EFiled: Feb 14 2025 03:SsPMEST
`Nae
`Transaction ID 75651923=j-;,\7),..CLie
`Case No. 2024-0552-NAC WesEs}
`
`sit
`Ornea
`
`IN THE COURT OF CHANCERYOF THE STATE OF DELAWARE
`
`JACLYN ROSENBAUM,
`
`Plaintiff,
`
`V.
`
`PATRICK D. QUARLES,
`NICHOLASN. CARTER, KARENA.
`TWITCHELL, GARY K. ADAMS,
`PAMELA R. BUTCHER, ADAM C.
`PEAKES,and JANET S. ROEMER
`
`Defendants.
`
`
`
`C.A. No. 2024-0552-NAC
`
`PUBLIC VERSION FILED:
`FEBRUARY 14, 2025
`
`BRIEF IN OPPOSITION TO DEFENDANTS’
`
`MOTION TO DISMISS THE VERIFIED AMENDED COMPLAINT
`
`OF COUNSEL:
`KAHN SWICK & FOTL LLC
`Michael J. Palestina
`1100 Poydras Street, Suite 960 New
`Orleans, LA 70163
`(504) 455-1400
`Michael.Palestina@ksfcounsel.com
`
`KAHN SWICK & FOTI, LLC
`Christopher P. Quinn (No. 5823)
`112 French Street, Ste 201
`Wilmington, DE 19801
`(302) 336-7200
`Chris.Quinn@ksfcounsel.com
`
`Counselfor Plaintiff
`
`EFiled: Feb 14 2025 03:53PM EST
`Transaction ID 75651923
`Case No. 2024-0552-NAC
`
`

`

`TABLE OF CONTENTS
`
`TABLE OF DEFINED TERMS...0200000o00ooc coco ce cee ceec cee cecceecceeeceseeeeseeeseenseeneeeees VI
`
`I.
`
`INTRODUCTION00022... ccc cccccecccec cece cee ccescceeceeseesscesecscsecesecescenseenscesceseeeseens ]
`
`Tl.
`
`FACTUAL BACKGROUND ...0000000000..0ccccccccecccecceeccecceesceeecessnseeeeesenseenseeees 3
`
`A. TRECORA LAUNCHES A GROWTH PROGRAM AND EXPLORESBEING AN
`ACQUIRER.... so cccccceeccceeecceeceeeccceeceeeeccceeeccueecceececseecsseecceseeeceeeeccseeeceteeeseeeeseeee 3
`
`B. ACTIVISTS BEGIN AMASSING STAKESAND PRESSURING THE BOARD.............-- a
`
`C. THE BOARD ABANDONSPo eve este setueeeusutsevsestteietsevtteeeeeees 6
`ss22tws
`
`F. THEBoaRD Tres10,9
`
`
`G. DESPITE INCREASING RESULTS, MANAGEMENT REDUCESPROJECTIONS........ 12
`
`TIT.=ARGUMENT.000022.. cece ccc cece cece ccescccec cece cee eeeeeeeeececeeeeeeeeseeeseeeeseeeseeeeeeeseetees 27
`
`A. THE PROCESS CLAIMS: THE COMPLAINT ADEQUATELY ALLEGES THAT
`DEFENDANTS BREACHED THEIR FIDUCIARY DUTIES UNDER ENHANCED
`
`SCRUTINY IN THE SALES PROCESS............2...02-c0ececceecececeeececeeceececeeceecessececeees 28
`
`1
`
`

`

`1. FIDUCIARIES BREACH THEIR DUTIES WHEN THEY AGREE TO A SALE WHEN
`SELLING IS NOT IN STOCKHOLDERS’ BEST INTERESTS ................................ 28
`
`2. THE COMPLAINT ADEQUATELY ALLEGES FACTS THAT MAKE IT
`REASONABLY CONCEIVABLE THAT DEFENDANTS PURSUED AND AGREED TO
`A SALE EVEN THOUGH THEY KNEW SELLING WAS NOT IN STOCKHOLDERS’
`BEST INTERESTS ....................................................................................... 31
`
`3. THE COMPLAINT ADEQUATELY ALLEGES FACTS THAT MAKE IT
`REASONABLY CONCEIVABLE THAT QUARLES BREACHED HIS DUTIES AS AN
`OFFICER ...................................................................................................... 36
`
`4. THE PLEADINGS STAGE CONCLUSIONS REGARDING THE PROCESS AND
`DEFENDANTS’ FACTUAL COUNTERARGUMENTS ......................................... 41
`
`B. THE DISCLOSURE CLAIMS: THE COMPLAINT ADEQUATELY ALLEGES
`DEFENDANTS BREACHED THEIR FIDUCIARY DUTIES BY KNOWINGLY
`MISLEADING STOCKHOLDERS ........................................................................ 43
`
`1. STANDARDS APPLICABLE TO THE DISCLOSURE CLAIMS AND CORWIN ........ 43
`
`2. THE COMPLAINT ADEQUATELY ALLEGES MATERIAL MISDISCLOSURES ..... 44
`
`3. THE COMPLAINT ADEQUATELY ALLEGES THE REMAINING ELEMENTS OF THE
`DISCLOSURE CLAIMS .................................................................................. 62
`
`C. EXCULPATION DOES NOT APPLY ................................................................... 63
`
`1. ALL DIRECTOR DEFENDANTS ...................................................................... 65
`
`2. QUARLES IN HIS CAPACITY AS AN OFFICER ................................................. 66
`
`IV. CONCLUSION ............................................................................................. 67
`
`ii
`
`

