018, Stimwave again amended its Charter (the “July 2018 Amended Charter).20
Article V, Section 6(d) of the July 2018 Amended Charter, which remains in effect,
provides that:
As long as any shares of the Series D Preferred Stock shall be issued
and outstanding . . ., the Corporation shall not, without first obtaining
the approval (by vote or written consent as provided by law) of the
holders of sixty-eight percent (68%) of the outstanding shares of the
Series D Preferred Stock, voting as a separate class and any such act or
transaction entered into without such consent or vote shall be null and
void ab initio and of no force or effect: . . . (xiii) enter into or effect any
Affiliate Transaction . . . [or] (xviii) adopt or amend any cash bonus,
severance agreement, employment agreement or similar agreement or
16
JX 19, at Art. V, § 6(d)(xiii), (xviii).
17
JX 19, at Art. V, § 6(a)(x).
18
JX 22.
19
JX 22, at Section 1.1.
20
JX 21.
5
terms of compensation or benefits with respect to any executive
officer . . . . 21
The only change in Article V, Section 6(d) between the April 2018
Amended Charter and the July 2018 Amended Charter is the addition of the
phrase “and any such act or transaction entered into without such consent or
vote shall be null and void ab initio and of no force or effect” after the
requirement that the Series D Preferred Stockholders vote as a separate class.
2. Background
On October 7, 2019, Stimwave received a civil investigative demand from the
U.S. Department of Justice (the “DOJ”) pursuant to the False Claims Act. 22 On
November 10, 2019, Stimwave’s Co-Chairman of the Board, Paul LaViolette, told
Laura that she needed to step down.23 At trial, Laura testified that she did not agree
to step down as CEO when LaViolette asked her to on November 10, 2019. 24 In her
deposition, however, she said that she did agree to step down during that meeting.25
The record is unclear as to the date Laura ceased to be CEO of Stimwave.
On November 11, 2019, Laura emailed an indemnification agreement
(“Laura’s January 1, 2018 IA”) to Stimwave and its attorneys, signed by Laura both
21
JX 21, at Art. V, § 6(d)(xiii), (xviii).
22
JX 69; see 31 U.S.C. § 3733.
23
Sept. 28, 2020, Trial Tr. – Volume I, 168:8–19.Dkt. No. 110 [collectively, with Sept. 29, 2020,
Trial Tr. – Volume II, Dkt. No. 111, “Trial Tr.”].
24
Trial Tr. 169:8–11.
25
Trial Tr. 169:17–19.
6
as CEO on behalf of Stimwave and as indemnitee. 26 That document bore a date of
January 1, 2018 and was signed using DocuSign. 27 Upon receipt of that agreement,
Stimwave’s board of directors (the “Board”) agreed to provide advancement for
Laura’s costs involving the DOJ investigation. 28
On December 16, 2019, Stimwave filed a verified complaint, alleging that
Laura had breached fiduciary duties to Stimwave, including, among other things,
that Laura had “directed accounting staff to make changes to the accounting system
and remove invoice references on checks with Wite-Out and photocopying so that
invoices selected by the auditors for their revenue sample would appear to have been
paid when, in fact, those invoices had not been paid.”29 That complaint was
amended in February 2020, to include claims that Laura had used Company assets
to pay for her son’s apartment, to further her personal interests, and to pay bonuses
to her close friends.30 Stimwave also filed what I think is fair to call a weak
allegation of fiduciary breach against Gary, stating that he “act[ed] in concert” with
Laura and was “disruptive” in Board meetings. 31
26
JX 30; JX 4.
27
JX 4. DocuSign is a company that provides electronic signature services. DocuSign,
https://www.docusign.com/ (last visited on December 9, 2020).
28
JX 38.
29
Verified Complaint ¶ 5, C.A. No. 2019-1003-SG, Dkt. No 1.
30
Amended Complaint ¶¶ 65, 146, 172, 174–76, C.A. No. 2019-1003-SG, Dkt. No 88.
31
Id. ¶¶ 75, 271, 272.
7
At some point in November or December 2019, but no later than December
20, 2019, Jeff Goldberg, one of Stimwave’s directors, noticed that Laura’s January
1, 2018 IA contained language that he had personally proposed for his own
indemnification agreement when he joined the Board in early 2018.32 He then
checked the creation date for Laura’s January 1, 2018 IA and saw that it bore a
November 11, 2019 creation date—a date that was later verified by an e-discovery
vendor and DocuSign. 33 He brought that information to the Board. At a December
20 board meeting, a majority of the Board concluded that Laura’s January 1, 2018
IA was not valid because it was created on November 11, 2019—“after the DoJ’s
civil investigative demand.”34 The Board also concluded at that meeting that Gary
Perryman’s indemnification agreement (“Gary’s January 1, 2015 IA”), which was
dated January 1, 2015, “did not exist until after the Company [had] filed its
complaint in the Delaware Court of Chancery”—a conclusion that was “based on a
forensic review.”35 Gary Perryman attended this meeting and objected to the
declaration of invalidity, stating that the Board did not have the power to declare the
indemnification agreements invalid.36 The minutes of the meeting do not indicate
32
Trial Tr. 375–76; Trial Tr. 372.
