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When preferred and common collide: a recent Delaware case gives directors appointed by preferred stockholders a reminder of their foremost obligation.

Article Excerpt
IT IS COMMON KNOWLEDGE that directors should act in the best interests of their corporation; however, where the interests of the corporation's different stakeholders are not aligned, directors can face complicated decisions. The board must often choose which constituency's interest will dominate. While in the sale of a company, this issue is relatively clear--directors obligations are to seek the best price reasonably available for the stockholders, issues can nonetheless arise when the interests of common stockholders conflict with those of preferred stockholders. A recent Delaware case deals with this situation, and reminds us of the primacy of the common stockholders.

In re Trados Incorporated Shareholder Litigation involved the sale of Trados Inc. to another company. Trados had issued preferred stock to various investors who also appointed four of Trados's seven directors. The preferred holders pushed for a sale of the company; ultimately, a deal was signed with a purchase price...

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