`

`TABLE OF AUTHORITIES
`
` Page(s)
`
`Cases
`Appel v. Berkman,
`180 A.3d 1055 (Del. 2018) ............................................................................... 57
`Baker Hughes Inc. Merger Litig.,
`No. 2019-0638-AGB, 2020 Del. Ch. LEXIS 321 (Del. Ch. Oct. 27, 2020)
` ..................................................................................................................... 49, 67
`Chen v. Howard-Anderson,
`87 A.3d 648 (Del. Ch. 2014) ................................................................ 64, 65, 66
`Chester Cty. Emples. Ret. Fund v. KCG Hldgs., Inc.,
`2019 Del. Ch. LEXIS 233 (Del. Ch. June 21, 2019) ...................... 41, 57, 58, 59
`Clements v. Rogers,
`790 A.2d 1222 (Del. Ch. Div. 2001) .............................................. 40-41, 47, 49
`Corwin v. KKR Fin. Holdings LLC,
`125 A.3d 304 (Del. 2015) ........................................................................... 32, 51
`DVC Holdings, Inc. v. ConAgra, Inc.,
`2005 Del. Super. LEXIS 88 (Del. Super. Ct. Mar. 24, 2005) ........................... 50
`Firefighters’ Pension Sys. v. Presidio, Inc.,
`251 A.3d 212 (Del. Ch. 2021) .......................................................................... 29
`Gilmartin v. Adobe Ress. Corp.
`1992 Del. Ch. LEXIS 80 (Del. Ch. Apr. 6, 1992) ............................................ 56
`Glob. GT LP v. Golden Telecom, Inc.,
`993 A.2d 497 (Ch. Div.) ................................................................................... 39
`Goldschmidt v. Poyhonen,
`C.A. No. 2021-0054-JTL (Del. Ch. May 13, 2022) ......................................... 31
`Goldstein v. Denner,
`No. 2020-1061-JTL, 2022 Del. Ch. LEXIS 117 (Del. Ch. May 26, 2022)
` .................................................................................................................... passim
`
`iii
`
`

`

`Hightower v. SharpSpring, Inc.,
`No. 2021-0720-KSJM, 2022 Del. Ch. LEXIS 214, at *15-16 (Del. Ch. Aug. 31,
`2022) ...................................................................................................... 40, 62, 63
`In re El Paso Corp. S’holder Litig.,
`41 A.3d 432 (Del. Ch. 2012) ............................................................................ 32
`In re Hansen Med., Inc. S’holders Litig.,
`No. 12316-VCMR, 2018 Del. Ch. LEXIS 197 (Del. Ch. June 18, 2018) .. 66-67
`In re KKR Fin. Holdings LLC S’holder Litig.,
`101 A.3d 980 (Del. Ch. 2014) .......................................................................... 32
`In re MONY Grp. Inc. S’holder Litig.,
`852 A.2d 9 (Del. Ch. 2004) .............................................................................. 50
`In re Om Grp., Inc. Stockholders Litig.,
`2016 Del. Ch. LEXIS 155 (Ch. Oct. 12, 2016) ................................................ 50
`In re Orchard Enters., Inc.,
`88 A.3d 1 (Del. Ch. 2014) ................................................................................ 47
`In re PLX Tech. S’holders Litig.,
`No. 9880-VCL, 2018 Del. Ch. LEXIS 336 (Del. Ch. Oct. 16, 2018) ........ 30, 42
`In re PNB Holding Co. S'holders Litig.,
`No. 28-N, 2006 Del. Ch. LEXIS 158 (Del. Ch. Aug. 18, 2006) ...................... 61
`In re Pure Res. S'Holders Litig.,
`808 A.2d 421 (Del. Ch. 2002) .......................................................................... 50
`In re Rural Metro Corp. S’holders Litig.,
`88 A.3d 54 (Del. Ch. 2014) .................................................................. 28, 35, 43
`In re Tangoe, Inc. S'holders Litig.,
`No. 2017-0650-JRS, 2018 Del. Ch. LEXIS 534 (Del. Ch. Nov. 20, 2018) ...... 35
`Karri v. Oclaro, Inc.,
`No. 18-cv-03435-JD, 2020 U.S. Dist. LEXIS 187317 (N.D. Cal. Oct. 8, 2020)
` ..................................................................................................................... 61-62
`
`iv
`
`

