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declining to infer pre-closing intent based solely on post-closing actions
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C.A. No. 16044 CONSOLIDATED
Date Submitted: February 22, 1999
Date Decided: June 16, 2000
Norman M. Monhait and Carmella P. Keener, Esquires, of ROSENTHAL, MONHAIT, GROSS GODDESS, P.A., Wilmington, Delaware; and Norman Berman and Michael G. Lange, Esquires, of BERMAN, DEVALERIO PEASE, LLP, Boston, Massachusetts; and Robert I. Harwood and Jeffrey M. Haber, Esquires, of WECHSLER HARWOOD HALEBIAN FEFFER LLP, New York, New York; and Marian Rosner and Patricia Avery, Esquires, of WOLF POPPER LLP, New York, New York; and Curtis V. Trinko and Timothy J. McFall, Esquires, of LAW OFFICES OF CURTIS V. TRINKO, LLP, New York, New York; Attorneys for Plaintiffs.
R. Franklin Balotti, Lisa A. Schmidt and Peter B. Ladig, Esquires, of RICHARDS, LAYTON FINGER, P.A., Wilmington, Delaware; and Richard A. Cirillo, Debora S. Burstein and Ann M. Driscoll, Esquires, of KING SPALDING, New York, New York; Attorneys for Defendants Gould Electronics, Inc., Robert J. Fedor, C. David Ferguson, Thomas N. Rich and Michael C. Veysey.
Stephen J. Balick, Esquire, of ASHBY GEDDES, Wilmington, Delaware; and Mark D. Cahill, Esquire, of CHOATE, HALL STEWART, Boston, Massachusetts; Attorneys for Defendants Kenneth G. Fisher and Rowland H. Thomas, Jr.
MEMORANDUM OPINION
This consolidated class action is brought by former shareholders of Encore Computer Corporation, a Delaware corporation ("Encore" or "the Company"), against Encore's former directors and its largest stockholder, Gould Electronics, Inc. ("Gould"). The plaintiffs' claim-is that the defendants breached their duties of loyalty and disclosure by approving two separate sales of Encore's assets to third parties, which amounted to a de facto liquidation of Encore. The plaintiffs contend that the two asset sales served Gould's interests to the exclusion of the Encore common shareholders.
The defendants have moved to dismiss the amended complaint under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The basis for the dismissal motion is that (i) the complaint does not allege any cognizable breach of duty of loyalty claims, and (ii) the nondisclosure allegations fail to plead facts legally sufficient to warrant relief.
For the reasons next discussed, I find that these arguments have merit, and thus will grant the motion to dismiss.
I. BACKGROUND
The pertinent facts are derived from the amended complaint and extrinsic documents properly incorporated therein by reference.
The documents incorporated by reference include the Sun Asset Purchase Agreement, the Gould Agreement, the Retention Agreements, the Sun Proxy Statement, the third quarter 1998 Form 10-Q, and the Gores Group Proxy Statement.
Encore (which was not joined as a party) is a Delaware corporation with its principal place of business in Plantation, Florida. Before 1997, the Company had three lines of business: (1) it designed, manufactured, and distributed data storage, data retrieval and sharing technologies for mixed platform processing environments (the "Storage Products Business"); (2) it also developed clustering software (the "Clustering Software Business"); and (3) it designed, manufactured, distributed and supported scalable real-time computer systems software used for computer simulations (the "Real-Time Business").
Until November 24, 1997, Encore had a four member Board of Directors that consisted of defendants Kenneth G. Fisher ("Fisher"), Rowland H. Thomas ("Thomas"), Robert J. Fedor ("Fedor"), and C. David Ferguson ("Ferguson"). After November 24, 1997, the Board was expanded to include two additional directors, defendants Thomas N. Rich ("Rich") and Michael C. Veysey ("Veysey").
