Yes, the company's leaders did not give shareholders the whole story, so the vote has to be paused. The judge said that calling the $6 cash payment a 'special dividend' was a trick. Because shareholders only got the money if the merger happened, it was really part of the price CVS was paying. Under the law, when a merger includes a cash payment, shareholders who don't like the deal have a special power called 'appraisal rights.' This lets them ask a judge to determine the 'fair value' of their stock and force the company to pay them that amount. Caremark never told its shareholders they had this important right. The judge also found that Caremark wasn't honest about how it was paying its financial advisors. The advisors would only get their biggest fee if they first recommended the CVS deal, which created a conflict of interest. The judge ordered the company to pause the vote for at least 20 days and send out new, truthful information to all its shareholders.

Yes, the leaders of Caremark did something wrong. They didn't share all the important details about the CVS merger with the shareholders, like how the bankers were being paid. They also tried to set up the deal in a way that would stop shareholders from being able to ask for a fair price for their shares if they didn't like the deal. The extra $6 for each share was really just money from CVS, not Caremark. The court said there were some suspicious things about the deal, but it would let the shareholders decide if they had all the information and the chance to ask for a fair price.

—holding stockholders were entitled to appraisal when required to accept merger consideration comprised of stock and cash distributed via dividend

A preliminary injunction will issue if the plaintiffs demonstrate "(1) a reasonable probability of ultimate success on the merits at trial;(2) that the failure to issue a preliminary injunction will result in immediate and irreparable injury before the final hearing; and (3) that the balance of hardships weighs in the movant's favor."

—noting arm's length, third party merger agreement provided significant protections for directors and officers of acquired company who were defendants in then-pending derivative actions, including direct contractual indemnification from the acquirer

"The moving party bears a considerable burden in establishing each of these necessary elements. Plaintiffs may not merely show that a dispute exists and that plaintiffs might be injured; rather, plaintiffs must establish clearly each element because injunctive relief `will never be granted unless earned

It follows then that where a significant portion of bankers' fees rests upon initial approval of a particular transaction, that condition must be specifically disclosed to the shareholder. Knowledge of such financial incentives on the part of the bankers is material to shareholder deliberations

I note, however, that this Court has generally found termination fees of around 3% to be reasonable, subject to deal-specific factors.

Instead they stand for the proposition that the contingency nature of a fee or part of a fee should be disclosed, which is what happened here.

The fact that a term is customary is not proof that it is, in fact, either permissible or justifiable under the specific circumstances faced by the board.

The Minority Shareholders also provide authority to support their contention that Delaware courts have also used the equitable doctrine of substance over form when there are unfair but legal applications of a particular statute or breaches of fiduciary duties while the transaction was technically compliant with the law.

Notably, at least one Delaware court has declined to find irreparable harm despite a showing of likely success on the merits of a disclosure claim, undermining Calleros's contention that a hard-and-fast rule exists.

Yes, a shareholder vote should be enjoined until the directors make corrective disclosures. A payment structured as a 'special dividend' but made contingent upon the consummation of a merger is, in substance, cash consideration for the merger, which triggers statutory appraisal rights for shareholders. The court reasoned that the payment has no legal significance independent of the merger because it is specifically conditioned on the merger's approval and becomes due only at or after the merger's effective time. Calling it a 'dividend' does not change its fundamental nature as part of the merger consideration. Therefore, the Caremark board breached its duty of disclosure by failing to inform shareholders of their statutory right to seek a judicial appraisal of their shares under 8 Del. C. § 262. Additionally, the board's disclosure regarding its investment bankers' fees was materially misleading. The bankers' contracts made the payment of the largest portion of their fees contingent on the initial public announcement of the CVS deal, creating a powerful incentive to recommend that specific transaction. This potential conflict of interest was a material fact that a reasonable shareholder would consider important, and its omission violated the board's duty of disclosure. The court concluded that the appropriate remedy was to enjoin the shareholder vote for at least 20 days to allow for curative disclosures, after which the fully-informed shareholders could decide the merger's fate for themselves.

Yes, the directors of Caremark breached their fiduciary duties by failing to disclose all material information to shareholders regarding the merger with CVS, by structuring the merger consideration to avoid appraisal rights, and by including deal-protection devices that provided significant protections for directors and officers. The court emphasized that directors must fully and fairly disclose all material information within the board's control when seeking shareholder action. This includes the structure of investment bankers' fees, where a significant portion was contingent upon initial approval of the transaction. The court also found that the $6 special cash dividend was fundamentally cash consideration paid on behalf of CVS and structured to avoid appraisal rights for Caremark shareholders. While the deal protections and process warranted suspicion, the court held that with full disclosure and available appraisal rights, it would allow the shareholders to accept or reject the deal rather than preliminarily enjoin the shareholder vote.

Louisiana Municipal Police Employees' Retirement System v. Crawford

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