Opinion ID: 6350020
Heading Depth: 2
Heading Rank: 5

Heading: The Omnibus Agreement.

Text: On May 6, 2020, the Resolution Committee approved the Omnibus Agreement. The parties to the Omnibus Agreement were Stream, SLS, Hawk, and certain Equity Investors.9 The Omnibus Agreement provided that Stream would assign its assets to SeeCubic in lieu of SLS and Hawk continuing to pursue foreclosure, and SeeCubic would allow Class A common stockholders to exchange their shares. Specifically, the Omnibus Agreement provided that SLS and Hawk “agreed to stay the [f]oreclosure and satisfy and extinguish each of the SLS Notes and the Hawk Notes in their entirety subject to [Stream] assigning all right, title and interest in and to all assets of [Stream] to a newly-formed holding company [SeeCubic] established by SLS and Hawk, in satisfaction of the SLS Notes and the Hawk Notes.”10 Further, the Omnibus Agreement gave holders of Stream’s Class A common stock, other than the Rajan Brothers and their affiliates, the right to exchange their shares of Stream’s Class A common stock for an identical number of shares of SeeCubic’s 8 Id. at 1025 (alternations in original) (quoting Dkt. 101 Ex. 56, at 1057). 9 Stream’s authorized signatories were Gola and Gollop. A150–51 (Omnibus Agreement). 10 See A136 (Omnibus Agreement WHEREAS clause). 8 common stock at no cost.11 The Omnibus Agreement also provided that Stream would receive one million shares of SeeCubic’s Class A common stock.12 F. The Rajan Brothers’ Attempt to Nullify the Omnibus Agreement. Soon after the Board created the Resolution Committee, the Rajan brothers attempted to neutralize it. Initially, the Rajan brothers drafted a written consent of stockholders that purported to remove the Outside Directors.13 When that failed, the Rajan brothers developed theories designed to undermine the Resolution Committee, including recruiting Raja’s assistant to search for documentation reflecting whether the Outside Directors had accepted their directorships. Eventually, the Rajan brothers resorted to refusing to comply with the Omnibus Agreement by trying to change who managed certain Stream subsidiaries and attempting to remove prototype technology from a storage facility in the Netherlands.14 Once it became clear that the Rajan brothers intended to challenge the Omnibus Agreement’s validity, SLS, Hawk, the Equity Investors, and the Resolution Committee attempted to negotiate with the Rajan family to convince them to support the deal. SLS, 11 Stream TV, 250 A.3d at 1025; A139 (Omnibus Agreement § 1.1(d)). 12 Stream TV, 250 A.3d at 1025; A139 (Omnibus Agreement § 1.1(f)). 13 At the time of the P.I. Opinion, Stream alleged that the May Stockholder Consent (a written consent of stockholders drafted by the Rajan brothers dated May 6) removed the Outside Directors prior to the approval of the Omnibus Agreement, thereby causing the Omnibus Agreement to be invalid. However, the Court of Chancery concluded that the evidence demonstrated that the Rajan brothers executed the May Stockholder Consent later, and possibly during the evening of May 8 or on May 9, and then backdated the document to May 6 in an effort to preempt the Omnibus Agreement. Stream TV, 250 A.3d at 1026. 14 Mathu went as far as incorporating a new entity named Glasses-Free Technologies, Inc., and purported to grant it a license to use Stream’s technology. Id. at 1027. 9 Hawk, and the Equity Investors offered to amend the Omnibus Agreement to give the Rajan brothers greater consideration, and the Rajan brothers pushed for personal benefits for themselves.15 Ultimately, the negotiations failed. G. Stream Files Suit in The Court of Chancery. On September 8, 2020, Stream filed suit and moved for a temporary restraining order (“TRO”) to bar SeeCubic from seeking to enforce the Omnibus Agreement. SeeCubic filed counterclaims and third-party claims requesting expedition and a TRO. The court entered a status quo order and scheduled a hearing on the parties’ competing motions for preliminary injunctive relief. From there on, “[c]reating litigation chaos seemed to be one of the Rajans’ strategies.”16
