IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
` CONSOLIDATED
` C.A. No. 5932-VCS
`
`) )
`
`IN RE CLARIENT, INC.
`SHAREHOLDERS LITIGATION
`
`COMPENDIUM OF UNREPORTED CASES CITED IN PLAINTIFFS’ OPENING
`BRIEF IN SUPPORT OF SETTLEMENT AND APPLICATION FOR
`AN AWARD OF ATTORNEYS’ FEES AND EXPENSES
`
`RIGRODSKY & LONG, P.A.
`Seth D. Rigrodsky (#3147)
`Brian D. Long (#4347)
`Gina M. Serra (#5387)
`919 North Market Street, Suite 980
`Wilmington, DE 19801
`(302) 295-5310
`
`ROSENTHAL, MONHAIT &
` GODDESS, P.A.
`Jessica Zeldin (#3558)
`919 North Market Street, Suite 1401
`Wilmington, DE 19801
`(302) 656-4433
`
`Co-Liaison Counsel for Plaintiffs
`
`OF COUNSEL:
`
`STULL, STULL & BRODY
`6 East 45th Street
`New York, NY 10017
`(212) 687-7230
`
`ABRAHAM, FRUCHTER &
` TWERSKY, LLP
`One Penn Plaza, Suite 2805
`New York, NY 10119
`(212) 279-5050
`
`Co-Lead Plaintiffs’ Counsel
`
`THE WEISER LAW FIRM, P.C.
`121 North Wayne Avenue, Suite 100
`Wayne, PA 19087
`(610) 225-2677
`
`Plaintiffs’ Counsel
`
`
`
`EFiled: May 27 2011 4:13PM EDT
`Transaction ID 37827944
`Case No. 5932-VCS
`
`
`
`

`

`CASES
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` TAB
`
`Cnty. of York Emps. Ret. Plan v. Merrill Lynch & Co.,
`C.A. No. 4066-VCN (Del. Ch. Aug. 31, 2009) (Order)
`
`Gilmartin v. Adobe Res. Co.,
`C.A. No. 12467, 1992 Del. Ch. LEXIS 80 (Del. Ch. Apr. 6, 1992)
`
`Globis Capital Partners, LP v. Safenet, Inc.,
`C.A. No. 2772-VCS (Del. Ch. Dec. 20, 2007) (Order)
`
`Henkel v. Battista,
`C.A. No. 3419-VCN (Del. Ch. Dec. 16, 2008) (Order)
`
`In re AXA Fin., Inc. S’holders Litig.,
`Consol. C.A. No. 18268, 2002 Del. Ch. LEXIS 57 (Del. Ch. May 16, 2002)
`
`In re Chips and Techs., Inc. S’holders Litig.,
`Consol. C.A. No. 15832, 1998 Del. Ch. LEXIS 109 (Del. Ch. Jun. 24, 1998)
`
`In re Countrywide Corp. S’holders Litig.,
`Consol. C.A. No. 3464-VCN, 2009 Del. Ch. LEXIS 44 (Del. Ch. Mar. 31,
`2009)
`
`In re Countrywide Corp. S’holders Litig.,
`Consol. C.A. No. 3464-VCN, 2009 Del. Ch. LEXIS 155 (Del. Ch. Aug. 24,
`2009)
`
`In re Golden State Bancorp Inc. S’holders Litig.,
`Consol. C.A. No. 16175, 2000 Del. Ch. LEXIS 8 (Del. Ch. Jan. 7, 2000)
`
`In re Skyterra Commc’ns, Inc. S’holder Litig.,
`Consol. C.A. No. 4987-CC (Del. Ch. May 24, 2010) (Transcript)
`
`In re Talley Indus., Inc. S’holders Litig.,
`Consol. C.A. No. 15961-VCL, 1998 Del. Ch. LEXIS 53 (Del. Ch. April 9,
`1998)
`
`In re The Trizetto Grp., Inc. S’holders Litig.,
`Consol. C.A. No. 3694-VCN (Del. Ch. Dec. 4, 2008) (Transcript and Order)
`
`In re Wm. Wrigley Jr. Co. S’holders Litig.,
`Consol. C.A. No. 3750-VCL, 2009 Del. Ch. LEXIS 12 (Del. Ch. Jan. 22,
`2009)
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`2
`
`

`

`Virgin Islands Gov’t Employees’ Ret. Sys. v. Alvarez,
`C.A. No. 3972-VCS (Del. Ch. Dec. 2, 2008) (Order)
`
`14
`
`3
`
`

