A Delaware judge last week denied a temporary injunction aimed to block the sale of Suitable Technologies, maker of the Beam telepresence robots, to Denmark-based Blue Ocean Robotics, despite some concerns about the fairness of the sale process.
The request for the injunction, filed by Allison Huynh, argued that the sale would breach fiduciary duties by the company’s owner and CEO, Scott Hassan, for agreeing to sell the company for an “infinitesimal fraction of their value.” In court documents, the revealed sale price of $400,000 is far below the perceived value of the company and its assets, including patents, Huynh and her attorneys argue. Huynh and Hassan are currently in divorce proceedings in California, with another hearing scheduled for Thursday, Dec. 19, in Santa Clara.
Balance of hardships
In his ruling, Judge J. Travis Laster, the vice chancellor at the Court of Chancery of the State of Delaware, said while he found that the plaintiff has “established a reasonable likelihood of success on the merits,” and also that there is a threat of irreparable harm, he was denying the preliminary injunction “based on the balancing of hardships and the Court’s ability to remedy a fiduciary breach after the fact through a remedy that would encompass an award of money damages and, if warranted by the evidence and the arguments, the potential recharacterization or equitable subordination of Mr. Hassan’s debt.” When granting or denying an injunction, the balance of hardships concept weighs the harm that would be suffered by the plaintiff if an injunction is not granted, against the harm that would be imposed on the defendant if it is granted.
In his ruling, Laster said he thinks there is “a viable post-closing remedy in the form of some combination of damages and equitable relief; again, assuming everything is proven.” However, he said an injunction would jeopardize the contract rights that Blue Ocean has secured with the sale.
In addition, Laster expressed concern about the posture of the litigation, given the divorce proceedings between Hassan and Huynh. “It strikes me that because they are sophisticated people, aided by sophisticated counsel, they are probably playing three-dimensional chess, and that I am not fully aware of all the pressure points between them,” Laster said in his ruling. “It wouldn’t surprise me if the deal itself had dimensions that were helpful to Mr. Hassan and potentially created leverage against Ms. Huynh. It wouldn’t surprise me if this proceeding had some overtones of potentially being helpful to Ms. Huynh and creating leverage against Mr. Hassan. It seems to me that an injunction would potentially change the leverage in ways that I am not sure that I fully understand.” In denying the injunction, Laster said he thinks it comes closer to maintaining the status quo between the parties, although it does allow the transaction to proceed.
Fairness of sale
While the ruling denied the preliminary injunction, Laster said the “sale process is not one that inspires confidence. It’s one that inspires concern.”
In Laster’s decision, the judge provided additional background material on the case:
- Suitable has approximately 7.7 million shares of common stock outstanding, with 31 stockholders of record. Hassan holds 600,000 shares that are community property owned jointly with Huynh, which represents about 7.7% of the equity. Hassan separately controls an additional 50.25% of Suitable’s stock.
- Hassan is the company’s sole director and CEO, and the company has never held a directors meeting or stockholder meeting. “The evidence reflects that Mr. Hassan views it as his company, as do his employees. He makes the decisions, and he basically does what he wants,” Laster said in the ruling.
- While Huynh and her attorneys have argued that the assets of Suitable are valued at around $100 million, the company has not made a profit. Between 2014 and 2018, the operating losses approximated $10 million annually. As the sole source of capital for the company since its founding, Hassan has unsecured loans of about $93 million, with current outstanding debt of approximately $94.5 million. “The evidence suggests that one of the issues with the company has been that Mr. Hassan has focused on other ventures,” Laster said. “By all accounts, he is a brilliant inventor and successful businessman who has many interests, including in real estate, technology startups, technology companies, and non-profits.”
- The sale of the company was driven by two personal factors – a desire to harvest a tax loss; and a desire to focus energies and resources on other projects. Laster said that once Hassan began exploring how to wind down the company, a third factor came into play – a desire to see that the company’s assets end up with someone who would support the brand and the company’s customers.
- Hassan gave Bo Preising, chief strategy officer and SVP of engineering, the task of finding a buyer in six weeks, although this was later extended to three months. The timeline was driven by Hassan’s desire to close a deal in 2019 in order to capture the tax losses, Laster said.
- The two did not hire an investment banker or a business broker, nor obtain any valuation or other type of sales advice, Laster said. “From my review of the record, it looks to me like Mr. Preising appears to have done his best, but he’s an engineer,” said Laster. “He’s a tech guy. He’s not someone skilled at selling companies.”
- Blue Ocean, a licensee and distributor of the company’s products, emerged as the only buyer, due to the timing and scope of who Hassan wanted to buy the company. After discussions, the purchase price was set at $500,000 (later reduced to $400,000 after an accident caused some asset losses). The initial number floated to Blue Ocean was $1 million, but Laster said “the record suggests to me that no analysis went into this price. Mr. Preising originally floated a number of $1 million, which looks to me from his email like a plug figure. He seems to have effectively said, ‘I don’t know what this stuff is worth, but what about a million?’ “
In the end, while Laster denied the injunction to block the sale, he also said there is good reason to think that the deal was not entirely fair. “Stated more appropriately for the injunction setting, there is a reasonable likelihood that Mr. Hassan will not be able to prove at trial that the deal was entirely fair.”
In a statement to Robotics Business Review, Blue Ocean Robotics CEO Claus Risager said the parties in the asset purchase agreement are bound by confidentiality agreements in terms of commenting in detail on the case. “Blue Ocean Robotics’ asset purchase agreement of the Beam Business from Suitable Technologies, Inc., is subject to court approval,” Risager said. “The ongoing proceedings in Delaware and California are part of it, including the various hearings before Christmas. We look forward to reaching a final conclusion.”
Additional documents for more details: