Richards Layton & Finger

Chancery Court Addresses Revlon Duties and Deal Protection Measures in Small-Cap Transaction

May 11, 2011

In In re Answers Shareholders Litigation, the Delaware Court of Chancery declined to preliminarily enjoin the acquisition of Answers Corp. and, in so doing, made several important observations regarding the board of directors' management of the sales process and negotiation of the definitive merger agreement, many of which are of particular significance to smaller corporations and their advisers.

According to the opinion, Answers Corp., an operator of an online answer-based search service, was 30 percent owned by venture fund Redpoint Ventures, which had two designees on Answers' seven-person board of directors. Of the remaining five directors, one was Answers' chief executive officer and four were outside independent directors.