`

`CASES
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` TAB
`
`Cnty. of York Emps. Ret. Plan v. Merrill Lynch & Co.,
`C.A. No. 4066-VCN (Del. Ch. Aug. 31, 2009) (Order)
`
`Gilmartin v. Adobe Res. Co.,
`C.A. No. 12467, 1992 Del. Ch. LEXIS 80 (Del. Ch. Apr. 6, 1992)
`
`Globis Capital Partners, LP v. Safenet, Inc.,
`C.A. No. 2772-VCS (Del. Ch. Dec. 20, 2007) (Order)
`
`Henkel v. Battista,
`C.A. No. 3419-VCN (Del. Ch. Dec. 16, 2008) (Order)
`
`In re AXA Fin., Inc. S’holders Litig.,
`Consol. C.A. No. 18268, 2002 Del. Ch. LEXIS 57 (Del. Ch. May 16, 2002)
`
`In re Chips and Techs., Inc. S’holders Litig.,
`Consol. C.A. No. 15832, 1998 Del. Ch. LEXIS 109 (Del. Ch. Jun. 24, 1998)
`
`In re Countrywide Corp. S’holders Litig.,
`Consol. C.A. No. 3464-VCN, 2009 Del. Ch. LEXIS 44 (Del. Ch. Mar. 31,
`2009)
`
`In re Countrywide Corp. S’holders Litig.,
`Consol. C.A. No. 3464-VCN, 2009 Del. Ch. LEXIS 155 (Del. Ch. Aug. 24,
`2009)
`
`In re Golden State Bancorp Inc. S’holders Litig.,
`Consol. C.A. No. 16175, 2000 Del. Ch. LEXIS 8 (Del. Ch. Jan. 7, 2000)
`
`In re Skyterra Commc’ns, Inc. S’holder Litig.,
`Consol. C.A. No. 4987-CC (Del. Ch. May 24, 2010) (Transcript)
`
`In re Talley Indus., Inc. S’holders Litig.,
`Consol. C.A. No. 15961-VCL, 1998 Del. Ch. LEXIS 53 (Del. Ch. April 9,
`1998)
`
`In re The Trizetto Grp., Inc. S’holders Litig.,
`Consol. C.A. No. 3694-VCN (Del. Ch. Dec. 4, 2008) (Transcript and Order)
`
`In re Wm. Wrigley Jr. Co. S’holders Litig.,
`Consol. C.A. No. 3750-VCL, 2009 Del. Ch. LEXIS 12 (Del. Ch. Jan. 22,
`2009)
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`2
`
`

`

`Virgin Islands Gov’t Employees’ Ret. Sys. v. Alvarez,
`C.A. No. 3972-VCS (Del. Ch. Dec. 2, 2008) (Order)
`
`14
`
`3
`
`

`

`TAB 1
`TAB 1
`
`

`

`EFiled: Aug 31 2009 3: 18PitOTe“
`EFiled: Aug 31 2009 3:18PM EDT
`Transaction ID 26854681 flahy
`Transaction ID 26854681
`Case No. 4066-VCN
`eweWE
`Case No. 4066-VCN
`EFiled: Aug 14200912
`“~2L01
`ONES
`Transaction ID 26597124 ;°:\73
`Case No. 4066-VCN
`
`IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`COUNTY OF YORK EMPLOYEES
`RETIREMENTPLAN, Individually and On
`Behalf of All Others Simmlarly Situated,
`
`Plaintiff,
`
`MERRILL LYNCH & CO., INC., JOHN A.
`THAIN, CAROL T. CHRIST, ARMANDO M.
`CODINA, VIRGIS W. COLBERT, JOHN D.
`FINNEGAN, JUDITH MAYHEW JONAS,
`AULANAL. PETERS, JOSEPH W. PRUEHER,
`ANN N. REESE, CHARLES O. ROSSOTTI, and
`BANK OF AMERICA CORPORATION,
`
`Defendants.
`
`ee!eeaeeeeneeeieeeeeeeNe”ee”neeSee”
`
`C.A. No. 4066-VCN
`
`ORDER AND FINAL JUDGMENT
`
`A hearing having been held before this Court on A Ug uot 3? 2009, pursuant
`to this Court's Order dated
`__.
`} uly 2, 2009 (the "Scheduling Order"), upon a Stipulation
`of Settlement(the "Stipulation”) filed in the above-captioned action (the "Action"), which (along
`
`with the defined terns therein} is incorporated herein by reference; it appearing that due notice
`
`of said hearing has been given in accordance with the aforesaid Scheduling Order; the respective
`
`parties having appeared by their attorneys of record; the Court having heard and considered
`
`evidence in support of the proposed settlement (the "Settlement") set forth in the Stipulation; the
`
`attorneys for the respective parties having been heard; an opportunity to be heard having been
`
`given to all other persons requesting to be heard in accordance with the Scheduling Order; the
`
`Court having determinedthat notice to the Class (as defined in the Stipulation) was adequate and
`
`

`

`sufficient; and the entire matter of the proposed Settlement having been heard and considered by
`
`the Court:
`
`IT IS ORDERED, ADJUDGED AND DECREED THIS 31Day OF
`2009 AS FOLLOWS:
`
`Wgurslr
`
`l.
`
`In full compliance with Court of Chancery Rule 23 and the requirements of due
`
`("Merrill
`n
`"
`Sly iy 2009,he ilLynch& Coninc.
`Inc. (“Merrill" or the "Company")
`;
`, Merrill
`Lyne
`o.,
`process, on
`mailed the Notice of Pendency of Class Action, Proposed Settlement of Class Action, Settlement
`
`Hearing and Right to Appear (the “Notice’’) by first-class mail pursuant to and in the manner
`
`directed by the Scheduling Order, proof of the mailing of the Notice has beenfiled with the
`
`Court and full opportunity to be heard has been offered to all parties, the Class and persons in
`
`interest.
`
`2.
`
`Each ofthe provisions of Court of Chancery Rule 23(a) has been satisfied and the
`
`Action has been properly maintained according to the provisions of Court of Chancery Rule
`
`23(b)(1) and (b}(2) with respect to the claims asserted on behalf of the Class. Specifically, based
`
`on the record of the Action, this Court expressly and conclusively finds and orders that (a) the
`
`Class as defined in the Scheduling Order is so numerous that joinder of all membersIs
`
`impracticable, (b) there are questions of law or fact commonto the Class, (c) the claims or
`
`defenses ofthe representative parties are typical of the claims or defenses of the Class, (d) the
`
`Representative Plaintiff in the Action is fairly and adequately protecting and representing the
`
`interests of the Class, and (e) the requirements of Court of Chancery Rule 23(b)(1) and (b}{(2) are
`
`satisfied. The Action is certified as a class action, pursuant to Court of Chancery Rules 23(a),
`
`23(b)(1) and (b)(2), without opt out rights, by the Plaintiffs on behalf of the Class, consisting of
`
`all shareholders of Merl! common stock (other than the Defendanis (excluding Merrill and
`
`BAC) and their affiliates, successors in interest, predecessors, representatives, trustees,
`
`executors, administrators, heirs, assigns or transferees, immediate and remote, and any person or
`
`entity acting for or on behalf of, or claiming under any of them, and each of them) during the
`
`

`

`period from the close of business on September 12, 2008 through the Effective Time of the
`
`Merger.
`
`3.
`
`Due and adequate notice of the proceedings having been provided to the members
`
`of the Class, and a full opportunity having been offered to them to participate in the Hearing,it is
`
`hereby determined that they are bound by the Order and Final Judgmententered herein.
`
`4,
`
`The Stipulation and the termsof the Settlement as described in the Stipulation and
`
`the Notice are hereby approved and confirmed as being fair, reasonable, adequate, and in the best
`
`interests of the Class and the Company; the parties to the Stipulation are directed hereby to
`
`consummate the Settlement in accordance with the terms and conditions set forth in the
`
`Stipulation; and the Register in Chancery is directed to enter and docket this Order and Final
`
`Judgment in the Action.
`
`5.
`
`All of Plaintiffs' claims asserted in the Action on behalf of the Class against all
`
`Defendants are dismissed on the merits with prejudice against Plaintiffs and all members of the
`
`Class, without costs, except as provided herein.
`
`(a)
`
`In addition to, the foregoing, the Court hereby enters a final judgment and
`
`grant of a release, settling, releasing, discharging and dismissing with prejudice on the merits,
`
`and an injunction barring, any and all claims, demands, actions or causes of action, nghts,
`
`liabilities, damages, losses, obligations, judgments, suits, matters and issues of any kind or nature
`whatsoever, whether known or unknown, contingent or absolute, suspected or unsuspected,
`
`disclosed or undisclosed, that have been or could have been asserted in the Claims or in any
`
`court, tribunal or proceeding (including, but not limited to, any claims arising under federal or
`
`state law, or any other law or regulation, including claimsrelating to alleged fraud, breach of any
`duty, negligence or violation of federal or state securities laws) by or on behalf of Plaintiffs and
`
`any and all of the members of the Class (and Plaintiffs’ and Class members’ present or past heirs,
`
`executors, estates, administrators, predecessors, successors, assigns, parents, subsidiaries,
`
`associates, affiliates, employers, employees, agents, consultants, insurers, directors, managing
`
`directors, officers, partners, principals, members, attorneys, accountants, financial, legal and
`
`