33
Trial Tr. 376–78; JX 04; JX 30.
34
JX 46, at 5.
35
JX 46, at 6.
36
JX 46, at 6.
8
that Gary objected to the Board’s determination that both his and Laura’s IAs were
executed after the DOJ’s civil investigative demand was made, however.37
3. This Advancement Action
On February 11, 2020, Laura and Gary filed a verified complaint (the
“Verified Complaint”) seeking advancement and indemnification along with a
motion for a temporary restraining order and a motion to expedite. 38 To the Motion
for a Temporary Restraining Order, Laura attached Laura’s January 1, 2018 IA.39
The Verified Complaint also stated that Gary executed his IA on June 25, 2019,
although the attached exhibit shows his indemnification agreement bears a date of
“January 1st, 2015” (“Gary’s January 1, 2015 IA”).40 The Petitioners filed a motion
for judgment on the pleadings, to which they again attached Laura’s January 1, 2018
IA and averred that Gary had signed Gary’s January 1, 2015 IA on June 25, 2019.41
Stimwave opposed the motion, arguing that both Laura’s January 1, 2018 IA
and Gary’s January 1, 2015 IA were invalid and void ab initio.42 In particular,
Stimwave alleged that Laura’s January 1, 2018 IA, despite bearing a 2018 date, was
37
JX 46.
38
Verified Compl. For Advancement and Indemnification, Dkt. No. 1 [hereinafter “Compl.”].
39
Exhibits 1-6 to Petitioners’ Opening Br. in Supp. of Their Mot. For a Temporary Restraining
Order and Mot. To Expedite, Ex. 3, Dkt. No. 1.
40
Compl. ¶ 24; Exhibits 1-6 to Petitioners’ Opening Br. in Supp. of Their Mot. For a Temporary
Restraining Order and Mot. To Expedite, Ex. 4, Dkt. No 1.
41
JX 55, at 5, Ex 3.
42
Respondent’s Answering Br. in Opp’n to Petitioners’ Mot. For J. on the Pleadings 17–20, Dkt.
No. 17 [hereinafter “MJP Answering Br.”].
9
created and signed on November 11, 2019, after the DOJ civil investigative demand
had been made. 43 Stimwave also noted that Gary’s Agreement was dated January 1,
2015, but could not have existed at that time because the Board did not approve a
form of indemnification agreement until three years later, around April 2018.44
Further, Stimwave argued that if Gary’s word was true, and his indemnification
agreement had been signed in June of 2019, it was still invalid because the Series D
stockholders did not approve the agreement as, per Stimwave, was required by the
Company’s Charter. 45 And the same logic applied to Laura’s January 1, 2018 IA,
even setting aside the conflict issue of her entering into an IA after a DOJ
investigative demand had already been made. 46
4. Laura’s Purported Indemnification Agreement
The Perrymans filed their reply brief to the Motion for Judgment on the
Pleadings on March 25, 2020. 47 Attached to that reply brief were affidavits from
both Laura and Gary Perryman. Laura’s affidavit stated:
I originally signed my indemnification agreement by hand in April of
2018. Attached to this affidavit as Exhibit A is a copy of my
Indemnification Agreement executed by hand-written signature. I dated
my Indemnification Agreement January 1, 2018 because that was the
date initially included on the default template of the agreement. 48
43
MJP Answering Br. 2–3, 17–18.
44
MJP Answering Br. 19; see JX 16.
45
MJP Answering Br. 3–4.
46
MJP Answering Br. 3–4.
47
Petitioners’ Reply Br. in Supp. of Mot. for J. on the Pleadings, Dkt. No. 20.
48
Id.; JX 56 ¶ 7.
10
Although Laura’s affidavit attached the hand-written signature page of the
indemnification agreement, that signature page—like the other indemnification
agreements’ signature pages—bears no date. 49 Laura did not produce the original
hard copy remainder of the indemnification agreement, nor a digital copy of that
signature page with metadata dating to April 2018.50 At trial, to explain this lack of
metadata, Laura testified that, at the time, she had scanned “just the signature pages”
of her and Gary’s IAs on her home printer, “and then put them onto [her] computer,
[her] work computer.” 51 She then merged the scanned signature page into the other
pages of the IA sometime later. 52 After merging the scanned signature page with the
other pages of the IA, she “deleted it and [she] didn’t need it anymore.” 53 Further,
the merged document did not have metadata dating back to any time in 2018, because
Laura “got a new computer sometime in the summer of 2018. And the computer
from April was repurposed and redistributed to someone else in the company.” 54
She also testified that she was not involved in the process of reassigning work
computers at the Company, but that she “just made sure that all [her] data was, you
know, backed up onto the Time Machine and then put on the new computer. So
49
JX 56, Ex. A.
50
In fact, no metadata containing any date of creation for the scan of Laura’s hand-signed signature
page was provided at trial.
51
Trial Tr. 39–40.
52
Trial Tr. 175.
53
Trial Tr. 198.
54
Trial Tr. 40–41.
11
once it was on the new computer, I would give the old computer over.”55 Finally,
Laura emphasized that when a new version of the IA was saved, that document
would bear a new creation date.56 Thus, according to Laura, she did not have
metadata for the original scanned signature page because she deleted the document
after merging it with the other pages of the IA, and she did not have metadata for the
merged IA because she switched computers shortly after and each time she switched
computers, the merged IA would have a new creation date.
