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Mannix v. Plasmanet, Inc.

Court of Chancery of Delaware

July 21, 2015

CHRISTOPHER D. MANNIX, Petitioner,
v.
PLASMANET, INC., a Delaware corporation, Respondent.

Submitted: July 8, 2015

Ronald A. Brown, Jr., Marcus E. Montejo and John G. Day of PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Attorneys for Petitioner.

Martin S. Lessner, Elena C. Norman and Paul J. Loughman of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Alan M. Noskow of MANATT, PHELPS & PHILLIPS LLP, Washington, D.C.; Attorneys for Respondent.

MEMORANDUM OPINION

BOUCHARD, C.

I. INTRODUCTION

In this appraisal proceeding, the surviving corporation has moved to dismiss a group of former stockholders, each of whom submitted an appraisal demand but has neither filed an appraisal petition nor joined this proceeding as a named party. Those former stockholders have entered into agreements to withdraw their appraisal demands, effective upon the dismissal of this action as to them, in exchange for shares of the surviving corporation on the condition that they attest to their status as "accredited investors" under the federal securities laws. This settlement proposal was made to the other former stockholders who demanded appraisal, including the named petitioner, but they may not be able to satisfy the accredited investor condition.

The question before the Court is a narrow one: under 8 Del. C. § 262(k), is it "just" for the surviving corporation to settle the appraisal demands of certain non-appearing former stockholders on terms that may not be available to others who sought appraisal. As explained below, I conclude this arrangement is just under the circumstances. Under Delaware law, there is no requirement that all dissenting stockholders must settle on the same terms as non-appearing, dissenting stockholders. In this case, approval of the proposed settlement allows the settling dissenters to decide for themselves how to resolve their claims without depriving the non-settling dissenters of their right to a statutory appraisal remedy. Thus, I grant the motion to dismiss.

II. BACKGROUND [1]

On August 29, 2014, PlasmaNet, Inc. ("PlasmaNet" or the "Company"), a Delaware corporation, merged with Free Lotto, Inc. The Company is the surviving corporation in the merger, which gave rise to appraisal rights under 8 Del. C. § 262. The total purchase price in the merger was $1, 857, 900 minus certain adjustments. After the adjustments, the aggregate consideration split among the 19, 307, 715 outstanding shares of PlasmaNet common stock was approximately $114, 000, or roughly six-tenths of a penny per share.[2]

On December 24, 2014, Christopher D. Mannix ("Petitioner") commenced this proceeding, seeking appraisal of his 1, 700 PlasmaNet shares. On February 5, 2015, as required by 8 Del C. § 262(f), the Company filed a verified list of the former PlasmaNet stockholders (forty-eight in total) who purported to exercise their appraisal rights. Included on that list are Robert Altschuler, Lance Lundberg, Gijs Van Thiel, Hoefslag, LLC, and Southgreen Acquisition, LLC (collectively, the "Non-Appearing Dissenters"), who collectively demanded appraisal of 1, 788, 218 shares of PlasmaNet stock. None of the Non-Appearing Dissenters has joined this proceeding as a named party or filed a separate appraisal proceeding. Excluding the shares of the Non-Appearing Dissenters, Petitioner and other former PlasmaNet stockholders have demanded appraisal of 1, 671, 250 shares.

The Company and the Non-Appearing Dissenters have entered into a settlement of "all debts, liabilities, and obligations" related to the merger, their demands for appraisal, and this appraisal proceeding.[3] Under the terms of the settlement agreements, the Non-Appearing Dissenters will receive an equity interest in the Company "equal to thirty-five percent (35%) of the equity interests such [Non-Appearing Dissenters] had in PlasmaNet immediately prior to the [m]erger on a fully diluted basis."[4] As part of the exchange, the Non-Appearing Dissenters attested to their status as "accredited investors" as defined in the Securities Act of 1933. According to the Company, accredited investor status is necessary because its securities (the settlement consideration) are not registered with the Securities and Exchange Commission.[5] The settlement agreements are subject to, and effective one business day after, the Court's dismissal of this proceeding with prejudice as to the Non-Appearing Dissenters.

The Company made the same settlement offer to Petitioner, but Petitioner has not accepted it. The Company also made the same offer to all former PlasmaNet stockholders who properly demanded appraisal and who can attest to being an accredited investor.[6]

On March 13, 2015, the Company moved to dismiss this proceeding, with prejudice, solely as to the Non-Appearing Dissenters. On June 26, 2015, I heard oral argument. On July 8, ...


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