`

`other advisors, investment bankers, underwriters, lenders, and any other representatives of any of
`
`these persons and entities), whether individualor class, legal or equitable, against any andall
`
`Defendants in the Actions, and/or any of their families, parent entities, associates, affiliates or
`
`subsidiaries and eachandall oftheir respective past, present or future officers, directors,
`
`shareholders, representatives, employees, attomeys, financial or investment advisors,
`
`consultants, accountants, investment bankers, commercial bankers, engineers, advisors or agents,
`
`heirs, executors, trustees, general or limited partners or partnerships, personal representatives,
`
`estates, administrators, predecessors, successors and assigns (collectively, the “Released
`
`Persons”) which the Plaintiffs or any memberof the Class ever had, now has, or hereafter can,
`
`shall or may have by reasonof, arising out of, relating to or in connection with the allegations,
`
`facts, events, transactions, acts, occurrences, statements, representalions, misrepresentations,
`
`omissions or any other matter, thing or cause whatsoever, or any series thereof, embraced,
`
`involved, set forth or otherwise related to the Claims, the Merger, or the Merger Agrecment,
`
`including without limitation any disclosures, non-disclosures or public statements made in
`
`connection with any of the foregoing (collectively, the “Settled Claims’) shall be fully and
`
`finally settled, released, discharged, and dismissed with prejudice on the merits; provided,
`
`however, that the Settled Claims shall not include (i) claims to enforce the Settlement; (11)
`
`derivative and double derivative claims asserted on behalf of Merrill, including without
`
`limitation, the derivative claims asserted on behalf of Merrill in (a) the Federal Action, (b) Levin
`
`v. O'Neal, et al., Index No. 07/603662 (Sup. Ct. N.Y. County), Wziontka v. O'Neal, et al., Index
`
`No. 07/603663 (Sup. Ct. N.Y. County), or Diamond v. O'Neal, et al., Index No. 08/600009 (Sup.
`
`Ct. N.Y. County); or (c) any other derivative action pending in any other court; (111) federal
`
`securities claims, including, without limitation, the federal securities claims currently pending in
`
`In re Merrill Lynch & Co., Inc. Securities, Derivative and ERISA Litigation, Securilics Action,
`
`07-cv-9633 (JSR)(DFE), to the extent that such federal securities law claims are not based on the
`
`Merger, the Merger Agreementor any disclosures, non-disclosures or public statements made in
`
`connection with the Merger or Merger Agreement; (iv) claims under the Employee Retirement
`
`

`

`Income Security Act (“ERISA”), including, without limitation, the claims asserted in /n re
`Merrill Lynch & Co., Inc. Securities, Derivative and ERISA Litigation, ERISA Action, 07-cv-
`
`10268 (JSR)(DFE); and (v) claims that members of the Class may have against the Released
`
`Persons based on their purchase, sale or ownership of shares of BAC (excluding the BAC shares
`
`that they received in exchange for Merrill shares pursuantto the terms of the Merger
`
`Agreement), including anysuch claims asserted or that may be asserted in In re Bank ofAmerica
`
`Corp. Securities, Derivative, and Employment Retirement Income Security Act (ERISA)
`
`Litigation, Master File No. 09-MDL-2058 (DC) (S.D.N.Y.);
`
`(b)
`
`The release contemplated by this Stipulation extends to claims that
`
`Plaintiffs, for themselves and on behalfof the Class, do not know or suspect to exist at the time
`
`of the release, which if known, might have affected the decision to enter into the release or to
`
`object or not to object to the Settlement. Plaintiffs and each memberofthe Class, shall be
`
`deemed to waive, and shal! waive and relinquish to the fullest extent permitted by law, any and
`
`all provisions, rights and benefits conferred by any law of the United States or any state or
`
`territory of the United States, or principle of commonlaw, or any other law, which governs or
`
`limits a person’s release of unknown claims; further that (i) the Plaintiffs, for themselves and on
`
`behalfof the Class, shall be deemed to waive, and shal! waive and relinquish,to the fullest extent
`
`permitted by law, the provisions, rights and benefits of Section 1542 of the California Civil Code
`
`which provides as follows:
`
`A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
`CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
`FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICHIF
`KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTEDHIS
`OR HER SETTLEMENT WITH THE DEBTOR
`
`(ii) Plaintiffs, for themselves and on behalf ofthe Class, also shall be deemed to waive any and
`
`all provisions, rights and benefits conferred by any law of any state or territory of the United
`
`States, or principle of commonlaw,or any other law, which is similar, comparable or equivalent
`
`
`
`