Given the absence of any metadata, to support her claim that she signed her
indemnification agreement in April 2018, Laura testified to particular facts regarding
her signing of the agreement. She testified that she and Gary signed their agreements
“at the same time” in their home in Florida. 57 And she testified that Gary reminded
her that this occurred in April because he remembered and reminded her of specific
details.58 For example, Gary purportedly reminded her that the scanner had gotten
stuck, that he had gotten food on one of the documents, and that Laura had been
angry with him because she wondered if the food stain was going to show up on the
scan. 59
55
Trial Tr. 41.
56
See, e.g., Trial Tr. 131.
57
Trial Tr. 148.
58
Trial Tr. 184–186.
59
Trial Tr. 186–87.
12
Gary also testified regarding their agreements, stating that they were created
in April 2018. His testimony did not otherwise corroborate Laura’s, however. Gary
testified that, not only did he have no recollection of any of the details that Laura
testified he had used to refresh her knowledge (the malfunctioning scanner, the food
spill on the document), but also that such were not the sort of details he would “even
recall” because “[i]t’s just not something that I think about.”60
At trial, Laura also repeatedly remarked that when she signed the documents
was “not a big deal[,]” 61 that she did “not know why it was relevant or important to
include any dates,” 62 and that details surrounding her purported signing in April
2018 were not “important details”63 because she was sure that she “executed [her]
agreement at the same time as all the other board members, which [she], as the CEO,
executed for them.” 64 Indeed, Laura made perfectly clear at trial that the date
discussion “seem[ed] like a lot to do about nothing, really.” 65
60
Trial Tr. 295–98.
61
Trial Tr. 146:17–19 (“[T]here’s like not a big deal about when we executed these agreements.
It was everyone together at the same time.”).
62
Trial Tr. 203:6–7.
63
Trial Tr. 189:8–10 (“I don’t really remember, and I also don’t agree with your statement that
any of these are important details. What’s important is that we signed the documents in April
2018.”).
64
Trial Tr. 203 (“I do not know why it was relevant or important to include any dates. . . . I’m
telling you that I executed my agreement at the same time as all the other board members, which
I, as the CEO, executed for them.”).
65
Trial Tr. 185–186.
13
At trial, other evidence relevant to Laura’s credibility was presented. For
example, Laura’s answers to interrogatories—never amended—state that Laura had
hard copies of her indemnification agreement in her home. 66 At trial, she testified
that the interrogatory response was a “mistake” and that she does not have the
original hard copy of her hand-signed indemnification agreement from April 2018.67
Laura’s counsel for the DOJ’s civil investigative demand (her “DOJ counsel”)
also represented to Stimwave in an e-mail on Laura’s behalf that the laptop in
Stimwave’s possession “was Laura’s sole computer since 2011.” 68 At trial,
however, Laura testified that she had approximately four work computers between
April 2018 and November 2019,69 and, in particular, that she “got a new computer
sometime in the summer of 2018. And the computer from April was repurposed and
redistributed to someone else in the company.” 70 That switch in computers is critical
to Laura’s explanation for why she cannot produce metadata for the scan of the April
2018 hand-signed signature page or the original merged IA—which is purportedly
because she merged the April 2018 signature page into the other indemnification
agreement pages, deleted the scan of the signature page, and the merged IA would
have a new creation date when she changed computers.71 Regarding her DOJ
66
JX 62, at 11.
67
Trial Tr. 143.
68
JX 51.
69
Trial Tr. 41.
70
Trial Tr. 40–41.
71
Trial Tr. 129.
14
counsel’s representation that the laptop in Stimwave’s possession “was Laura’s sole
computer since 2011,” 72 Laura testified at trial that her counsel “made a mistake.
What he was supposed to say is that it contained information dating back to 2011,
personal privileged information. My records and files on that computer are dating
back to 2011.”73 The full text of the relevant part of Laura’s DOJ counsel’s January
30, 2020 e-mail is as follows:
First, regarding Becky’s 74 computer that is in your possession. I can
confirm that the computer in your possession contains personally
privileged information. More specifically, that was Laura’s sole
computer since 2011. Laura has both personal legal matters on that
computer and legal matters related to other companies. For example,
there is legal advice on personal tax advice, legal advice related to the
sale of a home in Arizona, and legal advice related to StimQ,
Stimguard, Micron and other entities that Laura owns. I would like to
discuss a way forward on this. And, in the interim, I am requesting a
return of that computer.
Second, you inquired if Lauara [sic] had another computer. After Laura
stopped using the laptop in your possession, she purchased, with her
own money, another laptop. That laptop contains some company
information, but all of it would [be] post issuance of CID and captured
on company servers (email) or in dropbox [sic]. 75
Laura’s DOJ counsel did not mention that Laura had any other computers since
2011. 76
72
JX 51.
73
Trial Tr. 225.
74
Becky is the name of the recipient of this e-mail and this reference to “Becky’s computer”
appears to be a typo.
75
JX 51.
76
See JX 51.