`

`Lynch v. Vickers Energy Corp.,
`383 A.2d 278 (Del. 1977) ........................................................................... 61, 62
`Mills Acquisition Co. v. MacMillan, Inc.,
`559 A.2d 1261 (Del. Ch. 1989) .................................................................. 42-43
`Morrison v. Berry,
`191 A.3d 268 (Del. 2018) ................................................................................. 43
`Morrison v. Berry,
`No. 12808-VCG, 2019 Del. Ch. LEXIS 1412 (Del. Ch. Dec. 31, 2019) ......... 67
`Orman v. Cullman,
`794 A.2d 5 (Del. Ch. 2002) .............................................................................. 67
`Paramount Commc’ns v. Qvc Network,
`637 A.2d 34 (Del. 1994) ................................................................................... 30
`Riche v. Pappas,
`C.A. No. 2018-0177-VCL (Del. Ch. Oct. 2, 2018) .......................................... 30
`Rudd v. Brown,
`2020 WL 5494526 (Del. Ch. Sept. 11, 2020) ................................................... 32
`Savor, Inc. v. FMR Corp.,
`812 A.2d 894 (Del. 2002) ........................................................................... 27, 54
`Sherwood v. Chan Tze Ngon,
`No. 7106-VCP, 2011 Del. Ch. LEXIS 202 (Del. Ch. Dec. 20, 2011) .............. 50
`Stroud v. Grace,
`606 A.2d 75 (Del. 1992) ............................................................................. 49-50
`
`State Statutes
`
`8 Del. C. §102(b)(7) ........................................................................................ 64, 65
`
`v
`
`

`

`
`
`TABLE OF DEFINED TERMS
`
`
`
`
`DeSorcy/Ortelius and Radoff, and their respective
`
`
`
`
`affiliates, collectivel
`
`
`S. Sami Ahmad, the Company’s CFO and Treasurer
`
`
`
`
`
`
`Balmoral Funds, LLC, together with affiliate, Balmoral
`
`
`
`
`
`
`
`
`Swan Parent, Inc.
`The former Board of Directors of Trecora: Patrick D.
`
`
`
`
`
`
`
`Quarles, Nicholas N. Carter, Karen A. Twitchell, Gary K.
`
`
`
`
`
`
`Adams, Pamela R. Butcher, Adam C. Peakes, and Janet
`
`
`
`
`
`
`
`
`
`S. Roemer
`Trecora Resources
`
`
`
`
`
`
`
`
`
`
`
`
`
`Term
`The Activists
`
`
`
`Ahmad
`
`Balmoral Funds
`
`
`
`
`Board
`
`
`The Company
`
`a/k/a Trecora
`
`DeSorcy
`
`
`
`
`
`
`
`
`The Amended
`
`Complaint
`
`Defendant/Quarles
`
`
`
`Guggenheim
`
`Merger(a/k/a
`
`
`Transaction)
`
`
`
`Merger Agreement
`
`
`Merger Consideration
`
`
`
`
`
`
`Motion or MTD
`
`Ortelius
`
`
`
`Radoff
`
`
`
`
`
`
`
`
`
`
`Peter DeSorcy, the Managing Memberandcontroller of
`
`
`
`
`
`Ortelius Advisors, L.P.
`(“Ortelius”
`
`
`
`Plaintiff's Amended Verified Class Action Complaint,
`
`
`
`
`
`filed October 15, 2024
`
`
`
`
`Patrick D. Quarles (“Quarles”), the Company’s director,
`
`
`
`
`
`
`President, and CEO before the Merger
`
`
`
`
`
`Guggenheim Securities, LLC
`
`
`
`The transaction provided for in the Merger Agreement
`
`
`
`
`
`
`
`
`
`
`
`
`
`through which Balmoral Funds acquired Trecora via a
`
`
`
`tender offer transaction
`
`
`
`
`The Company’s May 11, 2022 Agreement and Plan of
`
`
`
`
`
`
`
`
`Merger (as amended on May25, 2022, the “Merger
`
`
`
`
`
`
`
`
`
`
`Agreement”) with Balmoral Funds
`
`
`
`
`
`
`
`The $9.81/share cash consideration received by Trecora
`
`
`
`
`stockholders in the Merger
`
`
`
`
`
`
`Defendant’s Motion to Dismiss Amended Complaint
`
`
`
`
`
`
`
`Ortelius Advisors, L.P.,
`the investment manager of
`
`
`
`
`Pangea Ventures, L.P. (“Pangea”),
`together with its
`
`
`
`
`affiliates
`
`
`
`
`
`
`
`
`Bradley L. Radoff, a private activist investor, along with
`
`
`his affiliates
`
`
`
`
`
`V1
`
`
`
`
`
`
`THIS DOCUMENTIS A CONFIDENTIAL FILING.
`
`
`
`
`
`
`
`
`ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER
`
`
`
`
`
`