`

`to California Civil Code § 1542; and (iii) Plaintiffs, for themselves and on behalf of the Class,
`
`acknowledge that members of the Class may discover facts in addition to or different from those »
`
`that they now know or believe to be true with respect to the subject matter of this release, but that
`
`it is their intention, as Plaintiffs and on behalf of the Class,to fully, finally and foreversettle and
`
`release any and all claims released hereby, known or unknown,suspected or unsuspected, which
`
`now exist, or heretofore existed, or may hereafter exist, and without regard to the subsequent
`
`discovery or existence of such additional or different facts.
`
`6.
`
`Plaintiffs and the members of the Class are hereby individually andseverally
`
`permanently barred and enjoined from instituting, commencing, prosecuting, participating in or
`continuing any action or other proceedingin any court ortribunalof this or any other
`
`jurisdiction,either directly or representatively, against any of the Released Persons, based upon,
`arising out of, or in any wayrelated to or for the purpose of enforcing any Settled Claim,all of
`which Settled Claims are hereby declared to be compromised, settled, released, dismissed with
`prejudice and extinguished by virtue of the proceedingsin this Action and this Order and Final
`
`Judgment.
`7.
`The attorneysfor Plaintiffs in this Action and the Federal Action (as defined in
`the Stipulation) are awarded attorneys’ fees and expensesin the amount of $ 7SO G00 in
`the aggregate, which sums the Court finds to be fair and reasonable. Defendants shall cause such
`amounts to be paid in accordance with the terms of the Stipulation.
`
`8.
`
`This Order and Final Judgmentshall not constitute any evidence or admission by
`
`any of the Defendantshereto or any other person that any acts of negligence or wrongdoing of
`any nature have been committed and shall not be deemedto create any inference that there is any
`
`liability therefor.
`
`9.
`
`The effectiveness of the provisions of this Order and Final Judgment and the
`
`obligations of the Plaintiffs and Defendants under the Settlement shall not be conditioned upon
`or subject to the resolution of any appeal from this Order and Final Judgmentthatrelates solely
`
`to the issue of Plaintiffs' counsel's application for an award ofattorneys’ fees and expenses.
`
`

`

`ta
`
`10.
`
`Without affecting the finality of this Order and Final Judgment, jurisdiction is
`
`hereby retained by this Court for the purpose of protecting and implementing the Stipulation and
`
`the terms of this Order and Final Judgment, including the resolution of any disputes that may
`
`arise- with respect to the effectuation of any of the provisions of the Stipulation, and for the entry
`
`of such further orders as may be necessary or appropriate in administering and implementing the
`
`terms and provisions of the Settlement and this Order and Final Judgment.
`
`llor John W. Noble
`(.
`
`
`

`

`TAB 2
`TAB 2
`
`

`

`Page 1
`
`PATRICK J. GILMARTIN and GERALDINE M. GILMARTIN, individually and
`as trustees, Plaintiffs, v. ADOBE RESOURCES CORPORATION, a Delaware
`corporation, B.J. PEVEHOUSE, RUSSELL L. ALLEN, ADRIAN M. DOULL, BILL
`D. HOLLAND, PETER R. KIRWAN-TAYLOR, JOHN E. KOLB, GERARD E.
`MUNERA, EDWARD L. PALMER, SIDNEY R. PETERSEN, J. ROGER B.
`PHILLIMORE, STANLEY R. RAWN, JR., REUBEN F. RICHARDS, HENRY R.
`SLACK, ROBERT F. VAGT, LLOYD G. WHITELY, SANTA FE ENERGY
`RESOURCES, INC., a Delaware corporation, MINORCO (USA), INC., a Colorado
`corporation, ADOBE MINING COMPANY, a Delaware corporation, and AOI
`COAL COMPANY, a Delaware corporation, Defendants.
`
`Civil Action No. 12467
`
`COURT OF CHANCERY OF DELAWARE, NEW CASTLE
`
`1992 Del. Ch. LEXIS 80
`
`March 27, 1992, Submitted
`April 6, 1992, Decided
`
`NOTICE:
`
`THIS OPINION HAS NOT BEEN RELEASED
`FOR PUBLICATION. UNTIL RELEASED,
`IT IS
`SUBJECT TO REVISION OR WITHDRAWAL.
`
`COUNSEL:
`[*1] William Prickett, Wayne N. Elliott,
`Elizabeth M. McGeever, and Ronald A. Brown, Jr.,
`Esquires, of PRICKETT, JONES, ELLIOTT, KRISTOL
`& SCHNEE, Wilmington, Delaware, Attorneys
`for
`Plaintiffs.
`
`Charles F. Richards, Jr., William J. Wade, Thomas A.
`Beck, Daniel A. Dreisbach, Matthew J. Ferretti, and Lisa
`A. Paolini, Esquires, of RICHARDS, LAYTON &
`FINGER, Wilmington, Delaware; and William L. Rosoff,
`Timothy J. Mayopoulos, and Jacqueline O. LiCalzi,
`Esquires, of DAVIS POLK & WARDELL, New York,
`New York, Attorneys for Defendants Adobe Resources
`Corporation, Russell L. Allen, Adrian M. Doull, Bill D.
`Holland, Peter R. Kirwan-Taylor, John E. Kolb, Edward
`L. Palmer, Sydney R. Petersen, B. J. Pevehouse, Stanley
`R. Rwan, Jr., Robert F. Vagt, and Loyd G. Whitley.
`
`Jr., Esquire, of POTTER,
`Charles S. Crompton,
`ANDERSON & CORROON, Wilmington, Delaware;
`and Jeremy G. Epstein, Alan S. Goudis, and Andrew W.
`Feinberg, Esquires, of SHEARMAN & STERLING, New
`York, New York, Attorneys for Defendants Minorco
`(USA) Inc., Gerard E. Munera, J. Roger B. Phillimore,
`Reuben F. Richards, and Henry R. Slack.
`
`Lawrence C. Ashby, Stephen E. Jenkins, and Keith R.
`Sattesahn, Esquires,
`of ASHBY, McKELVIE &
`GEDDES, [*2] Wilmington, Delaware; and Robert W.
`Doty and Larry K. Elliott, Esquires, of COHEN &
`GRIGSBY, Pittsburgh, Pennsylvania, Attorneys
`for
`Defendants AOI Coal Company and Adobe Mining
`Company.
`
`Lawrence A. Hammermesh, Esquire, of MORRIS,
`NICHOLS, ARSHT & TUNNELL, Wilmington,
`Delaware; and John P. Dukes, Esquire, Attorneys for
`Defendant Santa Fe Energy Resources, Inc.
`
`JUDGES: JACOBS
`
`OPINION BY: JACOBS
`
`