15
5. Gary’s Purported Indemnification Agreement
The other foundation upon which Laura relies to prove she signed her
indemnification agreement in April 2018 is that she signed her agreement with Gary,
and Gary’s agreement was signed in April 2018. But the execution date of Gary’s
IA is also subject to challenge. For one, Gary’s agreement was dated January 1,
2015. 77 But Laura and Gary stated in their Verified Complaint that Gary executed
his agreement on June 25, 2019.78 Gary later stated in an affidavit and testified at
trial that he signed his indemnification agreement “at the same time” as the other
directors—i.e. in April 2018.79 Gary testified at trial that signing his indemnification
agreement was an important event that he would remember, just like 9/11 or taking
his family to Disneyland. 80 But Gary could not remember specific details about the
signing, including the food spillage or broken scanner that Laura testified that he
reminded her of. 81
In his affidavit attached to the Reply Brief for the Motion for Judgment on the
Pleadings, Gary stated:
77
Exhibits 1-6 to Petitioners’ Opening Br. in Supp. of Their Mot. For a Temporary Restraining
Order and Mot. To Expedite, Ex. 4, Dkt. No 1.
78
Compl. ¶ 24.
79
Trial Tr. 300.
80
Trial Tr. 289; see Deposition of Gary Perryman 115 (“The question is do I know that I signed
it—again, I remember that date because it was important to me, just like, you know, other dates
that we all remember. Anything that’s important to me, or, you know, I remember. I mean, you
know, obviously if somebody says what date did the Twin Towers blow up, 9-11, we all remember
it, you know. So these are things you put in your memory bank, other things I don’t.”).
81
Trial Tr. 187; Trial Tr. 295–98.
16
I originally signed my indemnification agreement on April 20, 2018
and it was scanned the same day. . . . In June 2019, my executed
signature page was married to the other pages of the document in
preparation for a diligence review by the Company. This completed
document had a January 1, 2015 retroactive date in accordance with the
agreement that the indemnity for directors be retroactive to their
original date of service. I did not personally have involvement in the
record consolidation, these items were handled by legal counsel for
Stimwave. 82
At trial, Laura corroborated Gary’s statement, testifying that “when [she] went
to merge Gary’s [IA], [she] typed in the date of service and his name into the
document.”83 But Gary joined the Board in 2013, not 2015.84 And Laura had
previously testified that her own indemnification agreement bore the date January 1,
2018, because “[i]t’s the form template agreement, so it’s never changed. [I]t was
just January 1, 2018.”85
However, unlike Laura, Gary did provide metadata for his signature page
showing a creation date of April 20, 2018. 86 To explain metadata, the Petitioners
provided an expert witness, Erik Hammerquist, who is a senior director of digital
forensics at FTI Consulting. 87 During cross-examination, Mr. Hammerquist testified
that the metadata that he had analyzed, from Gary Perryman’s indemnification
82
Aff. of Gary Perryman in Supp. of Petitioners’ Reply Br. in Supp. of Mot. For J. on the Pleadings
¶¶ 7, 9, Dkt No. 20 [hereinafter “Gary’s Reply Affidavit”].
83
Trial Tr. 197–98.
84
JX 67.
85
Trial Tr. 59:16–17.
86
JX 3.
87
Trial Tr. 331.
17
signature page, was not, in fact, the metadata associated with the source file but was
rather the metadata associated with a copy of the source file.88 Mr. Hammerquist
also testified that, not only was it possible to edit internal file metadata of a PDF
(including the created and modified dates), 89 but “anybody with a computer can
easily edit the internal file metadata in a PDF.” 90 To demonstrate the ease with
which internal file metadata can be modified, Stimwave’s counsel showed the
deposition of Mr. Hammerquist, wherein counsel showed Mr. Hammerquist a copy
of his notice of deposition, along with metadata showing a creation and modified
date of April 20, 2018. Mr. Hammerquist agreed that the notice of his deposition
was not, in fact, created or modified on April 20, 2018. 91
C. Procedural History
The Perrymans filed their Verified Complaint for Advancement and
Indemnification on February 11, 2020, along with their Motion to Expedite and
Motion for a Temporary Restraining Order. On February 20, 2020, I granted the
Motion to Expedite but denied the Motion for a Temporary Restraining Order. The
Perrymans moved for Judgment on the Pleadings on March 6, 2020, which I denied
from the bench on April 1, 2020 because the validity of the indemnification
88
Trial Tr. 342.
89
Trial Tr. 351.
90
Trial Tr. 354.
91
Trial Tr. 352–55.
18
agreements was disputed.92 At that time, I also ordered Stimwave to advance Laura
and Gary’s fees pending a final determination of their entitlement to advancement. 93
After contentious discovery, this case was tried over two days on September 28–29,
2020. The parties submitted post-trial briefing and I heard post-trial oral argument
on November 13, 2020. I consider the matter fully submitted as of that date.
