a r. t 01 ti e>1.C"C 3 1.2 Client Memorandum Delaware Court of Chancery Finds Zero Merger Consideration to Be Entirely Fair to Common Stockholders In In re Trados Inc. S'holder Lido., the Delaware Court of Chancery held that while management and the preferred stockholders received all of the merger consideration in the sale of a corporation, the merger was still entirely fair to the common stockholders because the common stock had no economic value before the merger. Although "the defendant directors did not adopt any protective provisions, failed to consider the common stockholders, and sought to exit (the corporation] without recognizing the conflicts of interest presented by the Merger," the defendants prevailed because the common stock had no economic value before the merger. Trados Inc., a venture capital backed corporation, increased its revenue for years, but was never profitable. In 2004, the venture capital related directors began searching for an exit and adopted a management incentive plan which compensated management in a sale of the corporation even if the common stockholders received nothing. When the corporation was sold for $6o million in zoos, management received $7.8 million of the merger consideration, pursuant to the management incentive plan, and the venture capital investors received $52.2 million of a 857.9 million liquidation preference. The common stockholders received zero merger consideration. The plaintiff common stockholders alleged that the board had a fiduciary duty to continue to operate the corporation on a stand-alone basis, rather than sell the corporation, because that course of action would maximize value for the common stockholders. Further, the plaintiffs argued that the board's actions should be subject to entire fairness because the majority of the directors that approved the merger were not disinterested and independent. Of the seven directors on the board, two of the directors receiv