`

`1992 Del. Ch. LEXIS 80, *2
`
`Page 2
`
`OPINION
`
`MEMORANDUM OPINION
`
`JACOBS, Vice Chancellor
`
`The plaintiffs, who are preferred stockholders of
`Adobe Resources Corporation, a Delaware corporation
`("Adobe"), seek a preliminary injunction to prevent the
`scheduled vote on, and consummation of, a proposed
`merger of Adobe into Santa Fe Resources,
`Inc., a
`Delaware corporation ("Santa Fe"). The plaintiffs are
`owners of (and trustees of trusts that own) shares of
`Adobe 12% preferred stock, par value $ 20 per share (the
`"12% Preferred Stock"), and Adobe 9.2% convertible
`preferred stock, par value $ 20 per
`share
`(the
`"Convertible Preferred Stock"). 1 The plaintiffs sue
`individually, derivatively, and on behalf of a class of
`similarly situated Adobe Preferred Stockholders. The
`named defendants are: Adobe and its directors; Santa Fe;
`Minorco (USA), Inc., a Colorado [*3] corporation that
`owns 47.5% of Adobe's common stock ("Minorco
`(USA)");
`and two other
`corporations, AOI Coal
`Company ("AOI") and Adobe Mining Company ("Adobe
`Mining"). The complaint, which was filed on March 5,
`1991, attacks the proposed merger on the ground (among
`others)
`that
`the directors of Adobe breached their
`fiduciary duties, including their duty of candor, in various
`respects.
`
`1 These two classes are sometimes referred to
`collectively as
`the
`"Preferred Stock,"
`and
`correspondingly, the holders of the two classes of
`Preferred Stock are
`sometimes
`referred to
`collectively as the "Preferred Stockholders."
`
`the
`Following expedited discovery and briefing,
`preliminary injunction motion was argued on March 27,
`1992. In response to the Court's request, the defendants
`agreed to defer consummating the proposed merger
`(assuming that the requisite shareholder approval was
`obtained) until the earlier of April 6, 1992, or this Court's
`decision on this motion. 2 This is the Opinion of the
`Court on the plaintiffs' motion for
`[*4] a preliminary
`injunction.
`
`2 The Court made that request at the conclusion
`of oral argument, because of its inability to issue a
`written opinion before the stockholders' meeting
`scheduled for March 31, 1992, and so advised
`
`counsel. Moreover, if the Preferred Stockholders
`did not approve the merger, the motion would
`become moot.
`
`I. THE FACTS
`
`A. The Parties
`
`Adobe is a publicly-held Delaware corporation
`engaged
`primarily
`in
`international
`oil
`and
`gas
`exploration,
`and
`the
`development,
`production,
`processing, gathering,
`transmission, and marketing of
`natural gas. Adobe's capital structure consists of common
`stock and the above-described two classes of Preferred
`Stock, all of which are listed on the New York Stock
`Exchange.
`
`The individual defendants are fifteen directors who
`make up Adobe's board. Five of Adobe's directors are
`"inside" directors: Mr. Stanley Rawn, Jr. (Chairman and
`Chief Executive Officer), Mr. B.J. Pevehouse (Vice
`Chairman of the Board), Mr. Robert Vagt (President and
`Chief Operating Officer), [*5] Mr. Russell Allen (Senior
`Vice President and Chief Financial Officer), and Mr. Bill
`Holland (Senior Vice President of Exploration). No other
`director
`is an officer or employee of Adobe. Four
`directors are designees of Minorco (USA), which is
`Adobe's largest common stockholder: Messrs. Gerard
`Munera, Roger Phillimore, Reuben Richards, and Henry
`Slack. None of Adobe's directors will be employed by
`Santa Fe or its subsidiaries after the merger, although
`Messrs. Vagt and Richards will serve as directors of
`Santa Fe.
`
`As noted, Adobe's largest common stockholder is
`Minorco (USA), which beneficially owns 14,519,745
`shares (representing 47.5%) of Adobe's outstanding
`common shares. Adobe's largest Preferred Stockholder is
`Mr. B.J. Pevehouse, who owns 1,182,996 shares
`(representing 24.4%) of the outstanding 12% Preferred
`Stock and 1,152,473 shares (representing 27.7%) of the
`outstanding Convertible Preferred Stock.
`
`Santa Fe, the other party to the proposed merger, is
`engaged in the exploration for, and development and
`production of, oil and natural gas in the United States and
`abroad. Santa Fe common stock is also listed on the New
`York Stock Exchange. 3
`
`3 The remaining defendants are AOI, a Delaware
`corporation engaged in mining, processing, and
`
`