II. ANALYSIS
This case presents discrete issues with respect to each of the IAs. However,
Stimwave argues that a single inquiry—the date of execution—is determinative for
each. This is because the Board had authorized indemnification and advancement
agreements, and Laura had the power unilaterally to execute such agreements on
behalf of Stimwave, prior to April 23, 2018, at which point the Charter was amended
to facilitate an investment in Stimwave by giving Series D equity holders a veto
over, among other things, certain insider contracts and the extension of corporate
benefits. 94 The Charter was again amended a few weeks later, on July 17, to provide
that any attempt to circumvent the Series D rights would be void ab initio.95 As a
result, per Stimwave, if the Perryman’s IAs were entered after April 23, 2018, or at
92
4-1-2020 Oral Arg. Re Petitioners’ Mot. For J. on the Pleadings and the Court’s Ruling, Dkt.
No. 45.
93
Id.
94
JX 16.
95
JX 21.
19
least after July 17, 2018, they are unenforceable. I therefore begin this analysis with
the Charter, as amended on April 23.
A. The Charter Amendments in April and July of 2018 provided the Series D
equity holders a veto right over Laura’s IA, but not Gary’s.
The Charter gives Series D holders veto right over two types of transactions
potentially applicable here. The first, set out at Article V, Section 6(d)(xiii), involves
“any Affiliate Transaction . . . by the Corporation . . . .” 96 “Affiliate Transaction”
is a defined term meaning “any transaction with an officer, director, employee or
stockholder of the Corporation, or any of their affiliates, outside of the ordinary
course of business.”97 Both Perrymans are Affiliates under the definition, but
offering directors indemnification and advancement—particularly where
advancement rights are guaranteed elsewhere in the charter 98—are, to my mind,
clearly in the ordinary course of Stimwave’s business. Construing the Charter as a
whole, moreover, reveals that employee contracts done in regular course are
addressed, as discussed below.99 Series D approvals for the Perrymans’ IAs are not
required as Affiliate Transactions, therefore.
The second Charter section at issue, Article V, Section (6)(d)(xviii), requires
Series D approval for “adopt[ion] or amend[ment of] any cash bonus, severance
96
JX 19, at Art. V, § 6(d)(xiii).
97
JX 19, at Art. V, § 6(a)(x).
98
See JX 19, at Art. X, § 2.
99
See JX 19, at Art. V, § 6(d)(xviii).
20
agreement, employment agreement . . . or benefits . . . .” 100 Pace the Petitioners, the
right to advancement is clearly a “benefit” as that word is used in common English101
and, I find, the Charter. Approval under this sub-Article is limited to benefits
extended to “executive officer[s] or member[s] of senior management.”102 This
would apply to Laura, but not Gary, if Laura’s IA was entered after April 23, 2019,
at a time when she was still CEO. Gary, however, was not a Stimwave executive. I
accordingly conclude that Gary’s IA does not require Series D holder approval to be
valid, but that Laura’s IA may, depending on when her IA was executed and whether
she was an officer of Stimwave at that time.
In post-trial briefing, the Perrymans appear to argue that various provisions in
Stimwave’s Charter and Bylaws preclude the possibility that Series D holders can
have a veto right over any advancement or indemnification right of the directors.103
100
JX 19, at Art. V, § 6(d)(xviii).
101
See, e.g., The Shorter Oxford English Dictionary, Vol. 3, at 181, defining “benefit” in “the
usual sense” as that which provides an “advantage, profit or good.”
102
JX 19, at Art. V, § 6(d)(xviii).
103
They also appear to argue that the Charter and Bylaws mean that no separate indemnification
and advancement agreement was needed to give the directors indemnification and advancement.
Petitioners’ Opening Post-Trial Br. 28, Dkt. No. 106. I do not reach the question of whether that
is true for indemnification—see JX 13, at Art. VIII, § 1—but it is certainly not true for
advancement, as the quoted provision in the Bylaws is silent as to advancement. JX 13, at Art.
VIII, § 1. And Article X, Section 2 of the Charter, the language of which tracks 8 Del. C. Section
145(f), does not itself grant a right to indemnification or advancement—it simply notes that any
right granted cannot be eliminated or impaired after an act triggering any such rights has already
occurred. Lastly, I note that I consider unpersuasive the Petitioners’ argument that, because the
Form of Indemnification Agreement and the April 23, 2018 charter amendment were approved at
the same time but did not reference each other, the IAs must not require subsequent Series D
stockholder approval. Petitioners’ Opening Post-Trial Br. 29–30, Dkt. No. 106. I find that a lack
21
For example, the Perrymans argue that the Bylaws command indemnification as a
matter of course, noting that Article VIII, Section 1 of the Bylaws provides that the
“Corporation shall indemnify any and all of the directors or officers, including
former directors and officers . . . to the fullest extent permitted under and in
accordance with the laws of the State of Delaware.”104 This provision is unhelpful
to the Petitioners, limited as it is to indemnification and not advancement. Although
“[o]ur law has never denied that advancement is a subsidiary concept within the
broader topic of indemnification[,] . . . it has maintained for a generation that the
terms advancement and indemnification are not synonymous. Because rights to
indemnification and advancement differ in important ways, our courts have refused
to recognize claims for advancement not granted in specific language clearly
suggesting such rights.”105 The matter before me currently is a petition for
advancement; I am not ruling on either Perryman’s right to indemnification and
nothing in this Opinion should be construed as such.
Similarly, the Perrymans point to the Company’s Charter at Article X, Section
2, which provides that “[a] right to indemnification or to advancement of expenses
of reference between the two Board resolutions, although they are contained in the same document,
to be largely, if not entirely, irrelevant.
