Berger Harris partner Lisa Stark authored an article in Business Law Today, a publication of the American Bar Association. The piece, "Side-Stepping Fiduciary Issues in Negotiating Exit Strategies for Preferred Stock Investments after Trados," appeared in the September 2013 issue. Stark's article analyzes the Delaware Court of Chancery's recent decision in In re Trados Inc. Shareholders Litig., C.A. No. 1512-VCL (Del. Ch. Aug. 16, 2013).

Stark writes:

[T]he Delaware Court of Chancery held that a venture-backed board’s approval of a merger in which the company’s common stockholders received nothing was entirely fair despite the merger having been approved as part of an unfair process in which the interests of the company’s preferred stockholders were favored over the interests of the common stockholders. The court reluctantly reached the conclusion that the board’s actions survived scrutiny under the exacting entire fairness standard of review after finding that: (1) the value of the common stock was nothing at the time of the merger, and (2) the entire fairness standard is not a bifurcated test as between fair price and fair process, the two components of an entire fairness analysis. Thus, in the court’s view, it could find that the board’s approval of the merger was entirely fair even if the VC-backed board’s process was unfair. In principle, the Delaware courts have consistently held that the entire fairness test is not a bifurcated analysis. However, in practice, the Delaware courts have consistently found against defendants in cases reviewed under the entire fairness standard where there has been unfair dealing because an unfair process usually results in an unfair price. Although the court found the directors committed no breach of fiduciary duty under the entire fairness standard, the court noted, in dicta, that the company’s venture capital investors could have averted or mitigated fiduciary issues in connection with a merger in which the interests of the common and preferred were not aligned.

The full article, which describes specific contractual provisions which may be used to navigate through the tricky fiduciary duty issues surrounding such transactions, may be found in html and pdf format here.