Also named as a defendant is Encore's 48.5% stockholder, Gould, which (in turn) is a wholly owned subsidiary of Japanese Energy Group ("JEC"), a Japanese corporation. Fedor, Ferguson, Rich and Veysey are Gould's representatives on Encore's Board of Directors.
In 1989, Gould sold its computer systems business to Encore. Unable to generate enough revenue to sustain-itself, Encore came to rely primarily on Gould to fund its operations. From 1989 through November 1997, Gould loaned Encore approximately $496 million. That loan was secured by a first priority security interest in Encore's assets, including its Storage Products business. As additional security for those loans, in 1991 Encore licensed to Gould substantially all of its intellectual property, including that relating to Encore's Storage Products business.
During this period Gould also agreed to accept convertible preferred stock in satisfaction of approximately $420 million of secured debt that Encore owed to Gould. The preferred stock gave Gould a liquidation preference totaling approximately $420 million. Despite that debt reduction, Encore found itself unable to pay cash dividends on the preferred stock, and as a result, it issued to Gould additional preferred shares with a liquidation preference of about $41 million. By 1997, Encore had unpaid dividends arrearages to Gould that totaled $29.5 million.
In January 1997, Encore's independent auditors expressed substantial doubt about the Company's ability to continue as a going concern. At that point, Gould decided to stop providing funding to Encore. Having had no source of capital other than Gould, Encore faced bankruptcy and liquidation. An analysis prepared by Price Waterhouse showed that in a liquidation, Encore's liquidation value would be only $24.4 million. On that basis Encore's common shareholders would receive no liquidating distribution, since $24.4 million would not be nearly enough to pay off Encore's debts to Gould and to Encore's other creditors.
A. The Sun Transaction
On July 17, 1997, the Encore Board entered into an Asset Purchase Agreement with Sun Microsystems, Inc. ("Sun"), in which Sun agreed to purchase Encore's Storage Products business for $185 million (the "Sun Transaction"). Sun would pay the purchase price in two installments: $150 million at closing and the remaining $35 million in July 1998.
As part of the Sun Transaction, Encore entered into an agreement with Gould on July 16, 1997 (the "Gould Agreement"), in which Gould agreed to release its security interest in the Storage Products business and to transfer its intellectual property license in that business to Sun. Gould also agreed: (i) to convert a portion of its Encore preferred stock into Encore common stock (thereby increasing Gould's holdings to 48.5% of Encore's outstanding shares), and (ii) until November 24, 1999, to forego its right to participate in the first $30 million of any liquidating distribution by Encore to its common shareholders. Moreover, Gould agreed to (iii) guarantee Encore's contractual representations and warranties to Sun, (iv) guarantee to Sun that Encore would remain solvent for at least one year after the Sun Transaction closing, and (v) to indemnify' Sun against damages if Encore became insolvent after that first year.
In return for these undertakings by Gould — without which the Sun Transaction could not take place — Encore agreed that it would devote a portion of the proceeds from the Sun transaction: (i) to pay the principal amount and accrued interest owed on Encore's secured indebtedness to Gould (estimated at $93 million); and (ii) to redeem the Encore preferred stock held by Gould — which had a liquidation preference of over $400 million — for $60 million.
At the time the Gould Agreement was being considered, the Encore Board consisted of four directors, two of whom (Ferguson and Fedor) were officers of Gould. Ferguson and Fedor did not vote on the Gould Agreement. The remaining two directors, Fisher and Thomas, were not affiliated with Gould, and did vote to approve the Gould Agreement.
B. The Retention Agreements
To retain Encore's employees through the closing of the Sun Transaction, Encore, at the recommendation of an outside consultant, entered into Retention Agreements in May 1997 with 49 of its key employees. The outside consultant recommended this approach to give Encore's employees an incentive to remain and assist the Company in its efforts, "to seek a sale or merger of the Company, a joint venture which a strategic partner or substantial new investment in the Company." Under the Retention Agreements, Fisher and Thomas received payments of $566,525 and $398,750, respectively. Thomas also received a $50,000 bonus in November 1997. All these payments were disclosed to Encore shareholders in the Sun Proxy Statement, which is next described.