On December 8, 2020, the court issued the P.I. Opinion, concluding that SeeCubic was entitled to injunctive relief because the Resolution Committee had the authority to bind Stream to the Omnibus Agreement and that the Omnibus Agreement did not require a shareholder vote under Section 271 or the Class Vote Provision in Stream’s Charter. The court concluded that “[n]either [Section 271 nor the Class Vote Provision] applie[d] to the transfer of assets contemplated by the Omnibus Agreement.”17 Therefore, the court 15 These personal benefits included employment, compensation, and indemnification for litigation expenses. Id. 16 Stream TV, 2021 WL 5816820, at . Stream went through two sets of lawyers (at the time of the Injunction Order, Stream was on its third set of lawyers), and the Rajan brothers’ represented themselves during portions of the litigation. 17 Stream TV, 250 A.3d at 1033. The P.I. Opinion also concludes that the Outside Directors were appointed validly and that the members of the Resolution Committee did not breach their fiduciary 10 granted SeeCubic’s motion for a preliminary injunction and denied Stream’s competing motion.18 a. The Court’s Section 271 Analysis at the Preliminary Injunction Stage. Starting with Section 271 of the DGCL, the court determined that the question before it was “whether the transfer of Stream’s assets to its secured creditors under the circumstances presented [] constitute[d] a sale or exchange within the scope of Section 271.”19 To answer this question, the court stated that although the assignment of Stream’s assets to SeeCubic could be classified as a “sale” or an “exchange” under Section 271, the better course of action was to “accept that the language of Section 271 is ambiguous as to whether it applies to transactions like the Omnibus Agreement,” and look to principles of statutory interpretation.20 The court then turned to Section 271’s legislative history, applied an insolvency exception sua sponte, and made three findings. First, the court found that the common law rule requiring a board to seek unanimous shareholder approval before selling all of the corporation’s assets was subject to an duties, therefore, the Court of Chancery did not enter a mandatory injunction. See id. at 1028–31, 1045–47. However, these conclusions are not challenged on appeal. 18 The court concluded that it was reasonably probable that the Omnibus Agreement was a valid and binding agreement, and prohibited Stream, the Rajans, and anyone acting in concert with them, from interfering with SeeCubic’s rights under the Omnibus Agreement. 19 Id. at 1033. 20 Id. at 1041. Specifically, the court noted that “Stream does not cite any dictionary definitions, but argues without support that the plain meaning of the terms ‘sale’ and ‘exchange’ must encompass the transfer of all Stream’s assets to SeeCubic. In light of the [Black’s Law Dictionary] definitions [of ‘sale’ and ‘exchange’] . . . that conclusion is plausible but not mandated.” Id. at 1040 (emphasis added). 11 insolvency exception, thereby allowing boards to transfer all or substantially all of an insolvent company’s assets to creditors without shareholder approval. Second, the court found that the evolution of Section 271’s language, mainly the addition of specific acceptable forms of consideration that did not include “forgiveness of debt,” supported allowing an insolvent or failing firm to transfer all or substantially all of its assets to creditors.21 Third, the court found that, because Section 272 does not require a shareholder vote for the pledging of corporate assets as collateral (unless the corporate charter specifies otherwise), requiring a shareholder vote under Section 271 before a company could otherwise transfer its assets to a creditor “would be contrary to the plain language of Section 272” and against Delaware public policy.22 The Court of Chancery explained that, prior to the General Assembly modernizing Delaware’s merger statutes, the preferred transaction vehicle involved the target corporation selling all of its assets and then dissolving and distributing the consideration to its stockholders, i.e., asset transfers.23 Further, at common law, the general rule was that the directors only have the power of management in conducting ordinary business affairs. This prevented directors from selling the assets of the business without unanimous stockholder approval. Thus, the objection of a single shareholder could thwart the efforts to sell a corporation’s assets. 21 Id. at 1042. 