`

`1992 Del. Ch. LEXIS 80, *5
`
`Page 3
`
`marketing coal; and Adobe Mining, which is a
`wholly-owned subsidiary of AOI.
`
`[*6] B. The Merger
`
`The transaction under challenge in this litigation is a
`merger of Adobe into Santa Fe, in which Adobe shares
`would be converted into shares of Santa Fe. Each
`outstanding share of Adobe common stock would be
`converted into .6000 shares of Santa Fe common stock.
`Each outstanding share of Adobe 12% Preferred Stock
`would be converted into a package consisting of (i) .7029
`shares of Santa Fe common stock, and (ii) .5959 shares of
`a newly-issued Santa Fe convertible preferred stock, 7%
`series, par value $ .01 per share ("Santa Fe Convertible
`Preferred Stock"). And, each outstanding share of Adobe
`Convertible Preferred Stock would be converted into a
`package consisting of (i) .5974 shares of Santa Fe
`common stock, and (ii)
`.5065 shares of Santa Fe
`Convertible Preferred Stock.
`
`The merger requires the separate approval of each
`class of Adobe security holders. That is, the merger is
`conditioned upon (among other things) the affirmative
`vote of: (a) the holders of a majority of the outstanding
`Santa Fe and Adobe common stock; and (b) the holders
`of two-thirds of the outstanding shares of both classes of
`Adobe Preferred Stock, present in person or represented
`by proxy at
`[*7]
`the stockholders' meeting, voting
`together as a single class. The presence of a majority of
`the outstanding shares of Preferred Stock is needed for a
`quorum. The combined holdings of Minorco (USA) and
`of Messrs. Rawn and Pevehouse represent 49.3% of
`Adobe's outstanding common shares. Because those
`parties contractually committed themselves to support the
`merger, the approval of the merger by Adobe's common
`stockholders was (in the words of the Proxy Statement)
`"virtually assured."
`(Paolini Aff., Exh. 8 at 35.)
`Therefore, the only vote in contention is the class vote of
`the Preferred Stock.
`
`and Adobe's
`and Pevehouse,
`Messrs. Rawn
`remaining officers, directors and affiliated persons,
`control 27.4% of the votes entitled to be cast by the
`Preferred Stockholders at
`the stockholders' meeting.
`Since a vote of 66-2/3% of
`the Preferred Stock
`represented in person or by proxy is needed for approval,
`and because 51% of the Preferred Stock is needed for a
`quorum, the merger could be approved by as little as 34%
`of the Preferred Stock (2/3 x 51%) assuming that only the
`minimum percentage of Preferred Stock needed for a
`
`quorum is represented at the meeting. Thus, to obtain the
`necessary shareholder [*8] approval, Adobe's directors
`still had to persuade the holders of at least 6.6% (34% -
`27.4%) of the unaffiliated Preferred Stock to vote in favor
`of the merger (again, assuming that only 51% of the
`Preferred Stock were represented at the meeting).
`
`To secure the approval of all affected security
`holders
`(including the unaffiliated Adobe Preferred
`Stockholders), Adobe's board of directors (jointly with
`Santa Fe's board of directors) disseminated a Proxy
`Statement
`to Adobe (and Santa Fe) shareholders on
`March 2, 1992. The plaintiffs claim that
`the Proxy
`Statement contains materially false and misleading
`disclosures
`that will
`fatally
`taint
`any Preferred
`Stockholder vote. Because the Adobe shareholders'
`meeting has now gone forward and the Preferred
`Stockholder vote needed for approval has now been
`obtained,
`the adequacy of the Proxy disclosures has
`become the pivotal issue.
`
`C. Events Leading Up To The Merger Agreement
`
`formed in October, 1985, by the
`Adobe was
`two natural
`resource
`companies,
`consolidation of
`Madison Resources,
`Inc., and Adobe Oil and Gas
`Corporation. Mr. Pevehouse was the founder and primary
`stockholder of Adobe Oil and Gas. Minorco (USA)'s
`corporate parent
`("Minorco")
`[*9] was
`(through
`subsidiaries)
`the primary stockholder of Madison
`Resources. Accordingly, when Adobe was created and
`issued the two classes of Preferred Stock, Mr. Pevehouse
`took the largest single block of each class of Preferred
`Stock, and Minorco (through a subsidiary, and later
`through Minorco (USA)) took the largest (47.5%) block
`of the Adobe common stock. 4
`
`4 When Adobe was formed, Mr. Pevehouse,
`Minorco, and Mr. Loyd Whitley, another Adobe
`director, entered into a stockholders agreement
`that provided, among other things, that Minorco
`would vote to elect Messrs. Pevehouse and
`Whitley to the Adobe Board, and that Messrs.
`Pevehouse and Whitley would vote for Minorco's
`nominees to all of the remaining Board positions.
`The stockholders' agreement also provided that if
`any transfer of Minorco's Adobe common stock
`would reduce the combined holdings of
`the
`parties below 40%, Minorco obligated itself either
`(i) to cause the Adobe Charter to be amended to
`entitle the Preferred Stockholders to elect two
`
`

`

`1992 Del. Ch. LEXIS 80, *9
`
`Page 4
`
`to obtain the
`(ii)
`Adobe board members, or
`transferee's agreement to be bound by Minorco's
`obligations under the stockholders' agreement.
`
`agreement,
`to this
`The plaintiffs point
`particularly its requirement that Pevehouse and
`Whitley vote
`for Minorco's
`(now Minorco
`(USA)'s) nominees
`to all
`remaining board
`positions, as evidencing Minorco (USA)'s control
`of the Adobe board. However, the record does not
`support that contention. Minorco (USA) does not
`hold 51% of Adobe's common stock, and
`although Minorco (USA) does admit that it is in a
`position to control Adobe, it has not attempted to
`exercise actual control. Accordingly, I find no
`probable merit
`in plaintiffs' contention that
`Minorco controls Adobe in the sense of having
`dominated Adobe's board or exercised day-to-day
`control over Adobe's affairs.
`
`[*10] In 1990, Adobe's board of directors decided
`to explore a possible sale of the company. The board
`believed that in the then-current environment stockholder
`values could be maximized by selling Adobe to a larger
`company. Two investment bankers, Goldman, Sachs &
`Co.
`("Goldman Sachs") and Lazard Freres & Co.
`("Lazard"), were retained to assist the board in that effort.
`Those two firms and senior management approached 30
`companies on a confidential basis and made presentations
`to five companies. However, only two companies
`expressed serious interest, and given then-current market
`conditions, Adobe's management deemed their offers to
`be inadequate.
`
`Moreover, during this period the acquisition market
`dried up because of the effect of the Persian Gulf War on
`oil and gas prices. Although other oil and gas companies
`attempted to sell
`their oil and gas assets by public
`auction, because of depressed market conditions many of
`these efforts were unmitigated failures. Based upon that
`experience, the Adobe board concluded that a sale of
`Adobe was not feasible, and formally terminated the
`efforts to explore a possible sale of the company on
`September 27, 1990. 5
`
`5 The defendants argue vigorously that the sale
`exploration activities conducted in 1990 were
`intensive and constituted a valid "market test" that
`justified their decision not to conduct a public
`"auction" process. However, in a letter written to
`Mr. Munera on June 5, 1991, Mr. William
`
`the Lazard partner in charge of the
`Loomis,
`Adobe account, reminded Mr. Munera that Lazard
`had "voiced concern" that the sales exploration
`conducted "last year was not a serious effort . . ."
`(PX 7 at 2; ellipsis in original.) However, on this
`motion it is not necessary for this Court to resolve
`that issue.
`
`[*11] Matters would have rested there but for the
`fact that six months later, during the spring of 1991,
`Minorco (USA) concluded that
`it would focus its
`operations in mining, metals, and related businesses, and
`that
`it
`(Minorco (USA)) no longe