`

`Recommendation
`Statement
`
`220 Action
`
`220 Production
`
`The Company’s May 26, 2022 Schedule 14D-9
`Recommendation Statement and the Company’s June 15,
`2022 Supplemental Disclosures filed via Amendment
`No. 2
`to
`the Scheduled 14D-9 (collectively
`the
`“Recommendation Statement”)
`Jaclyn Rosenbaum v. Trecora Resources, C.A. No. 2022-
`0540 (Del. Ch. June 22, 2022)
`Documents produced by Trecora pursuant to Plaintiff’s
`Section 220 Books and Records Demand and subsequent
`220 Action
`
`vi i
`
`

`

`I.
`
`INTRODUCTION!
`
`This Court hasheld that alleging a proxy contest is insufficient, on its own, to
`
`allege a conflict. And of course. Otherwise, every merger executed in the face of a
`
`proxy contest would engenderlitigation. But this Court has also recognized that a
`
`proxy contest, with more, can be sufficient to allege conflicts, especially when
`
`viewed in the context of the actions taken by fiduciaries in response thereto.
`
`Likewise, of course. If fiduciaries place their own personal interests above the best
`
`interests of stockholders for any reason, that is a conflict of interest. This case
`
`presents thosefacts.
`
`This action challenges the acquisition of Trecora for $9.81/share. Between
`
`2019-2021, Trecora revampedits business and managementandlaunched a “growth
`
`program”to be delivered in 2022. However, just as stockholders were beginning to
`
`see the fruits of this transformation, Defendants came under attack from two
`
`coordinatedActiv,
`
`All “4” cites are to the Amended Complaint; all capitalized terms are defined in
`1
`the Table of Defined Terms; and all emphasis is added and internal citations, quotations,
`and punctuation are omitted unless otherwise noted.
`]
`
`

`

`demonstrable purpose of ending the proxy contests, Defendants launched an
`
`“expedited” process.
`
`

`

`Then,
`
`in a final act of infidelity, Quarles authorized the filing of a
`
`Recommendation Statement that painted a farcical picture of what really went on
`
`and materially misled stockholders as to conflicts Defendants faced and the
`
`Company’s
`
`standalone
`
`value. These material
`
`non-disclosures
`
`prevented
`
`stockholders from casting an informed vote and resulted in them approving whatthe
`
`Activists themselves predicted would be “a face-saving transaction, despite the
`
`likelihood of an inferior result,” for the purpose of “mooting”the proxy contests.
`
`Viewed “skeptically” through the enhanced scrutiny lens, these allegations
`
`lead to the reasonably conceivable conclusion that Defendants were conflictedi
`
`SN 2 iste stocknotders.
`
`Il.
`
`FACTUAL BACKGROUND
`
`A.
`
`TRECORA LAUNCHES A GROWTH PROGRAMAND EXPLORES BEING
`AN ACQUIRER
`
`From 2019-2021, Trecora “[n]arrowed[its] strategic focus,” “refreshed [its]
`
`Board,” “[a]ppointed Patrick Quarles as CEO and established a new management
`
`team,” and “[l]aunched [a] disciplined growth program” to be delivered and
`3
`
`

`

`developed in 2022 and beyond. 932. From late 2020 through mid-2021, Trecora and
`
`its financial advisor Guggenheim also explored strategic alternatives, including a
`
`transaction in which Trecora would have been an acquirori 33.
`
`B.
`
`ACTIVISTS BEGIN AMASSING STAKES AND PRESSURING THE BOARD
`
`Meanwhile, between February and November 2021, DeSorcy and his firm
`
`Ortelius amassed an 11% activist stake. (34. Beginning in March 2021, after
`
`Ortelius’ first public filing, Trecora began having “significant engagement withits
`
`largest stockholders,”Pe
`
`2021, DeSorcy andhis affiliate Shawn Abrams metwith Quarles and Ahmad (CFO)
`
`and demandedthat Trecora add three new directorsfe
`
`“to explore opportunities.” Jd. Undisclosed,Po
`
`ee
`as
`
`Asoften happens whenanactivist makes a public play, in July 2021, another
`
`activist (Radoff) began accumulating shares. 36. This Court (and former Chief
`
`Justice Strine) have noted that simultaneous and coordinated campaignslike this
`
`bring incredible pressure on a Boardto sell. See §37 and n.3 (citing, among others,
`
`Leo E.Strine, Jr., Who Bleeds When the Wolves Bite?, 126 Yale L.J. 1870, 1896
`
`(2017) ) .
`
`

`

`{938-39.
`
`1soO
`
`S
`
`po 4]41. Two dayslater, Radoff disclosed a 3.6% stake, which he increased
`
`to >9% by March 2022. 942. In his 13D, Radoff stated that Trecora was undervalued,
`
`5
`
`

