📊 Vote Mechanics: How Induced Votes Invalidate the Transaction
Executive Summary: The Solfice asset sale appeared to pass with 54.02% stockholder approval. However, when properly excluding conflicted votes from stockholders who received undisclosed inducements, the transaction received only 32.80% approval—falling far short of the 51% majority required under 8 Del. C. § 271. This means the transaction was never validly approved and may be subject to rescission under Delaware law.
The Delaware Law Standard for Asset Sales
Under 8 Del. C. § 271, a corporation cannot sell "all or substantially all" of its assets without approval by:
The board of directors, and
A majority of the outstanding stock entitled to vote
The Majority Requirement: This means more than 50% of ALL outstanding shares must vote in favor. For Solfice, with 13,761,613 total outstanding shares, the transaction needed at least 6,880,807 shares voting "yes" to be valid.
The Reported Vote Tally (Without Corwin Cleansing)
Defendants claim the transaction was approved with 54.02% of outstanding shares voting in favor. If taken at face value, this would exceed the 51% threshold:
Metric
Value
Total Outstanding Shares
13,761,613
Shares Voting "For" (Claimed)
7,434,765
Approval Percentage (Claimed)
54.02%
However, this tally includes votes from stockholders who received undisclosed inducements in exchange for their consent. Under Delaware law, such conflicted votes must be excluded when determining whether a transaction received "disinterested" stockholder approval.
The Two Conflicted Votes: Fabien Chraim and Scott Harvey
1. Fabien Chraim: The "Outcome Determinative" Controlling Stockholder
Fabien Chraim's Vote Must Be Excluded:
Shares Held: 2,260,000 shares (16.42% of outstanding)
Composition:
1,460,000 Common shares
800,000 Founders Preferred shares
Why Conflicted: As documented in the affidavit and supporting exhibits, Fabien Chraim received undisclosed compensation and inducements in exchange for his affirmative vote. The voter tally exhibit specifically notes: "Controlling Shareholder, outcome determinative vote, did not disclose inducements."
Legal Significance: Fabien was the "controlling shareholder" whose vote was "outcome determinative"—meaning without his conflicted vote, the transaction would fail to achieve majority approval.
2. Scott Harvey: Director with Undisclosed Self-Dealing
Scott Harvey's Vote Must Be Excluded:
Shares Held: 660,000 shares (4.80% of outstanding)
Position: Director of Solfice Research Inc. with fiduciary duties to all stockholders
Why Conflicted: As documented in Section 7.2(e) of the Asset Purchase Agreement, Scott Harvey's employment agreement with Luminar was an explicit closing condition of the transaction. He received significant compensation (employment agreement, RSUs, release payments) that was directly tied to the transaction's completion. The voter tally exhibit notes: "Director, did not disclose inducements for himself."
Legal Significance: As a director with a fiduciary duty to disclose all material facts, Scott Harvey's failure to disclose his own compensation arrangements while soliciting stockholder votes is a clear breach of the duty of loyalty.
The Mathematical Proof: Vote Drops Below 51%
When we properly exclude the conflicted votes from Fabien Chraim and Scott Harvey, the math is devastating:
Starting Point (Claimed Approval):
54.02% of outstanding shares voting "FOR"
Conclusion: Because only 32.80% of disinterested stockholders voted in favor of the asset sale, the transaction failed to achieve the statutory majority required under 8 Del. C. § 271. Under Delaware law, a transaction that lacks proper stockholder approval is void ab initio (void from the beginning) and subject to rescission.
2. Fabien Chraim's Vote Was "Outcome Determinative"
The voter tally document explicitly identifies Fabien Chraim as holding an "outcome determinative vote." This is legally significant because:
Controlling Stockholder Status: With 16.42% of outstanding shares, Fabien held sufficient voting power to swing the outcome of the vote
Fiduciary-Like Duties: Delaware law recognizes that controlling stockholders owe fiduciary-like duties when their vote is outcome determinative in a transaction
Entire Fairness Review: Transactions where a controlling stockholder's conflicted vote is outcome determinative are subject to "entire fairness" review, with the burden on defendants to prove both fair dealing and fair price
No Business Judgment Protection: The transaction cannot benefit from business judgment rule protection when the controlling vote was obtained through undisclosed inducements
3. Scott Harvey's Self-Dealing as a Director
Heightened Scrutiny for Director Self-Dealing: Scott Harvey's dual role as both (1) a director with fiduciary duties to all stockholders, and (2) a recipient of transaction-contingent compensation creates a classic Fliegler conflict requiring:
Full disclosure to all stockholders before the vote
Approval by a majority of disinterested stockholders
Entire fairness review if proper procedures not followed
The fact that Harvey's employment agreement was a closing condition under APA §7.2(e) proves his compensation was integral to the transaction, not merely incidental.
4. Corwin Cleansing Cannot Apply
Defendants cannot invoke Corwin v. KKR Financial Holdings LLC to shield the transaction from scrutiny because:
Corwin's Requirements Are Not Met:
Not Fully Informed: Stockholders were not provided full disclosure of:
Inducements paid to Fabien Chraim
Scott Harvey's employment agreement as a closing condition
The $20M to $10M valuation manipulation by Luminar
The $800K inducement offer to Puttagunta
Not Uncoerced: The vote was obtained through:
Threats of reduced valuation for non-cooperation
Selective inducements to key stockholders
Demands for proxy signatures without documentation
Not Disinterested Majority: When conflicted votes are properly excluded, only 32.80% approval—below the required 51% threshold
5. Available Remedies for Minority Stockholders
Because the transaction was not validly approved by a disinterested majority, minority stockholders may seek:
Rescission: Voiding the transaction and returning all assets to Solfice
Rescissory Damages: If rescission is impractical, monetary damages equal to the difference between fair value and consideration received
Constructive Trust: Imposing a trust on the transferred assets for the benefit of minority stockholders
Disgorgement: Requiring conflicted fiduciaries to disgorge all compensation received in connection with the transaction
Entire Fairness Review: Shifting burden to defendants to prove both fair dealing and fair price
Attorneys' Fees: Recovery of legal fees under Delaware's "common fund" doctrine and bad faith exceptions
The "Unknown" Status of Other Stockholders
The voter tally document marks most stockholders' Corwin cleansing status as "Unknown." This is significant because:
Burden Should Shift to Defendants:
Under Delaware law, once plaintiffs establish a credible basis to believe the vote was tainted by conflicts and non-disclosure, the burden shifts to defendants to prove that the remaining votes were truly disinterested and fully informed.
Questions Requiring Discovery:
Did any "Unknown" stockholders receive undisclosed inducements?
Were all stockholders provided with identical disclosure materials?
Did any stockholders sign release waivers as a condition of receiving consideration?
Were employment agreements or RSU grants offered to any stockholder representatives?
Were there any side letters or supplemental agreements not disclosed to all stockholders?
The §220 books and records demand seeks to answer precisely these questions. Defendants' refusal to produce the requested documents creates adverse inferences that additional conflicts exist.
Comparison to Other Failed Transactions
Delaware courts have invalidated transactions that failed to achieve proper stockholder approval in analogous circumstances:
Schnell v. Chris-Craft Industries: Invalidated board action that manipulated voting process through inequitable conduct
Blasius Industries v. Atlas Corp.: Applied "compelling justification" standard when board actions interfered with stockholder voting rights
In re VAALCO Energy, Inc. Stockholder Litigation: Addressed controlling stockholder conflicts in vote outcomes
Fliegler v. Lawrence: Established framework for analyzing director self-dealing in transactions requiring stockholder approval
Precedent Supports Invalidation: When a transaction's claimed majority approval depends entirely on conflicted votes from insiders who received undisclosed compensation, and when removing those votes causes approval to fall below 51%, Delaware courts have consistently held such transactions invalid and subject to entire fairness review or rescission.
Conclusion: The Numbers Don't Lie
The Inescapable Conclusion:
The mathematics are simple and devastating:
Defendants claim 54.02% approval
Fabien Chraim (16.42%) received undisclosed inducements → conflicted vote
Scott Harvey (4.80%) received undisclosed compensation as closing condition → conflicted vote
32.80% < 51% → TRANSACTION FAILED TO ACHIEVE STATUTORY MAJORITY
Unless defendants can prove with documentary evidence that Fabien Chraim and Scott Harvey did NOT receive undisclosed inducements (which contradicts their own APA and the contemporaneous communications), the transaction is invalid under 8 Del. C. § 271 and subject to rescission.