C. The Sun Proxy Statement
In November 1997, Encore distributed a proxy statement (the "Sun Proxy Statement") for the upcoming shareholders meeting at which the Sun Transaction would be voted upon. The Sun Proxy Statement disclosed the terms of the Sun Transaction and the Gould Agreement. To approve the Sun Transaction, the affirmative vote of the holders of 75% of the Encore common stock being voted (as well as a majority of all Encore's outstanding common stock) was required.
The Sun Proxy Statement disclosed that Gould had discontinued funding Encore, and that if the Sun Transaction did not close, Encore would become insolvent. The Sun Proxy Statement included Price Waterhouse's liquidation analysis, which had estimated Encore's liquidation value at $24.4 million. The Sun Proxy Statement also disclosed that if the Sun Transaction was approved, the Encore Board of Directors would consider future opportunities, such as (1) continuing the Real-Time business, (2) developing software to enable standard computer hardware units to be operated so as to create larger computer versions of the computer hardware, or (3) selling the Real-Time business. Finally, the Sun Proxy Statement disclosed the prospects for the Real-Time business, and that it was a declining business for Encore.
Importantly, the Sun Proxy Statement advised shareholders of the specific "risk factors" relating to Encore's business after the Sun Transaction as follows:
(i) the Company will be left with only the real-time business (unless and until it determines to enter the clustering software market), resulting in a change in the Company's primary business activities from the Storage Products Business to the real-time business; (ii) there is no assurance that the real-time business will operate profitably; (iii) there can be no assurance that Encore will be able to retain employees that would be critical to a clustering software initiative; (iv) there can be no assurance that any clustering software initiative would have access to sufficient amounts of funds; (v) there can be no assurance that any clustering software initiative would be successful; and (vi) none of the alternatives available to the Company. . . is without substantial risk.
On November 24, 1997, the Encore shareholders voted to approve the Sun Transaction, which closed shortly thereafter.
D. The Gores Transaction
Meanwhile, Encore's Real-Time business had continued to decline, and in December 1997, Encore retained McDonald Company Securities, Inc. ("McDonald"), an investment banker, to solicit potential acquirors for that business. McDonald conducted a diligent search and contacted eight potential acquirors. After this process was completed, Encore and the Gores Technology Group (the "Gores Group") executed a letter of intent for the Gores Group to purchase Encore's Real-Time business for $5.5 million. After the Gores Group later became unwilling to pay that amount, Encore entered into an agreement to sell the Real-Time business to the Gores Group for $3 million (the "Gores Transaction"). To enable that transaction to proceed, Gould agreed to become jointly and severally liable with Encore for Encore's indemnification obligations under the Gores Asset Purchase Agreement.
The record does not explain why the Gores Group was unwilling to pay $5.5 million for the Real-Time business.
E. The Gores Proxy Statement
In August 1998, Encore disseminated a Proxy Statement (the "Gores Proxy Statement") for the upcoming shareholder meeting to vote on the Gores Transaction. As with the earlier asset sale to Sun, the affirmative vote of the holders of 75% of the voting shares (plus a majority of Encore's outstanding shares) were required to approve the Gores Transaction. The Gores Proxy Statement disclosed, among other things, that the Encore directors had unanimously approved the Gores Transaction, and that if the Gores Transaction did not go forward, Encore would become insolvent and have to be liquidated. The Gores Transaction received shareholder approval and closed on December 31, 1998.
As of July 15, 1999, the date of the amended complaint, the defendants were planning to dissolve the Company at some future time, subject to shareholder approval. According to the complaint, Encore's common shareholders will receive nothing when the defendants dissolve the Company, because Gould's liquidation preference will exhaust any liquidation proceeds.
