TCV VI, L.P., TCV MEMBER FUND, L.P., and . CONTINENTAL INVESTORS FUND LLC, Plaintiffs,
TRADINGSCREEN INC., PHILIPPE BUHANNIC, PIERO GRANDI, and PIERRE SCHROEDER, Defendants.
Submitted: November 25, 2014
Redacted: March 27, 2015
Gregory V. Varallo, Esquire, Richard P. Rollo, Esquire, Kevin M. Gallagher, Esquire, and Christopher H. Lyons, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Plaintiffs TCV VI, L.P. and TCV Member Fund, L.P.
Kevin G. Abrams, Esquire and Daniel R. Ciarrocki, Esquire of Abrams & Bayliss LLP, Wilmington, Delaware, Attorneys for Plaintiff Continental Investors Fund LLC.
Kenneth J. Nachbar, Esquire, Megan Ward Cascio, Esquire, and Brendan W. Sullivan, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, Attorneys for Defendants.
NOBLE, Vice Chancellor
This case deals with the tension between a charter provision providing for the mandatory redemption of preferred stock and Delaware's statutory and common law restrictions on redemption. Plaintiffs hold preferred stock in Defendant TradingScreen, Inc. ("TradingScreen" or the "Company"). When Plaintiffs attempted to exercise their rights under TradingScreen's charter to require TradingScreen to purchase their shares, TradingScreen claimed that it could only fund a partial redemption because fully meeting Plaintiffs' demands would threaten the Company's ability to continue as a going concern. Plaintiffs have moved for judgment on the pleadings that TradingScreen has breached its charter obligations. At issue is the scope of the limitations on TradingScreen's obligation to redeem Plaintiffs' stock.
TradingScreen is a Delaware corporation providing electronic trading solutions. TradingScreen was founded by Defendant Philippe Buhannic ("Buhannic"), the Company's current Chief Executive Officer and Chairman of its Board of Directors (the "Board"). Defendants Piero Grandi ("Grandi") and Pierre Schroeder ("Schroeder") are TradingScreen directors.
A. The Series D Purchase Agreement
Plaintiffs TCV VI, L.P., TCV Member Fund L.P. (collectively, the "TCV Funds"), and Continental Investors Fund LLC ("Continental") have held TradingScreen stock since 2007. On August 7 of that year, Plaintiffs and TradingScreen entered into the TradingScreen Inc. Series D Convertible Preferred Stock Purchase Agreement (as amended, the "Series D Purchase Agreement"). The TCV Funds purchased 4, 340, 398 shares of Series D Preferred Stock ("Preferred Stock") for a total purchase price of $65, 931, 947.74. Continental purchased 425, 663 shares for a total price of $6, 465, 948.67.
As a result, the TCV Funds acquired 60.43%, and Continental 5.97%, of TradingScreen's Preferred Stock, which was created on September 12, 2007, when TradingScreen filed an amended and restated certificate of incorporation (the "Charter") with the Delaware Secretary of State. Section 7 of the Charter governs redemption of that stock.
Section 7.1 provides that beginning three months prior to the fifth anniversary of the issuance of the Preferred Stock, if the holders of a majority of the Preferred Stock (the "Majority Holders, " i.e., the TCV Funds) so request, then TradingScreen must assist the requesting Preferred Stockholders in selling their shares on satisfactory terms and conditions. If no buyer will purchase the Preferred Stock on acceptable conditions during the following nine months, then the Majority Holders may require TradingScreen to purchase, all or a portion of their shares by delivering written notice identifying the number of shares they wish redeemed. All other Preferred Stockholders can participate in the redemption by delivering similar written notice.
Section 7.1.2 prescribes the process for setting the price that TradingScreen must pay for the shares. The Majority Holders and TradingScreen must first negotiate in good faith in an attempt to determine the Preferred Stock's fair market value. If no agreement is reached for twenty days following the redemption notice, then a mutually acceptable independent financial adviser determines the stock's fair market value.
Thirty days after a determination of fair market value (the "Redemption Date"), TradingScreen must redeem all shares for which it received valid redemption notices. However, any Preferred Stockholder who had submitted redemption notices may withdraw all or a portion of its request until the business day preceding the Redemption Date. The purchase of shares remaining subject to redemption must occur in three equal installments on the Redemption Date's six month, twelve month, and eighteen month anniversaries.
Further, if TradingScreen defaults on any payments due under Section 7.1.2, then interest accrues on all amounts owed at an annual percentage rate of 13%.
B. Plaintiffs Exercise Their Redemption Rights
On June 12, 2012, the TCV Funds, as Majority Holders, requested TradingScreen to assist them in selling all of their Preferred Stock. TradingScreen's Board formed a special committee (the "Special Committee") to handle this request and related matters. The TCV Funds subsequently could not find a satisfactory buyer; thus, on March 14, 2013, they delivered written notice to TradingScreen demanding ...