22 Id. at 1043. 23 Id. at 1033–34. 12 However, the court stated that this strict rule was not without exceptions. “A late nineteenth century treatise noted that for ‘a failing company the rule is different, and a sale of the whole property may be made by the directors.’”24 The court cited to two twentiethcentury treatises for the same proposition, 25 and noted that even today, a “Delaware treatise acknowledges the ‘failing business’ exception to the common law rule.”26 The court also cited a Court of Chancery opinion from 1915 that “acknowledged the general prohibition on selling all of a corporation’s assets, as well as the exception for an insolvent or failing firm.”27 After reviewing Section 271’s statutory predecessor, Section 64a, the court found that “[t]here is no indication that the General Assembly intended to restrict or eliminate authority that already existed at common law, such as the power of the directors of an insolvent and failing corporation to sell its assets.”28 Against this common law backdrop, the court reviewed Section 271’s revisions. “A 1929 amendment confirmed that the consideration could consist ‘in whole or in part [of] shares of stock in, and/or other securities of, any other corporation or corporations.’”29 In 1967, the General Assembly revised the statute again by expanding the expressly permitted 24 Id. at 1035 (quoting 1 Charles Fisk Beach, Jr., Company Law: Commentaries on the Law of Private Corporations § 357, at 582 (1891)). 25 Id. at 1036 (citing Thomas Conyngton & R. J. Bennett, Corporation Procedure 232 (rev. ed. 1927); Henry Winthrop Ballantine, Ballantine on Corporations § 281 (1946)). 26 Id. (citing 1 R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations & Business Organizations §10.7, 10–34 (3d ed. 1998 & 2011 Supp.)). 27 Id. at 1036 (citing Butler v. New Keystone Copper Co., 93 A. 380, 382 (Del. Ch. 1915)). 28 Id. at 1037. 29 Id. at 1037 (alteration in original) (quoting 36 Del. Laws ch. 135 § 19 (1929)). 13 forms of consideration to include “money or other property.”30 In addition, the court noted that the 1967 revision made two related changes to the DGCL: adding a new provision, Section 272, and eliminating a provision that did not require either board approval or a stockholder vote to accomplish a sale of assets to a secured creditor by decree because that provision was unnecessary given the rights generally available to secured creditors.31 The court observed that, today, Section 271 mandates a “two-step process” that first requires board approval, and then requires stockholder approval.32 Section 271(a) provides: Every corporation may at any meeting of its board of directors or governing body sell, lease or exchange all or substantially all of its property and assets, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or other property, including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors or governing body deems expedient and for the best interests of the corporation, when and as authorized by a resolution adopted by the holders of a majority of the outstanding stock of the corporation entitled to vote thereon or, if the corporation is a nonstock corporation, by a majority of the members having the right to vote for the election of the members of the governing body and any other members entitled to vote thereon under the certificate of incorporation or the bylaws of such corporation, at a meeting duly called upon at least 20 days’ notice. The notice of the meeting shall state that such a resolution will be considered.33 30 Id. at 1037–38. The revision added the words “substantially all” as well. 31 Id. at 1038; see also id. at 1038 n.18 (“The revisions attempted to eliminate redundant and unnecessary provisions.”). 32 Id. at 1039. 33 8 Del. C. § 271(a). 