II. THE CONTENTIONS
The plaintiffs allege four separate breach of fiduciary duty claims arising out of the Sun and the Gores Transactions which, the plaintiffs allege, amounted to a de facto liquidation of Encore. Two claims are for breach of the defendants' duty of loyalty; the remaining two claims are for breaches of their duty of disclosure.
The duty of loyalty claims challenge the Encore Board's decisions: (i) to allocate to Gould, Encore's largest creditor and stockholder, $60 million of the $185 million proceeds from the sale of Encore's Storage Technology business to Sun, and (ii) to sell the Real-Time business to the Gores Group, the claim being that there was no justification for selling the Real-Time business, which (plaintiffs contend) Encore should have continued to own and operate.
The duty of disclosure claims attack the proxy statements that were disseminated (respectively) to Encore shareholders in connection with the Sun and the Gores Transactions. The disclosure claims are that: (i) the directors of Encore concealed their plan to liquidate Encore in its entirety, and (ii) the proxy statements falsely and misleadingly held out the hope that if both transactions were approved, Encore's common stockholders would receive some of the proceeds.
In support of their motion to dismiss, the defendants argue that the Sun and Gores Transactions did not violate the Encore directors' duty of loyalty, because only disinterested board members voted on these deals. Second, the defendants contend that there was a legitimate business justification for both the Sun and Gores Transactions.
The defendants also urge the dismissal of the disclosure claims as legally unsupported. Responding to the claim that the Encore Board had a "secret" plan to liquidate, the defendants argue that the amended complaint pleads no facts supporting the conclusory allegation of a "secret" plan. Regarding the second disclosure claim — that the Sun Proxy Statement falsely promised that shareholders would receive distributions from the Sun Transaction proceeds — the defendants argue that the proxy statement made no such "promise," but, rather disclosed that a shareholder distribution was one of several possible ways in which the Sun Transaction proceeds might be used.
III. ANALYSIS
The standard governing a Rule 12(b)(6) motion to dismiss is well-established. The motion will be granted where it is clear from the allegations of the complaint that the plaintiffs would not be entitled to relief under any set of facts that could be proven to support the claim. All well-pleaded facts alleged in the complaint will be accepted as true, but inferences and conclusions that are not supported by specific factual allegations will not be accepted as true.
In re Tri-Star Pictures, Inc. Litig., Del. Supr., 634 A.2d 319, 326 (1993); see also Loudon v. Archer-Daniels-Midland Co., Del. Supr., 700 A.2d 135, 140 (1997).
Weinberger v. UOP, Inc., Del. Ch., 409 A.2d 1262, 1264 (1979).
A. The Duty of Loyalty Claims
It is well-established Delaware law that the business judgement rule creates a "powerful presumption in favor of actions taken by the directors in that a decision made by a loyal and informed board will not be overturned by the courts unless it cannot be `attributed to any rational business purpose.'" To rebut that presumption, the plaintiffs may allege facts sufficient to plead a cognizable claim for a breach of duty of loyalty, more specifically, that the defendants were materially interested in the transaction or failed to act independently on behalf of the corporation.
Cede Co. v. Technicolor, Inc., Del. Supr., 634 A.2d 345, 361 (1993) (citing Sinclair Oil Corp. v. Levien, Del. Supr., 280 A.2d 717, 720 (1971)), see also Mills Acquisition Co. v. MacMillan, Inc., Del. Supr., 559 A.2d 1261, 1279 (1989).
Grobow v. Perot, Del. Supr., 539 A.2d 180, 188 (1988).
I conclude that the plaintiffs have failed to allege facts sufficient to establish that the Encore directors either had a material self-interest in, or failed to act independently with respect to, the challenged transactions. I find also that the complaint properly alleges that the Sun and the Gores Transactions served legitimate business purposes. My reasons follow.
1. The Sun Transaction
As earlier stated, the Sun Transaction involved the sale of Encore's Storage Technology business to Sun for $185 million. The sale proceeds were used to pay all of Gould's secured indebtedness (approximately $95 million), and to redeem the Encore preferred shares held by Gould (approximately $60 million). The balance of the purchase price (about $30 million) was paid to Encore.