`

`its share price did notreflect intrinsic value, and he was considering nominating
`
`directors. Jd.
`
`THE BOARD ABANDONSPo
`Cc.
`Ortelius’ and Radoff’s sustained (likely coordinated) efforts had real effect.
`
`aE
`
`S8: se soe tine,
`
`

`

`ee
`
`po 947. Carter has deep ties to Trecora and was on his wayout:
`
`he had been a director since 2004; was non-independent; previously served as
`
`Chairman, President, and CEO: owned ~2.52%of Trecora’s stock: Po
`
`SS: :::::
`
`curinghh
`
`ES7. *°
`
`Se ::
`
`7
`
`

`

`On October 20, 2021, the Board held a meeting with Guggenheim, outside
`
`counsel, and Spotlight Advisors (“Spotlight”), which had beenretained yy Ty
`
`q52.
`
`=aNn ws)
`
`|
`
`=Nn ” Nni
`
`

`

`Notably,TS[i
`
`i GE the Company Projections ultimately disclosed in the
`
`Recommendation Statement. 4/54. As outlined below,Ss
`
`GE «2 fairness opinion DCF range of just $6.62-$8.57/share. This
`
`process beganat this meeting, when
`
`q54.
`
`F.
`
`THE BOARD TRIESTORE
`
`= A wn
`
`On October 27, 2021, Quarles and Ahmad discussed with DeSorcy his
`
`willingness to enter into an NDA (RE and Trecora’s willingness to
`
`appoint Abrams tothe Board.156,
`
`

`

` ¶57.
`
` ¶58.
`
` Id.
`
`The advisors recommended that the Board
`
` ¶59.
`
`10
`
`

`

` Id.
`
` Id.
`
` Id.
`
` Id.
`
` ¶60.
`
` Id.
`
`Discussions with DeSorcy
`
` were
`
`unproductive,
`
`however, as DeSorcy
`
` disclosed an increased 11% ownership
`
`stake on November 2, 2021. ¶62.
`
`¶61.
`
`11
`
`

`

` Id.
`
`G.
`
`DESPITE
`INCREASING RESULTS, MANAGEMENT REDUCES
`PROJECTIONS
`On November 7, 2021, Trecora reported 3Q:21 results, including revenue of
`
`$74.6 million, a 56.3% year-over-year increase. ¶63. Ahmad commented:
`
`“[v]olumes increased in both of our segments” and Trecora had “a strong balance
`
`sheet and liquidity position,” giving it “financial flexibility to…execute on [its]
`
`strategic plan.” Id. Quarles noted “how positive [he felt] about the direction of [the]
`
`business,” stating that “we see our business growing in 2021 and are confident
`
`that will continue into 2022.” ¶64. Quarles specifically told stockholders that “we
`
`have to continue to focus on the plan that we have” and predicted that “the growth
`
`portfolio that we have” was “going to continue to grow as we go into next year.”
`
`¶65. In other words, management told stockholders that their focus was on accretive
`
`growth, not a sale; the only reason that Defendants soon determined to sell was due
`
`to activist pressure. Id.
`
`On November 15 and 16, 2021, Quarles informed the Board
`
`.” ¶66.
`
`12
`
`

`

`a’. Despite positive results reported days earlier po
`
`<7):
`
`13
`
`

`

`
`
`Asoe,
`
`ES «
`
`14
`
`

`

`a
`On November17, 2021, Radoff disclosed an increased 5% interest, demanded
`
`that the Board “publicly announcea strategic review process seeking [a] sale,” and
`
`stated that he “[did] not believe that the current [Board was] acting in the best
`
`interests of stockholders and [was] strongly considering nominating a competing
`
`slate of proven director candidates.” 469.Pe
`
`Pe This was the “Company Plan” or “Company
`
`Projections” disclosed in the Recommendation Statement.Jd.
`
`

`

`2 pr0ve0
`
`the CompanyPlanto be usedin that process. Jd?
`
`i972 0.4.
`
`

`

`ns
`
`Overthe following weeks, the Company andOrtelius attempted to negotiate
`
`the terms of a “Company-provided” NDAthat would have “contain[ed] customary
`
`standstill provisions,” but Ortelius refused to agree to any standstill provisions.
`
`? S
`
`eee
`
`eee
`
`Meanwhile, on December 6, 2021, Guggenheim launchedits buyer outreach.
`
`476. Evincing the Activists’ pressure,ee
`
`just six weeks. 4.en
`
`72 —
`
`——x
`
`On January 25 and 26, 2022, “Company A” and Balmoral Funds submitted
`
`bids of $9.40/share and $9.50/share, respectively. 78.
`
`17
`
`

`

`ot>O n o g.aWn
`
`Board meton January 27, 2022 to discuss
`
`RE 5579-80.
`In ai attempt to gamethe Activists,
`
`=oo —
`
`Lo
`
`—4oo N
`
`myd.
`
`18
`
`

`

`Buta. On February 7, 2022, Ortelius nominated six
`
`candidates to the Board and issuedaletter (as “largest stockholder’) calling for
`
`meaningful Board change. 84. In it, Ortelius recognized Trecora’s significant
`
`standalone value and placed the blame on its failure to achieve that value
`
`> “ce
`squarely on Defendants. See, e.g., 984 (“significant upside potential”;
`
`“deeply
`
`29. «e
`concerned by...chronic undervaluation and disappointing performance”;
`
`“as one of
`
`two producers in the U.S., [Trecora] suppllies] approximately two-thirds of the
`
`292,
`market’;
`
`ce
`
`“Despite Trecora’s numerous strengths, first-class facilities, and excess
`
`20. «,
`capacity..., capital has been grossly misallocated”;
`
`“years of disappointing results
`
`>>. ce
`related to governance,strategy”; “multiple paths to building and unlockingintrinsic
`
`22. ce
`value”;
`
`“no reason for confidence in the Board’s decision-making abilities”).
`
`ee
`a
`
`19
`
`

`

`PE *:.ee
`
`ieeeeeerrC‘;sCtSS
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`In other words, the Board wasspecifically yyPo
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`20
`
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`SS
`
`Ibin 3 — 4Years” 1991-92. By
`
`contrast, the CompanyProjections disclosed in the Recommendation Statement and
`
`the Company’s full year
`the 4Q:21 results “brought
`Defendants allege that
`3
`performanceinslightly below the November2021 Projections,” but their ownparenthetical
`contradicts that statement. MTD, 48-49 (citing MTD Exs. 30, 35 ($22.1Mprojection v.
`$22.5Mactual)).
`
`21
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`

`

`used in the fairness opinion forecasted Adjusted EBITDA of just $40.2 million in
`
`2026.J.
`
`ee
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`ee
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`BE
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`GR 995.
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`Then, on March 22, 2022, Ortelius published another letter threatening the
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`Board, highlighting Trecora’s “significant potential upside,” and noting that
`
`its
`
`failures were
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`all
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`“self-inflicted, causing stockholders
`
`to
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`lose confidence in
`
`Trecora’s Board and management
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`team.” 496. The letter
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`further alleged that
`
`Defendants were deliberately rebuffing Ortelius’ efforts in favoroftheir self-interest
`
`22
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`

`

`and predicted — as would cometo pass — that, in order to avoid a proxy contest
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`loss, Defendants would enter into “a_face-saving transaction, despite the
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`likelihood of an inferior result, given the Company’s depressed valuation and
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`lack of negotiating leverage.” Jd. The letter stated that “we are particularly
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`concerned that stockholders will be harmed and disenfranchised by a transaction
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`overseen by this group of directors” and highlighted its own director nomineesas
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`more qualified to oversee any strategic review, “without the biases that exist on the
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`current Board.” Jd. Ortelius thus predicted exactly what would happen — that
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`Defendants would rush into a sale in their own self-interest, rather than lose a
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`proxy contest and let someoneelse run the Company.
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`On April 1 and 3, 2022, Ortelius filed its proxy and published anotherrelease,
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`in which it reiterated its criticism of Defendants, demanded that they “be held
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`accountable,” stated that “the status quo [was] no longer an option,” and concluded
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`that, “[d]espite Ortelius’ good faith efforts, the Board [] reacted to [its] director
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`nominations with defensive self-preservation tactics.” §§97-98.
`
`According to the Recommendation Statement, the Board met on March 22,
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`March 24, and April 11, 2022 to discuss the sales process. 999. po
`eS
`
`23
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`

`

`Awareof the leverage these proxy contests gave it over the Board, on April
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`15, 2022, Balmoral Funds reducedits offer from $9.50/share to $9.17/share. 100.
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`When the Board met on April 18,
`
`it expressed disappointment and directed
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`Guggenheim to convey that Balmoral Funds’ offer would need to be at least
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`$10/share. 4101.
`
`— oSN1
`
`. Id.
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`On April 27, 2022, when the Board met to discuss Balmoral Funds’ refusal to
`
`increaseits offer o $10/shae,
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`03-10:
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`24
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`

`9104.
`
`105.
`
`=
`
`Later
`
`that day, Balmoral Funds offered $9.81/share, conditioned on
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`management agreeing that their equity awards would be settleable in cash on a
`
`dclayed schedule 2ndES9105
`When the Board met on May2,
`ES«0
`
`N
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`

`

`On May 3, 2022,
`
`the Board determined that it was not willing to ask
`
`managementto delay the vesting of their equity. 108. The Board was, however,
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`willing to ask stockholders to give up value, and determined that it was now
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`supportive of $9.81/share. Jd. Even the acquirer knew that the Board wastaking
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`actions that were contrary to stockholders’ interests and movedto protectits deal:
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`the Balmoral Funds proposed that the Board adopt a stockholder rights plan to
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`prevent the Activists from blocking the Merger, which they had warned that the
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`Board would execute to avoid losing the proxy fight. 4109.
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`In the interim, during a May 8, 2022 earnings call three days before the
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`execution of the Merger Agreement, management noted increasing demand and
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`“strong growth overthe foreseeable future.” §110. As a result, Trecora “rais[ed] [its]
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`full year guidance to a range of $28 million to $32 million of adjusted EBITDA.”
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`Rather, on May 11, 2022, the Board received Guggenheim’s fairness opinion.
`
`as
`26
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`

`

`eS
`
`ES
`
`a O
`
`n May 11, 2022, the Merger Agreement was executed. 4113. On May 25
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`and June 27, 2022, Balmoral Funds commenced the tender offer and completed the
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`acquisition. Jd. Quarles received $4,412,059 in Golden Parachute Compensation,
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`more than the $3,123,161 value of his common stockholdings. 4114.
`
`Il ARGUMENT
`
`On a motion to dismiss, all well-pleaded factual allegations are accepted as
`
`true; even vagueallegations are “well-pleaded”if they give notice of the claim; the
`
`Court must draw all reasonable inferences in favor of the non-moving party; and
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`dismissal is inappropriate unless the “plaintiff would not be entitled to recover under
`
`any reasonably conceivable set of circumstances.” Savor, Inc. v. FMR Corp., 812
`
`A.2d 894, 896-97 (Del. 2002).4
`
`Defendants rely on extraneous documents(like the Recommendation Statement, the
`4
`220 Production, and
`to make unverified assertions, often
`that contradict the contemporaneous record. While the Court may take judicial notice “to
`establish the information that was disclosed to stockholders, and to establish formal,
`
`27
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`

`

`The Complaint adequately alleges facts that lead to the reasonably
`
`conceivable conclusion that Defendants (A) breached their fiduciary duties under
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`enhanced scrutiny in the sales process (the “Process Claims”); and (B) breached their
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`duties of candor by knowingly misleading stockholders, giving rise to independent
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`disclosure claims (the “Disclosure Claims”) and vitiating Corwin. Finally, (C)
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`exculpation is not available.
`
`A.
`
`THE PROCESS CLAIMS: THE COMPLAINT ADEQUATELY ALLEGES
`THAT DEFENDANTS BREACHED THEIR FIDUCIARY DUTIES UNDER
`ENHANCED SCRUTINY IN THE SALES PROCESS
`1.
`Fiduciaries Breach Their Duties When They Agree to a Sale
`When Selling Is Not in Stockholders’ Best Interests
`Because the Merger involved a cash sale, enhanced scrutiny applies. MTD,
`
`22; Goldstein, 2022 Del. Ch. LEXIS 117, at *85. “Framed generally, enhanced
`
`scrutiny requires that the defendant fiduciaries ‘bear the burden of persuasion to
`
`show that their motivations were proper and not selfish’ and that ‘their actions were
`
`reasonable in relation to their legitimate objective.’” In re Rural Metro Corp.
`
`S’holders Litig., 88 A.3d 54, 82 (Del. Ch. 2014). To meet this standard, fiduciaries
`
`“must establish both (i) the reasonableness of ‘the decisionmaking process employed
`
`uncontested matters[,] defendants attempt to go further…[and] ask the court to draw
`defense-friendly inferences from those documents…. [That is] beyond what Rule
`12(b)(6) permits.”). Goldstein v. Denner, No. 2020-1061-JTL, 2022 Del. Ch. LEXIS 117,
`at *10 (Del. Ch. May 26, 2022).
`
`28
`
`

`

`by the directors, including the information on which the directors based their
`
`decision’ and (ii) ‘the reasonableness of the directors’ action in light of the
`
`circumstances then existing.’” Goldstein, 2022 Del. Ch. LEXIS 117, at *83.
`
`Plaintiffs “can state a claim for breach of duty by pleading facts supporting a
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`reasonable inference that the [Merger] and the process that led to it fell outside the
`
`range of reasonableness.” Id. at *85.
`
`What typically drives a finding of breach “is evidence of…a similar
`non-stockholder-motivated influence that calls into question the
`integrity of the process.” “[W]hen there is a reason to conclude that
`debatable tactical decisions were motivated not by a principled
`evaluation of the risks and benefits to the company’s stockholders, but
`by a fiduciary’s consideration of his own financial or other personal
`self-interests, then the core animating principle of Revlon is
`implicated.”
`
`Id. at *85-86. In conducting this inquiry, ‘“the court must take a nuanced and
`
`realistic look at the possibility that personal interests short of pure self-dealing have
`
`influenced’ the fiduciary’s decision[,]” and “thereby smoke out mere pretextual
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`justifications for improperly motivated decisions.” Firefighters’ Pension Sys. v.
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`Presidio, Inc., 251 A.3d 212, 250 (Del. Ch. 2021).
`
`Fiduciaries breach their duty of loyalty under Revlon enhanced scrutiny when
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`they support a sale when a sale is not in the best interests of stockholders – i.e., when
`
`pursuing a standalone strategy is in stockholders’ best interests. “The best
`
`29
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`