14 The court concluded that interpreting Section 271 as requiring a shareholder vote for the type of transaction contemplated by the Omnibus Agreement would create a conflict with Section 272. Section 272 provides: The authorization or consent of stockholders to the mortgage or pledge of a corporation’s property and assets shall not be necessary, except to the extent that the certificate of incorporation otherwise provides.34 In explaining the conflict, the court reasoned that: [i]nterpreting Section 271 to require a stockholder vote before an insolvent or failing corporation can transfer its assets to secured creditors would conflict with Section 272 of the DGCL, which authorizes a corporation to mortgage or pledge all of its assets without complying with Section 271. Section 272 is silent as to whether a secured creditor can foreclose on its security interest in the debtor corporation’s assets, but the statutory scheme would not function if the debtor corporation had to comply with Section 271 before the creditor could foreclose. When facing the prospect of foreclosure, the board and stockholders of the debtor corporation would have no incentive to approve the transfer of the corporation’s assets. As a practical matter, any creditor who wanted to ensure that it had the ability to levy on the pledged collateral would have to obtain a stockholder vote when entering into the credit agreement, contrary to the plain language of Section 272.35 The court concluded that Section 271 did not apply to the Omnibus Agreement because Stream was insolvent, its stockholders no longer had a “meaningful interest in the firm,” and the secured creditors were entitled to its assets.36 Therefore, “[u]nder the DGCL, the Omnibus Agreement did not require a stockholder vote.”37 34 8 Del. C. § 272. 35 Stream TV, 250 A.3d at 1021–22. 36 Id. at 1043. 37 Id. 15 b. The Court of Chancery Interprets the Charter. After analyzing Section 271, the court turned to the Charter’s Class B stockholder vote provision (the “Class Vote Provision”). The court found that the language in the Class Vote Provision was “parallel” to Section 271 such that the Charter’s language warranted the same interpretation as Section 271. In full, the Charter’s Class Vote Provision provides: For so long as shares of Class B Voting Stock remain outstanding, in addition to any other vote or consent required herein or by law, the affirmative vote or written consent of the holders of a majority of the then-outstanding shares of Class B Voting Stock, voting as a separate class, shall be necessary for the Company to consummation [sic] an Acquisition or Asset Transfer.38 The Charter defines “Acquisition” as: (A) any consolidation, stock exchange or merger of [Stream] with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of [Stream] immediately prior to such consolidation, merger or reorganization, continue to hold a majority of the voting power of the surviving entity in substantially the same proportions (or, if the surviving entity is a wholly-owned subsidiary, its parent) immediately after such consolidation, merger or reorganization; or (B) any transaction or series of related transactions to which [Stream] is a party and in which excess of fifty percent (50%) of [Stream’s] voting power is transferred; provided that an Acquisition shall not include (x) any consolidation or merger effected exclusively to change the domicile of [Stream], or (y) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by [Stream] or any successor or 38 A124 (Charter § IV.D.2(d)). 16 indebtedness of [Stream] is cancelled or converted or a combination thereof.39 The Charter defines “Asset Transfer” as: a sale, lease or other disposition of all or substantially all of the assets or intellectual property of [Stream] or the granting of one or more exclusive licenses which individually or in the aggregate cover all or substantially all of the intellectual property of [Stream].40 Although the court did not expressly conclude, at this stage, that the Omnibus Agreement was an “Asset Transfer” as defined under the Charter, the court stated in a footnote that “[t]he Omnibus Agreement involves a transfer of assets, so if any aspect of the Class Vote Provision covered the transaction, it would be the definition of ‘Asset Transfer.’”41 Starting with the definition of “Asset Transfer,” the court determined that “[t]he language of the Class Vote Provision track[ed] Section 271 of the DGCL,” and therefore resulted in the same outcome: “Stream need not obtain stockholder approval under the Class Vote Provision to transfer mortgaged or pledged assets to the secured creditors who hold security interests in those assets.”42 39 A126 (Charter § IV.D.4(b)(i)). 40 A126 (Charter § IV.D.4(b)(ii)). 