On Aug. 16, 2013, the Delaware Court of Chancery found that the board of Trados Incorporated did not breach its fiduciary duties in approving a merger of its company with SDL plc, even though the common stockholders received nothing in exchange for their shares, because the price was fair. The result is all the more interesting in light of the fact that the court found that the vast majority of directors approving the merger were conflicted through their alignment or relationship with the preferred stockholders, never considered how to account for such conflicts and never considered the interests of the common stockholders in approving the merger.
Trados, a translation software company, was founded in 1984 and by 2004, Trados had sold several series of preferred equity to various venture capital investment firms (VCs). The preferred equity provided the VC investors with liquidation preferences and other common preferred stock features, including board representation rights and cumulative dividends of 8 percent per annum. The Board also adopted a management incentive plan (MIP) which rewarded key executives, some of whom served on the board, with a percentage of proceeds from a sale of the company, resulting in their alignment with the interests of the preferred stockholders.