In re Trados Incorporated Shareholder Litigation

Struggling Trados (defendant), financed by venture capitalists holding preferred stock and board control, adopted a management incentive plan that would substantially reward preferred stockholders once any sale price exceeded the VCs' liquidation preference — even if common stockholders received nothing — and the board approved a $60 million sale to SDL without forming a special committee; preferred stockholders received $52.2 million against their $57.9 million liquidation preference, common stockholders received nothing (versus the $2.1 million they would have received absent the incentive plan), and common stockholder Marc Christen (plaintiff) sued for breach of fiduciary duty, with evidence at trial suggesting the board could not have generated any common-stock value without some form of merger.