41 Stream TV, 250 A.3d at 1044 n.24. In contrast, in the court’s September 23, 2021 Order Denying The Rajans’ Motion to Modify the Preliminary Injunction Under Rule 65, the court states unequivocally that “The Omnibus Agreement contemplated an Asset Transfer. It provided for Stream to transfer all of assets [sic] in exchange for SLS and Hawk ‘stay[ing] the [f]oreclosure [of Stream’s assets] and satisfy[ing] and extinguish[ing], in their entirety, the SLS Notes and the Hawk Notes, respectively.’” Stream TV Networks, Inc. v. Seecubic, Inc., 2021 WL 4352731, at  (Del. Ch. Sept. 23, 2021) (alterations in original) (emphasis added). 42 Stream TV, 250 A.3d at 1043. 17 Comparing Section 271 and the Class Vote Provision, the court found “only two differences.”43 First, the Class Vote Provision expressly refers to “intellectual property.”44 According to the court, the phrase “intellectual property” “does not enlarge the voting obligation beyond the scope of Section 271, because intellectual property is already a type of asset.”45 Second, the provision refers to “the granting of one or more exclusive licenses which individually or in the aggregate cover all or substantially all of the intellectual property of [Stream].” The court acknowledged that the Omnibus Agreement “does not contemplate an exclusive license,” but it concluded that the Class Vote Provision’s reference to exclusive licenses shows that the drafters “knew how to define the concept of an ‘Asset Sale’ to include transactions that Section 271 would not otherwise reach.” 46 It then stated that, “[i]f the drafters of the Class Vote Provision wanted to require a class vote before a secured creditor could foreclose on pledged or mortgaged assets, then the definition of ‘Asset Sale’ should have referred to that type of transaction.”47 Accordingly, the court concluded that the reference to “a sale, lease or other disposition” in the Asset Transfer definition tracked the language of Section 271 and “warrants the same 43 Id. at 1045. 44 Id. 45 Id. 46 Id. 47 Id. 18 interpretation.”48 The court did not separately address whether the Omnibus Agreement fell into the “other disposition” category within the definition of Asset Transfer.49 Accordingly, the court denied Stream’s motion for a preliminary injunction and granted SeeCubic’s motion for a preliminary injunction preventing Stream from interfering with the Omnibus Agreement.
On January 19, 2021, SeeCubic moved for summary judgment and filed its opening brief. SeeCubic’s motion for summary judgment sought the following relief: a declaratory judgment that the Omnibus Agreement is valid and binding, a permanent injunction ordering Stream and the Rajans to comply with the Omnibus Agreement, and a judgment against the Rajans for converting the assets identified in the Omnibus Agreement. Stream filed its answering brief on February 17, 2021, relying exclusively on the briefs it filed in connection with the parties’ cross motions seeking preliminary injunctive relief. Before the parties completed the briefing, Stream and the Rajans filed for 48 Id. (citing Warner Commc’ns Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962, 969 (Del. Ch.), aff’d, 567 A.2d 419, 1989 WL 136971 (Del. Oct. 18, 1989) (TABLE)). 49 In a footnote, the court addressed Stream’s “conclusory” claim that the Omnibus Agreement was an Acquisition under the Charter. According to the court, “[t]he Omnibus Agreement does not contemplate a consolidation or merger, which are specific types of transactions having independent legal significance,” and therefore part (A) of the definition of Acquisition did not apply. Id. at 1044 n.24. The court reasoned that the Omnibus Agreement also did not “result in the transfer of any of Stream’s voting power,” and therefore part (B) of the definition of Acquisition did not apply. Id. “By process of elimination” the court determined that “perhaps Stream [thought] the Omnibus Agreement contemplate[d] a ‘reorganization.’” Id. However, the court determined that “Stream would have to provide authorities delineating the content of the term and why it could encompass the Omnibus Agreement” as well as “explain why that concept would trigger a stockholder vote when the definition of ‘Asset Transfer’ did not.” Id. 19 bankruptcy, resulting in an automatic stay of the proceedings before the Court of Chancery.50 The bankruptcy court dismissed the case as a bad faith filing, and described it as an effort “to gain a tactical litigation advantage that is a part of a continued pattern of effort to nullify, undermine, and/or interfere with the [O]mnibus [A]greement, vitiate the purpose and effect of the Chancery Court’s order, and to maintain ownership and control over the assets of the debtor . . . .”51 On September 23, 2021, the Court of Chancery granted, in part, SeeCubic’s motion for summary judgment.52 The SJ Order granted summary judgment in SeeCubic’s favor declaring the Omnibus Agreement to be valid and binding. The court also granted SeeCubic’s motion for a permanent injunction and converted the preliminary injunction into a permanent injunction. Finally, the court denied SeeCubic’s motion as to the conversion claim because the court found that the summary judgment record did not support it. 50 Stream TV, 2021 WL 5816820, at ; A043 (Dkt. 126). 51 Stream TV, 2021 WL 5816820, at  (alterations in original); B36–37 (Bankruptcy Ruling at 13–14). On May 27, 2021, after the bankruptcy stay lifted, Mathu Rajan filed a pro se letter application claiming that the P.I. Opinion was the product of fraud. Stream TV, 2021 WL 5816820, at ; A048 (Dkt. 138). On June 4, 2021, Mathu filed a formal motion to set aside the P.I. Opinion. Stream TV, 2021 WL 5816820, at ; A049 (Dkt. 143). Then, on September 15, 2021, the Rajans had a third-party seek to intervene and file additional motions. Stream TV, 2021 WL 5816820, at ; A057 (Dkt. 183). The very next day, on September 16, 2021, the Rajans filed another motion to modify the preliminary injunction. Stream TV, 2021 WL 5816820, at ; A058 (Dkt. 185). The court rejected the Rajans’ various efforts to set aside the P.I. Opinion, prompting the Court of Chancery’s statement that “litigation chaos” seemed to be the Rajans’ strategy. Stream TV, 2021 WL 5816820, at . 52 See generally Stream TV, 2021 WL 4352732 (granting in part SeeCubic’s motion for summary judgment as to the validity of the Omnibus Agreement and its request for a permanent injunction). 20 3. Stream and the Rajans Move for Partial Final Judgment, Appeal to This Court, and Move to Modify or Stay the Permanent Injunction Pending Appeal. On September 28, 2021, Stream and the Rajans moved to have the Court of Chancery enter the SJ Order as a partial final judgment and to stay SeeCubic’s conversion claim, which the court granted on November 10, 2021.53 On November 12, 2021, Stream and the Rajans noticed this appeal. On the same day, Stream and the Rajans moved to modify or stay the permanent injunction pending appeal. The court denied both requests.54 The court denied Stream’s request to modify the permanent injunction because “[t]here have not been any significant changes in the status quo” since the court entered comparable relief in the form of a preliminary injunction on December 8, 2020.55 After analyzing the four factors from Kirpat, Inc. v. Delaware Alcoholic Beverage Control Commission that guide a trial court’s discretion to grant or deny a stay, the court concluded that a stay was unwarranted. 56 In doing so, the Court of Chancery elaborated on its reasoning that Section 271 did not supersede the common law’s recognition that directors could sell the assets of an insolvent firm without stockholder approval. 53 See generally Stream TV, 2021 WL 5240591 (entering partial final judgment under Rule 54(b)). 54 See Stream TV, 2021 WL 5816820, at . 55 Id. 56 Id. at . This Court identified the four factors in Kirpat, Inc. v. Delaware Alcoholic Beverage Control Comm’n, 741 A.2d 356 (Del. 1998). 21 H. The Parties’ Contentions on Appeal. Stream raises four arguments on appeal. First, it contends that the Class Vote Provision unambiguously requires Class B stockholder approval and renders Section 271’s default voting rule irrelevant. Second, Stream contends that the Court of Chancery erred by looking first to Section 271 prior to construing the Charter. Stream further asserts that the court bypassed the Charter’s plain terms in order to apply a “board only” common law insolvency exception to Section 271. Third, Stream contends that Section 271 superseded any such common law exceptions assuming, arguendo, that such an exception did exist. Finally, Stream argues that the ruling, as a matter of public policy, would upset Delaware’s contractarian focus and the predictable application of Section 271.