`

`transaction reasonably available is not always a sale; it may mean remaining
`
`independent and not engaging in a transaction at all.” In re PLX Tech. S’holders
`
`Litig., No. 9880-VCL, 2018 Del. Ch. LEXIS 336, at *64 (Del. Ch. Oct. 16, 2018).
`
`“To reiterate, good faith requires that…[i]f a sale is not the right thing and you
`
`believe a sale is not the right thing, you’re not supposed to sell.” Riche v. Pappas,
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`C.A. No. 2018-0177-VCL (Del. Ch. Oct. 2, 2018), Ex. 1 at 27:18-22.
`
`As outlined below, viewing the process “skeptically” through the enhanced
`
`scrutiny lens, it is reasonably conceivable that the Board breached their fiduciary
`
`duties when they pursued and agreed to a sale
`
`
`
`
`
`and Quarles breached his fiduciary duties as an officer by facilitating the Merger,
`
`manipulating Trecora’s projections, and overseeing and consenting to Guggeheim’s
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`manipulation of its DCF. The Complaint thus supports a reasonable inference that
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`the process did not achieve “the best value reasonably available.” Paramount
`
`Commc’ns v. Qvc Network, 637 A.2d 34, 43 (Del. 1994).
`
`30
`
`

`

`2.
`
`The Complaint Adequately Alleges Facts that Make It
`Reasonably Conceivable that Defendants Pursued and
`Agreed to a Sale Even Though They Knew Selling Was Not
`in Stockholders’ Best Interests
`“[P]articular types of investors may espouse short-term investment strategies
`
`and structure their affairs to benefit economically from those strategies, thereby
`
`creating a divergent interest in pursuing short-term performance at the expense of
`
`long-term wealth.” Goldstein, 2022 Del. Ch. LEXIS 117, at *89-90. “This is
`
`particularly true for activist hedge funds.” Id. at *89. “Activist hedge funds ‘are
`
`impatient stockholders, who…want [value] realized in the near or intermediate
`
`term[, and] tell managers how to realize the value and challenge publicly those who
`
`resist the advice, using the proxy contest as a threat.’” Id. at *89-90. Here, the
`
`Complaint adequately alleges that the Activists were precisely such serial activist
`
`investors who have the same modus operandi. ¶¶34-43, 69, 73-77, 84, 96-98.
`
`The presence of an activist threat or the existence of a proxy contest, standing
`
`alone, is insufficient to allege a conflict. MTD, 53 (collecting cases). However, as
`
`Defendants concede, an activist threat or a proxy context, plus something more,
`
`can be sufficient to allege a breach of duty. MTD, 4, 53-54 (citing, e.g., Goldschmidt
`
`v. Poyhonen, C.A. No. 2021-0054-JTL (Del. Ch. May 13, 2022), MTD Ex. 41 at
`
`97:4-14 (proxy contest “not enough standing alone”), id. at 99 (proxy contest and
`
`31
`
`

`

`activism should not be ignored), Rudd v. Brown, 2020 WL 5494526, at *10 (Del.
`
`Ch. Sept. 11, 2020) (proxy contest plus “other indicia of gross negligence or
`
`disloyalty” sufficient to state a claim). That is because “[d]irectors facing a proxy
`
`contest face an inherent positional conflict,” Kalisman v. Friedman, C.A. No. 8447-
`
`VCL (Del. Ch., June 7, 2013), Ex. 2 at 40, that “can inspire fiduciaries and their
`
`advisors to be less than faithful to their contextual duty to pursue the best value,” In
`
`re El Paso Corp. S’holder Litig., 41 A.3d 432, 439 (Del. Ch. 2012), and that, when
`
`coupled with other allegations like those alleged here, can implicate the duty of
`
`loyalty/bad faith. Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 307 n.7 (Del.
`
`2015) (noting “importance of examining whether an insurgent could win a proxy
`
`contest”); In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 993, 995
`
`(Del. Ch. 2014) (“power to exact retribution by removing [directors] from their
`
`offices” tends to establish control); In re PLX Tech. Inc. S’holders Litig., No. 9880-
`
`VCL (Del. Ch. Sept. 3, 2015), Ex. 3 at 27 (“‘Activist hedge funds…us[e] the proxy
`
`contest as a threat.’”); Kalisman, Ex. 2 at 40-41 (“reasonable probability of success
`
`on the claim that the directors acted for a purpose that was self-interested in terms
`
`of attempting to [remove threat of proxy contest]”).5
`
`See also Leo E. Strine, Jr., Who Bleeds When the Wolves Bite?, 126 Yale L.J. 1870,
`5
`1925-1926, 1927 n.190 (2017) (independent directors are “highly sensitive” to proxy
`
`32
`
`

`

`Defendants predi