104
Petitioners’ Opening Post-Trial Br. 28 (emphasis in the original) (quoting JX 13 and adding
emphasis), Dkt. No. 106.
105
Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 589 (Del. Ch. 2006). The
Petitioners do not argue that the term “indemnify” in the Bylaws is used elsewhere to include
advancement, but conclusorily assume that it does. Petitioners’ Opening Post-Trial Br. 28, Dkt.
No. 106.
22
arising under a provision of this Certificate of Incorporation or a bylaw of the
Corporation shall not be eliminated or impaired by an amendment to this Certificate
of Incorporation after the occurrence of an act or omission that is the subject of the
civil, criminal, administrative, or investigative action, suit, or proceeding.”106 This
particular provision is inapplicable to Laura and Gary here. Neither the Charter nor
Bylaws provided a right to advancement and Stimwave has not purported to
eliminate any indemnification right under the Charter.
Neither the Bylaws nor the Charter precludes the Company from granting to
an investor a veto right over extension of advancement benefits to its directors and
officers. Whether Laura’s IA is valid accordingly turns on when that document was
executed, which in turn determines whether such document required approval from
the Series D stockholders to be valid. Laura’s IA was not submitted to the Series D
equity holders for approval. I turn, then, to the timing of the agreement’s execution.
B. Laura’s IA was not executed until November 2019.
By the beginning of November 2019, Stimwave was under investigation by
the DOJ. On November 10, Stimwave’s co-Chairman of the Board told Laura that
she needed to step down as CEO, in light of the investigation. It is unclear whether
she agreed. 107 The next day, she provided the Board, for the first time, with a copy
106
Petitioners’ Opening Post-Trial Br. 27–28 (quoting JX 19), Dkt. No. 106; see 8 Del. C. § 145(f).
107
As mentioned above, Laura testified at trial that she did not step down on November 10, 2019,
but at deposition, she answered that she did. Trial Tr. 169:8–11, 17–19.
23
of her IA, with an electronic signature, dated January 1, 2018. Based on this
document, Stimwave extended advancement rights to Laura. When that document
was subsequently challenged, based on metadata showing execution in November
2019, 108 she provided a copy of another signature page, signed in cursive but
undated. She now admits that the January 1, 2018 date is incorrect—an artifact, she
says, of a template for the agreements—but avers that she actually entered the IA in
April 2018, shortly after the Board adopted a form agreement to extend advancement
rights. The metadata evidence showing creation in November 2019 is of no moment,
per Laura; the original metadata of the signature page had been deleted or left behind
on an old computer when the electronic copy of the merged IA was placed on her
new computer. Laura and Gary maintain that they entered their IAs together, in their
kitchen, on April 20, 2018. These assertions arose, I note, after Stimwave pointed
out its belief that Laura had no authority to unilaterally enter IAs in 2019.
Stimwave contends that, although Laura was authorized to enter Stimwave
into IAs as of April 20, 2018, for some reason she declined or neglected to accept
this benefit for herself and Gary, and that both IAs were created on November 11,
2019, after Laura had or anticipated advanceable expenses, and after she had stepped
down as CEO.
108
A director checked the metadata on the document and brought the resulting discrepancy to the
Board’s attention.
24
Laura is unable to find an original, dated copy of her IA, and the metadata
indicates the IA was created on November 11, 2019. The only evidence for the April
2018 date for Laura’s IA is the self-serving testimony of Laura and Gary. The issue,
thus, is one of witness credibility.
Any judge not apprehensive that he may misapply indicia of the credibility of
witness testimony suffers from hubris. Nonetheless, such an application is at times
unavoidable. It is so here. I start with the understanding that Laura provided
Stimwave with a copy of the IA the day after being told she should step down as
CEO in light of the DOJ investigation, and that that copy had an electronic signature,
although she and Gary now maintain it was signed manually. 109 She cannot locate
a physical copy of the IA that she once represented was in her possession.110 Further,
the document Laura produced had a fictitious date of January 1, 2018—a fact that,
per Laura, is an artifact of the template from which it was created.111 When
challenged by Stimwave on the fact that the metadata did not support the January 1,
2018 date, Laura alleged that the metadata indication that the document was created
on November 11, 2019 was irrelevant, because she had previously signed a copy and
109
Laura testified at trial that she electronically signed the indemnification agreement that was
signed and provided on November 11, 2019 because “hand-signed agreements, they don’t copy
well from time to time and time again. Much better off having a DocuSign version. And that’s
what I did. I just made a DocuSign version because it’s easier to read.” Trial Tr. 229.
110
Trial Tr. 143:4–5 (“[W]e weren’t able to find the hard copy . . . .”).
111
The fictitious date is not dispositive. With one exception, all Stimwave director IAs show
fictitious dates. JX 60.
25
scanned it. That original scan had been deleted “[p]robably a long time ago,” 112 per
Laura, and any metadata associated with her original signed or merged IA was
overwritten when she switched to her “new computer,”113 theoretically acquired by
her in the summer of 2018. 114 She acknowledges, however, that the January 1, 2018
date is incorrect, and has averred that the document was entered in April 2018,
immediately before the Charter was amended to require series D approval.