The plaintiffs' claim that the board breached its duty of loyalty by agreeing to redeem, for $60 million, Encore preferred stock that had a liquidation value of over $400 million. Plaintiffs contend that the claim must be decided under the entire fairness standard of review, because the non-Gould directors who voted to approve the sale were conflicted, their vote having been induced by the Retention Agreements. Alternatively, plaintiffs argue, even if the business judgment standard does apply, they have stated a cognizable claim because the amended complaint alleges that the redemption of the preferred was irrational and lacked any business justification.
These arguments are now addressed.
The plaintiffs challenge the disinterest and independence of the Encore Board on the basis that the Gould-appointed directors were in a position to approve the Sun Transaction unilaterally. The infirmity in that argument is that the amended complaint makes no allegations which support that claim. Only the two directors who had no connection to Gould — Messrs. Fisher and Thomas — actually voted; the other two directors — Fedor and Ferguson — recused themselves. Moreover, the Sun Transaction could not be approved without the affirmative vote of the holders of at least 75% of the shares of the common stock present and voting at the meeting. Accordingly, there is no factual or legal basis to claim that the Gould-appointed directors were in a position unilaterally to approve the Sun Transaction.
The plaintiffs next claim that the two directors who did vote on the transaction, Messrs. Fisher and Thomas, had a disabling financial interest by reason of the Retention Agreements. This claim also finds no support in the amended complaint. That pleading alleges that Fisher and Thomas received $566,525 and $398,750 respectively under the Retention Agreements, and that Thomas received a $50,000 incentive bonus. But those payments alone, and without more, do not suffice legally to negate those directors' independence. According to the amended complaint, payments of a similar character were made to 49 other Encore employees, after being recommended by an independent consultant, to ensure their continued service through the closing of the Sun Transaction. The Retention Agreements did not contractually obligate Thomas or Fisher to vote as directors in any particular way. Accordingly, the Retention Agreement payments that had been independently recommended, shared by others, and made for legitimate business reasons, do not constitute a disabling financial self-interest that would taint the directors who voted in favor of the Sun Transaction.
See Grobow, 539 A.2d at 188 (where only alleged financial interest on the part of the directors is payment paid for services as directors, no cognizable financial interest exists); see also Unocal Corp. v. Mesa Petroleum Co., Del. Supr., 493 A.2d 946 (1985).
The Retention Agreement payments did not constitute a disabling financial interest for other reasons. Those payments were made months before the Board voted on the Sun Transaction and over a year before the vote on the Gores Transaction. Mr. Thomas' bonus received Board approval four months after the Sun deal was approved. Thus, any connection between these events is far too remote to support the inference that those payments disabled Fisher and Thomas from impartially determining whether or not the Sun Transaction served the best interest of Encore and its common stockholders. Any such inference would be especially problematic in the case of Mr. Fisher, who, after Gould, was Encore's largest single stockholder. Mr. Fisher owned 4 million shares of Encore, and had a significant self-interest in maximizing the value of that investment. If any inference is to be drawn, it is that Fisher's and the shareholders' financial interests were aligned.
Because the plaintiffs have not sufficiently pleaded facts demonstrating that Thomas or Fisher were subject to a disabling interest, the Encore Board's decision to approve the Sun Transaction is entitled to review under the business judgment rule.
The plaintiffs next argue, in the alternative, that even under the business judgment standard they have stated a claim, because the complaint sufficiently alleges that the Sun Transaction lacked any valid business justification. I disagree. Without the Sun Transaction the Encore stockholders would have received nothing. That transaction enabled Encore to discharge significant amounts of debt, while still retaining $30 million for operating purposes. For that to occur, however, it was necessary for Gould to surrender several valuable assets to Sun, including Gould's security interest in the Storage Products Business assets and the Gould License that covered the intellectual property for the Storage Products Business. The consideration for Gould's cooperation was Encore's argument for Gould to receive $60 million of the Sun Transaction proceeds, which would be used to redeem the preferred stock. Even in that connection, Gould agreed that in any liquidation it would not participate in the first $30 million of distributable assets — a significant concession because the net proceeds available after paying Gould would be $30 million.
