Vice Chancellor Travis J. Laster found the 2005 sale of Trados Inc. entirely fair even though the directors’ failed to follow a fair process and the common stockholders were left out of the money. When a changing market caused Trados to have cash-flow problems despite consistent, if slow, growth, a group of directors with ties to the company’s venture-capital (“VC”) investors determined that the highest return would come through a sale. The VC investors held preferred stock with a liquidation preference that consumed the majority of the sale price. The small amount left went to cover a management incentive plan devised and adopted by the VC directors to ensure that Trados could be sold in the near term for a price that would offer some return on investment. The Court found that the neither VC directors nor the independent directors ever considered whether the alternative – continued operation of the company – would achieve value for the common stockholders. However, a credible and thorough valuation of Trados by the defendants’ expert witness revealed that the common stock had no value at the time of the merger, and poor prospects to achieve value. Therefore, the unfair process did not poison the entire transaction.