Her testimony to the same effect, in other words, is self-serving; that does not
make it untrue, however. Her story—that the Perrymans’ IAs were both entered in
April 2018 at the kitchen table, is corroborated by Gary. Interestingly, Laura
testified that her memory was clarified after discussing the matter with Gary, who
refreshed her recollection of memorable details, such as a problem with the scanner
and his having spilled food on the documents. At trial, however, Gary had no
memory of this, and denied it was the kind of detail he would have remembered.
Also cutting against Gary’s testimony on Laura’s behalf is that he attended the
December 20, 2018 Board meeting that determined that Laura’s IA was invalid
because it was not created until after the DOJ investigation was launched. Gary
objected that the Board lacked the authority to act on this determination, but
112
Trial Tr. 198:13–17.
113
Trial Tr. 40–41.
114
Her DOJ counsel, however, indicated to Stimwave on her behalf that as of January 30, 2020,
Laura had had but one computer since 2011. JX 51.
26
apparently did not explain that the factual predicate was wrong, because (as he now
maintains) Laura’s IA was created long before the DOJ investigation and her
resignation as CEO.
In other words, the evolving and self-serving narrative of the kitchen-table
executions makes me suspicious as to their truth. Cutting against this suspicion is
the undeniable authority that Laura had to enter the IA before April 23, 2018. She
entered such contracts on behalf of Stimwave with other directors. 115 The IA would
provide a benefit to her; the Stimwave Charter provides for indemnification for
directors, but not advancement, whereas the IA provides both. It would have thus
been in her interest to timely execute an IA. Stimwave has offered no explanation
why, if they are correct, she failed to take advantage of this opportunity to secure
advancement rights.
Ultimately, again, this determination comes down to credibility. Laura did
not, in my opinion, testify truthfully. She came across as someone who had created
a story to fit the facts, adjusted it as it became apparent that it would be advantageous
to do so, and who was attempting to buttress that story by concocting details, an
attempt frustrated when Gary’s testimony contradicted those details. Her entire
demeanor struck me as consistent with both the evolving nature of her story and the
Perrymans’ apparent belief that it should not matter when the IA was created, as
115
Including Gary, as I find below.
27
reflected in Gary’s objection at the December 20, 2019 Board Meeting that the Board
had no right to determine that the IA was invalid.116 Indeed, at trial, Laura stated
multiple times her belief that the timing of the IA’s execution should not matter. For
example, she testified that “there’s like not a big deal about when we executed these
agreements. It was everyone together at the same time”; 117 “I don’t really remember,
and I also don’t agree with your statement that any of these are important details.
What’s important is that we signed the documents in April 2018”; 118 “I do not know
why it was relevant or important to include any dates. . . . I’m telling you that I
executed my agreement at the same time as all the other board members, which I, as
the CEO, executed for them”; 119 and “we signed it in April when I signed everybody
else’s. And it seems like a lot to do about nothing, really.” 120 I find it more likely
than not that Laura’s testimony was untruthful, and that her IA was executed for the
first time on November 11, 2019.
Does that render Laura’s IA unenforceable? Stimwave contends that it is void
ab initio, as not approved by the Series D equity holders, because it provided a
benefit to an executive officer under the Company’s Charter Article V, Section
6(d)(xviii). I note that Laura has provided inconsistent statements as to whether or
116
JX 46, at 6.
117
Trial Tr. 146:17–19.
118
Trial Tr. 189:8–10.
119
Trial Tr. 203:6–7, 16–18.
120
Trial Tr. 185–86.
28
not she was still Stimwave’s CEO on November 11, 2019. She testified at trial that
she did not step down as CEO on November 10, 2019.121 But at her deposition, she
stated that she did step down on that date. 122 Ultimately, however, the answer is
irrelevant. If she did not step down as CEO on November 10, 2019 and she signed
the IA on November 11, 2019, as CEO, she would have been subject to the
requirement of Charter Article V, Section 6(d)(xviii) that she obtain Series D equity
holder approval for the IA. If she did step down, that provision would be
inapplicable; in that case, however, she was without authority to bind Stimwave
contractually. In either event, Laura’s IA was a nullity.
Laura argues that she should be considered to have advancement rights, as do
the other directors, regardless of when she attempted to enter the IA. This argument
I find sympathetic. Laura was the founder of Stimwave; without her efforts,
Stimwave would likely not exist. She had an opportunity to secure advancement
rights, but failed to seize it. She has indemnification rights under the Charter, but
those may prove pyrrhic absent funds to vindicate her legal rights. Nonetheless, this
is a matter of contract, not equity. 123 Likewise, her suggestion, invoking the unclean
hands doctrine, that Stimwave should be estopped from contesting advancement for
121
Trial Tr. 169:8–11.
122
Trial Tr. 169:17–19.
123
I make no determination of the equities of the matter, in any event.
29
her since it has not so denied it to others, is unavailing as a matter of contract law.
Her after-the-fact attempt to create an advancement obligation for Stimwave is void.
C. Gary’s IA was signed on April 20, 2018 and is therefore valid.
While Gary’s IA was not subject to Series D approval, as explained above, if
(as Stimwave asserts) it was executed by Laura on behalf of Stimwave after she
stepped down as CEO, presumably it would be unenforceable. I therefore proceed
to determine the date of execution of Gary’s IA.
As with Laura, I found Gary’s testimony regarding the dual kitchen-table
executions self-serving and less than convincing. Nonetheless, I must determine the
entry date of his IA independently from Laura’s, by a preponderance of the evidence.
One thing that emanated from Gary’s testimony with a ring of truth is that, as a
director of Stimwave, he has been remarkably unengaged.124 He also testified
convincingly that his computer skills are poor.125 And I am convinced that he was
poorly engaged in creating discovery responses in this action, as well.
124
Gary work history includes occupations as a bodyguard, in a training business, and as a producer
and director in the infomercial business, which focused on fitness equipment. Trial Tr. 254–255.
He described being on Stimwave’s Board as “more like a labor of love. I didn’t get paid and I was
only interested in making sure that I could contribute something by being a different type of
viewpoint.” Trial Tr. 252:11–15. Gary testified at trial that he did not “focus on corporate
governance issues in [his] capacity as a director of Stimwave,” that he did not know what relief he
was seeking in the Complaint that was filed without looking at the Complaint, and that he didn’t
know what he was asking the Court to do in this lawsuit. Trial Tr. 268. He also testified that he
didn’t know where Stimwave keeps its corporate records, Trial Tr. 270, and it is unclear whether
he even read the complaint filed by Stimwave against him and his wife in December 2019. Trial
Tr. 272–273.
125
Gary testified that he does not own a computer, has never owned a computer, and that Laura
was the one to scan both his and Laura’s IAs into the computer because “she’s the one who takes
30
The Verified Complaint and the Petitioners’ Motion for Judgment on the
Pleadings aver that Gary’s IA was signed on June 25, 2019. The document bears a
date of January 1, 2015. Gary testified at trial that he executed the document in April
2018, which is contemporaneous with the time the other Stimwave directors
executed their IAs. At trial, Gary contended that the original sworn-to creation
date—June 25, 2019—was the result of an innocent error.126 Gary’s affidavit, filed
with the Petitioners’ Reply Brief for the Motion for Judgment on the Pleadings posits
that the January 1, 2015 date was intentional—and done “in accordance with the
agreement that the indemnity for directors [was to] be retroactive to their original
date of service.”127 Gary became a director in 2013, I note.128 And at trial, Gary had
no idea “how [the January 1, 2015 date] got on there” 129 and, when opposing counsel
asked whether “the date was to coincide with when [he] joined the board,” 130 Gary
responded “No. I don’t know what that date is, coincides with.”131
Unlike with Laura’s IA, however, Gary’s testimony that he executed the IA
in April 2018 is corroborated by metadata for his signature page, which indicates the
care of things like that. It’s not something I do.” Trial Tr. 251:7–14. When asked at trial whether
he saved his IA to Stimwave’s Dropbox, he testified that “I don’t even know how to get on
Dropbox, so no.” Trial Tr. 270–271.
126
Trial Tr. 276:5–9.
127
Affidavit of Gary Perryman in Supp. of Petitioners’ Reply Br. in Supp. of Mot. For J. on the
Pleadings ¶ 9, Dkt. No. 20.
128
Trial Tr. 313; JX 67.
129
Trial Tr. 311:5–8.
130
Trial Tr. 311:22–24.
131
Trial Tr. 312:1–2.
31
page was created on April 20, 2018. 132 I find it more likely than not that this was
the creation date.
In rebuttal, Stimwave points to the testimony of Petitioner’s own expert
witness, Mr. Hammerquist, that what he analyzed to determine the creation date via
metadata was only a copy of the source file for the document—not the original—
and that in any event, a computer user with sufficient knowledge can easily modify
metadata to indicate creation on any date desired. I accept this representation as fact.
However, it fails to convince me that Gary’s metadata was so manipulated. First,
Gary testified believably that he has poor computer skills.133 I find it most unlikely
that he manipulated the metadata. Laura may have the ability to manipulate
metadata. It is unlikely that she would have manipulated Gary’s metadata instead
of her own, however; Laura is the true target, for instance, of Stimwave’s substantive
fiduciary-duty action, which is a main driver of advanceable expenses. The
allegations against Gary, I note without so finding, appear little more than make-
weights.
It is more likely than not, I find, that Stimwave (via Laura) and Gary entered
his IA on April 20, 2018, around the time Stimwave entered indemnification and
advancement agreements with the other directors. For the reasons above, I find it is
132
JX 3.
133
See note 123 supra.
32
likely that Laura would want to secure this benefit for Gary soon after it became
available. I find that Gary’s IA is valid and binding on Stimwave.
III. CONCLUSION
For the reasons stated above in this post-trial Memorandum Opinion, I find
that Gary Perryman has an enforceable advancement right against Stimwave for
indemnifiable litigation expenses relating to his status as director of the company. I
find Laura Perryman’s purported contractual right to advancement against Stimwave
is void.
The Parties should provide an appropriate form of order, invoking the Fitracks
rubric for allocation of expenses. 134
134
Danenberg v. Fitracks, Inc., 58 A.3d 991 (Del. Ch. 2012).
33
Laura Perryman v. Stimwave Technologies Incorporated
Combined Opinion