Thus, the complaint fairly alleges that the agreed-to allocation of the Sun Transaction proceeds netted Encore $30 million that Encore would not have otherwise received. As a consequence, the decision to approve the Sun Transaction was a rational business judgment that must be respected.
2. The Gores Transaction
The Gores transaction involved the sale of the Real-Time business to the Gores Group for $3 million. The plaintiffs challenge only the directors' decision to sell that business, claiming that the sale did not serve the Company's interests because the Real-Time business was profitable and the transaction costs exceeded the sale proceeds. Essentially, what the plaintiffs claim is that the sale of the Real-Time business benefitted only Encore's majority stockholder, Gould.
But the pleaded facts show otherwise. The amended complaint does allege that the transaction costs of the Gores Transaction exceeded the amount received from the sale of the Real-Time business, thereby leaving the Encore shareholders with nothing when the Company was dissolved. But this allegation is based upon the plaintiffs' erroneous inclusion of the estimated costs of an Encore liquidation in calculating the "transaction costs" of the Gores Transaction. Plaintiffs allege that "Encore estimated the cost for completing the Gores Transaction and dissolving the Company at approximately $10.6 million," but that misrepresents what Encore actually stated in its third quarter 1998 Form 10-Q. That document disclosed that the amount of any possible distribution to shareholders would be the sum of (i) the Company's assets, (ii) the second payment from the Sun Transaction, and (iii) the net loss or gain from the Gores transaction, minus the cost of liquidating Encore. The plaintiffs' effort to treat the cost of liquidating Encore as a cost of the Gores Transaction finds no support in the Form 10Q. Nor have plaintiffs shown, as a matter of pleaded fact or logic, how it makes any sense to argue that the cost of the liquidating Encore was a cost of the Gores Transaction. Indeed, the amended complaint alleges that the Gores Transaction was completed in December 1998, before Encore was liquidated.
Because the third quarter 1998 Form 10-Q is included in and is integral to the Amended Complaint, its content may be considered on this motion to dismiss. That document stated:
If the sale of the real-time business is consummated, the assets of the Company available for distribution to shareholders on liquidation would be: (i) the Company's assets at September 27, 1998 plus any additional amounts received with regard to the second Payment [from the Sun Transaction], less its liabilities at September 27, 1998 including the $9,692,000 payable to Gould, plus or minus; . . . (iii) the gain or loss from the sale of the Company's real-time computer systems business; minus (iv) costs of the liquidation and reserves for any contingent liabilities, including any pending litigation, estimated by the Company to be approximately $10,624,000, which has not been recorded on the books of the Company as of September 27, 1998.
The plaintiffs also attack the Gores Transaction on the ground that the Real-Time business was profitable at the time it was sold, but the plaintiffs' own pleading undermines that claim. The amended complaint alleges that the 1997 sales of the Real-Time business were approximately $25 million. By 1998, that figure had dropped to $20 million, reflecting a further decline of the Real-Time business. Finally, the amended complaint contains no fact-specific allegations from which one could infer that the Real-Time business was profitable. All that it contains is the conclusory averment that business was "profitable," which by any pleading standard is inadequate and also contrary to the specifically pleaded facts.
Compl. ¶ 106.
Defendant's Opening Brief, Ex. B. at 5. (1998 Real-Time sales of products and services were down from $41 million in 1996, and were substantially below the peak rate in 1990 when sales of Real-Time systems totaled $133 million dn sales of services totaled $82 million).
For these reasons the Board's decision to approve the Gores Transaction must be upheld under the business judgment rule. According to the complaint, the Encore Board determined that the sale of the Real-Time business would be the best way for the Encore shareholders to realize any return on their investment. Because the Gores Transaction therefore had a rational business purpose, this claim must also be dismissed.
B. The Disclosure Claims
The plaintiffs next claim that the proxy statement disclosures were materially misleading in two separate respects: (1) they failed to disclose the directors' "strategy to liquidate all of Encore's assets," and (2) they made a false promise to distribute the proceeds to Encore's shareholders. Neither of these allegations states a claim upon which relief can be granted.
Directors of Delaware corporations are required, fully and fairly, to disclose all material information within the board's control when the corporation seeks shareholder action. A fact is material only if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote. There must be a substantial likelihood that the disclosure of the omitted fact would have significantly altered the total mix of information made available. The disclosure claims are evaluated in light of this standard.
Stroud v. Grace, Del. Supr., 606 A.2d 75, 84 (1992).
Loudon, 700 A.2d at 143.
Zirn v. VLI Corp., Del. Supr., 681 A.2d 1050, 1056 (1996); see also TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
1. The Undisclosed Alleged Plan to Liquidate
The plaintiffs first claim that the defendants failed to disclose their plan to liquidate Encore in the proxy statements for the Sun and Gore Transactions. That is essentially a "fraud by hindsight" claim, based solely on the fact that after the Sun Transaction closed, Encore hired an investment banker to explore the possibility of selling the Real-Time business, and that thereafter, the Board decided to sell that business. But it does not follow from those facts that the board had always intended to liquidate the entire Company. The alleged facts are fully consistent with a much more benign scenario — that liquidation was one of several possibilities, that after the Sun Transaction the Board decided to explore that possibility, and that as a result of that exploration, the Board later decided upon that course of action. That latter scenario was disclosed in the Sun Proxy Statement:
As discussed below, [Encore's] Board of Directors will be considering whether Encore should (i) continue, and attempt to expand, its real-time business, (ii) attempt to develop and market clustering software for various types of computer hardware, or (iii) attempt to sell its real-time business and distribute the proceeds of sale, together with the remaining proceeds of the Sun Transaction, to its stockholders as a liquidating distribution.
Moreover, the proxy statement for the Gores Transaction disclosed that one of the items the shareholders would vote on at the meeting called to approve the Gores Transaction was:
To approve the proposed Plan of Dissolution and Liquidation (the "Plan"), pursuant to which [Encore] would be dissolved and liquidated following the consummation of the Gores Transaction.
That is, in the Gores Transaction Proxy Statement the Board was explicitly proposing a plan of liquidation and asking the shareholders to approve it. The shareholders were clearly told that liquidation was a real possibility, and they voted to authorize the directors to take that course if they so chose. Because no material fact was misdisclosed or concealed, these disclosures are not actionable.
2. The Alleged Misdisclosure that Funds Would Be Available for Distribution
Finally the plaintiffs claim that the Encore shareholders were lulled into a false sense of security, and were induced to vote for the Sun Transaction, by being led to believe (incorrectly) that Encore's remaining business would be operated profitably and provide them a return. That claim is unsupported by the proxy statements, which disclose no such promise. All those documents disclosed was thepossibility of a future return. The complaint also lacks any specific factual allegation to support the implicit assumption upon which this claim rests, namely, that there was no possibility that the shareholders would ever receive a distribution of the proceeds. For these reasons this disclosure claim must also be dismissed.
The Sun Proxy Statement disclosed that the Board would consider "whether Encore should (i) continue, and attempt to expand, its Real-Time business, (ii) attempt to develop and market clustering software for various types of computer hardware, or (iii) attempt to sell its Real-Time business and distribute the proceeds of that sale, together with the remaining proceeds of the Sun Transaction, to its stockholders as a liquidating distribution." Defendant's Opening Brief, Ex. A at 15.
IV. CONCLUSION
The motion to dismiss the amended complaint is granted. IT IS SO ORDERED.