United States: February 2014 Corporate Alert

Herrick is pleased to have represented Cardax Pharma, Inc., in its successful reverse merger with OTCBB-traded Koffee Korner Inc. now trading as "CDXI".  Cardax is a development stage company that is focusing first on developing products utilizing astaxanthin, a naturally occurring compound demonstrated to reduce inflammation, at its source, without the harmful side effects of current anti-inflammatory treatments such as steroids and NSAIDs. The transaction closed on February 7, 2014. 

The Herrick deal team that advised Cardax was led by partner Richard M. Morris, and included partner Louis Tuchman and counsel Sung Hyun Hwang, along with associates Liliana Chang, Regina M. Liang and Colin Bowes.

"We turned to Herrick's Corporate Department because of their practical, business-minded approach for middle-market companies," said David G. Watumull, President and Chief Executive Officer of Cardax.  "They provided us with efficient solutions that helped us successfully reach our goals of raising capital and going public through this alternative IPO structure" said Nicholas Mitsakos, Executive Chairman of Cardax.

Empire State Building Buyout Provision Ruled Legal by New York State Appeals Court

A New York State appeals court ruled that a buyout provision covering approximately 3,000 investors in the Empire State Building was legal.  In order to gain support for the building operator's plan to take the Empire State Building public, the building operator stated that it would exercise a clause contained in the limited liability company participation agreements under which the investors were bound permitting the participation shares of investors opposing the plan to be bought out at $100 per share, a fraction of the $300,000-plus that the each participation share was estimated to be worth in the public offering.  The investors opposing the plan claimed that the buyout provision violated Section 1002 of the New York Limited Liability Company Law which affords dissenting investors a statutorily guaranteed right to receive "fair value" for their interests.  In upholding the lower court determination, the court ruled that the buyout provision did not violate the New York Limited Liability Company Law since the investors held participations in, rather than direct membership interests in the limited liability company.

In re Empire State Realty Trust, Inc. Litig., 2014 Slip Op. 01265 (N.Y. App. Div., 1st Dept., Feb. 25, 2014)       

Delaware Supreme Court Holds Minority Stockholder Has No Put Right

The Delaware Supreme Court upheld a Delaware Court of Chancery decision which ruled that a minority stockholder in a closely-held corporation did not have the right to a non-conflicted board of directors' decision as to whether her shares should be repurchased by the corporation.  The minority stockholder was party to a stockholders agreement which provided that the corporation may repurchase shares that have been approved either (i) by a majority of the board of directors or (ii) in writing by the holders of at least 70% of the corporation's stock.  Notwithstanding the foregoing approval requirement, the minority stockholder claimed that she purchased her shares on an alleged oral promise by the corporation's CEO that after ten years, she would have the right to sell the shares to the corporation for full value. 

Following the expiration of the ten-year period, the minority stockholder sought to have her shares repurchased by the corporation for full value.  The board of directors countered by offering to purchase the shares at a 52% discount from their net asset value.  Upon reaching an impasse with the board of directors, the minority stockholder filed suit claiming that the directors owed a fiduciary duty to consider and negotiate, free of any conflicts, a repurchase of her shares by the corporation. 

The Delaware Supreme Court ruled that under common law, the directors of a closely-held corporation have no fiduciary duty to cause the corporation to repurchase the shares of a minority stockholder.  In so ruling, the court stated that since the minority stockholder had no inherent right to sell her shares to the corporation at full value, she should have sought contractual protections affording her such sale right.         

Blaustein v. Lord Baltimore Cap. Corp., No. 272, 2013 (Del. Sup. Ct. Jan. 21, 2014)

Delaware Chancery Court Dismisses Breach of Fiduciary Duty Claims Pertaining to Sale of Company

The Delaware Chancery Court dismissed a class action lawsuit arising out of alleged breaches of fiduciary duties by a target company's board of directors and the purchaser of the target company.  The claimants unsuccessfully argued that the board of directors breached its fiduciary duty by conducting an abbreviated market check over a two-week period spanning the 2010 holiday season that was limited to 10 strategic buyers.  The claimants also argued that the board of directors further breached its fiduciary duty by continuing to negotiate with the purchaser despite improvements in the target company's financial performance.  With respect to the purchaser, the claimants argued that the purchaser had aided and abetted the board of directors' alleged breach of fiduciary duty by pressuring the board of directors to conduct a limited market check.    

