In re Trados Inc. S'holders Litig.
Annotate this CaseIn 2000, Trados Inc. obtained venture capital (VC) to support a growth strategy that could lead to an initial public offering. The VC firms received preferred stock and placed representatives on the Trados board of directors (the Board). Trados, however, failed to satisfy its VC backers. The Board subsequently adopted a management incentive plan (MIP) that compensated management for achieving a sale even if the sale yielded nothing for the common stock. In 2005, SDL plc acquired Trados for $60 million. The merger constituted a liquidation that entitled the preferred stockholders to a liquidation preference of $57.9 million. Without the MIP, the common stockholders would have received $2.1 million. With the MIP, the common stockholders received nothing. Plaintiff contended that instead of selling to SDL, the board had a fiduciary duty to continue operating Trados independently to generate value for the common stock. The Court of Chancery held that Defendants proved the decision to approve the merger was fair, as the common stock had no economic value before the merger, making it fair for its holders to receive in the merger the substantial equivalent of what they had before. Likewise, the fair value of the common stock for purposes of appraisal was zero.
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