Alta Berkeley VI C.V. v. Omneon, Inc., C.A. No. 442, 2011 (Del. Mar. 5, 2012)
The Delaware Supreme Court upheld the Delaware Superior Court’s decision to reject plaintiffs’ claim that they were entitled to receive their liquidation preference as holders of Series C preferred stock of Omneon, Inc. (“Omneon”) in connection with Omneon’s acquisition by Harmonic, Inc. (“Harmonic”). Plaintiffs’ Series C preferred stock had been converted into common stock the day before the merger under a forced conversion provision. In the merger, the plaintiffs received the consideration payable to holders of common stock, which was less than their liquidation preference. Plaintiffs argued that they were entitled to their liquidation preference because the conversion of their shares of Series C preferred stock into common stock was part and parcel of the merger, a “Liquidation Event,” under Omneon’s certificate of incorporation. The Superior Court disagreed.
On appeal, the Delaware Supreme Court upheld the Superior Court’s ruling for the following reasons. A “Liquidation Event” was defined by Omneon’s certificate of incorporation to include an acquisition of Omneon by any person or entity “by means of any transaction or series of related transactions” in which Omneon’s stockholders immediately prior to the transaction owned less than 50% of Omneon after the transaction. According to the Court, plaintiffs’ interpretation was unreasonable because Harmonic played no role and received no voting power in the conversion.