The court found that the board of directors, despite conducting a limited market check, did engage in extensive negotiations with the purchaser.  Further, the purchaser increased its offer price for the target company following the target company's announcement of its improved financial results.  The court also found that the purchaser's act of sending a director an e-mail "pushing" the director to complete the target company acquisition did not rise to the level of placing undue pressure upon the board of directors.

In re Answers Corp. S'holders Litig., C.A. 6170-VCN, slip op. (Del. Ch. Ct. Feb. 3, 2014)  

Delaware Chancery Court Refuses to Add Non-Competition Covenant to Operating Agreement

The Delaware Chancery Court dismissed an unlawful competition complaint filed against the former member of a limited liability company.  The limited liability company owned and operated a specialty Italian grocery store.  Following his withdrawal from the limited liability company, the former member opened a competing business on the same block.  Prior to his withdrawal, the former member purportedly mentioned on several occasions that he planned to establish a new business in another state.

The claimants unsuccessfully argued that the former member by failing to disclose his true intentions had breached the limited liability company's operating agreement.  The court dismissed the claim after finding that the operating agreement provided each member with a right of withdrawal and lacked any sort of non-competition provision (or any other provision limiting the conduct of a former member).  The court stated that it was unwilling to enable the claimants to achieve a contractual result -- restraint on post-withdrawal competition -- not contained in the limited liability company's operating agreement.    

Touch of Italy Salumeria & Pasticceria, LLC v. Bascio, Civ. Action No. 8602-VCG (Del Ch. Ct. Jan. 13, 2014)      

FTC Raises Hart-Scott-Rodino Act Thresholds

The Federal Trade Commission (the "FTC") recently announced revisions to the jurisdictional thresholds for the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act").  The HSR Act requires parties to transactions meeting certain size and other tests to file premerger notification forms with both the FTC and Department of Justice Antitrust Division and observe a mandatory waiting period prior to closing.  The HSR Act requires the FTC to revise the thresholds annually based on changes in the gross national product.  The new thresholds apply to any transaction closing on or after February 24, 2014.

Under the revisions, the size of transaction threshold has been increased from $70.9 million to $75.9 million.  As a result, the HSR Act requirements will now apply to acquisitions resulting in the acquiring person holding assets and/or voting securities of the acquired person valued in excess of $75.9 million.  For transactions valued between $75.9 million and $303.4 million (up from $283.6 million), the size-of-the-person test will continue to apply.  This test will now make the transaction reportable only where one party has sales or assets of at least $151.7 million.  All transactions valued in excess of $303.4 million are reportable regardless of the size of the parties.

The filing fee schedule under the HSR Act is (i) $45,000 for transactions valued in excess of $75.9 million, but less than $151.7 million, (ii) $125,000 for transactions valued at $151.7 million or more, but less than $758.6 million and (iii) $280,000 for transactions valued at $758.6 million or more.

FTC News Release (Jan. 17, 2014)

SOX Whistleblower Protections Don't Extend to Foreign Laws

The U.S. Fifth Circuit Court of Appeals affirmed the Department of Labor's Administrative Review Board's dismissal of a discharged employee's claim that he was passed over for pay raises and eventually terminated because he reported an alleged accounting fraud.  The discharged employee brought his claim under Section 806 of the Sarbanes-Oxley Act.  Section 806 creates a private cause of action for employees of publicly-traded companies who are retaliated against for engaging in protected activities such as providing information pertaining to fraud in the work place.  The Fifth Circuit held that because the information the discharged employee reported concerned an alleged violation of Columbian, rather than United States law, he failed to show that he engaged in activity protected by Section 806.

Villanueva v. Dept. of Labor, No. 12-60122 (U.S. Fifth Cir. Ct. of App. Feb. 12, 2014)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions