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Posted On: 10/19/2021 12:43:20 PM
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Law360 (October 18, 2021, 5:14 PM EDT) -- Stockholders who lost a bid for a Delaware Chancery Court order putting on the ballot their slate of director candidates for CytoDyn Inc. have asked the same vice chancellor to block the late-stage biopharmaceutical company's election pending a state Supreme Court appeal.
Without an injunction, the motion filed Friday argued, investors will be denied a chance to choose between the dissident slate and an incumbent slate that last week noted in a regulatory filing a "substantial doubt" that the business can continue as a going concern.
Vice Chancellor Joseph R. Slights on Monday gave CytoDyn and its incumbent directors one day to reply to the injunction motion. The response order came five days after the court refused to order the challengers put on the ballot for an Oct. 28 annual meeting and vote, concluding that those who sued were playing "fast and loose" with the nominating process.
"If the vote occurs before appellate review, plaintiffs will have lost their opportunity in this crucial election cycle given the deeply troubled status of the company to present nominees for election to the board even if they are correct regarding the merits of this case," the injunction motion said.
The motion marked another twist in CytoDyn's tangled history, which most recently saw the company receive U.S. Department of Justice and U.S. Securities and Exchange Commission subpoenas focused on statements to the public on use of a CytoDyn drug as a potential COVID-19 treatment.
In August, five board challengers sought expedited Chancery Court action on a proposed ruling that the group had complied with company bylaws and an order "permanently enjoining the company and its board from taking any actions to prevent the proxy group from exercising their rights."
The five candidates for CytoDyn's six-member board — described by the company as an "activist group" — include the CEO of a company that served as a CytoDyn consultant and unsuccessfully sought a CytoDyn agreement to buy the business, InCellDX, for $350 million in May 2020.
Last Wednesday, Vice Chancellor Slights found that the dissidents filed their nomination notice a day before it was due, short of the companies' advance notice bylaws and also lacking in disclosures about potential conflicts of interest.
Among other points in favor of an injunction pending appeal, the motion filed Friday said, was the vice chancellor's observation that he "need not dwell" on the issue of irreparable harm because those who sued failed to prove the merits of their claim.
Rules of the court, however, require consideration of "the irreparable harm that Plaintiffs — and the company's shareholders — face," the injunction motion said, "if they are deprived respectively of their right to nominate candidates and vote on those candidates."
CytoDyn filed its own definitive proxy statement for the meeting last week.
The injunction motion said the prospective appeal "'raises serious issues that this Court itself recognized may be uncharted and thus ultimately should be subject of appellate review before becoming moot."
According to the quarterly SEC filing referenced in the motion, CytoDyn said that "the Company had losses for all periods presented," with a net loss of about $30.9 million for the quarter that ended on Aug. 31 and an accumulated deficit of about $542.7 million as of the same date.
"These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern," the SEC filing said.
CytoDyn argued that one of the proposed nominees, Bruce Patterson, had served as a consultant for CytoDyn and unsuccessfully tried to negotiate an agreement for the company to buy InCellDx for $350 million. Patterson and his wife collectively own about a third of InCellDx's stock, according to Wednesday's opinion.
Vice Chancellor Slights said the board "legitimately suspected" that Patterson and others were eager to revisit the failed attempt to merge the companies, adding: "For plaintiffs not to appreciate the presence of that elephant in the room reflects either reckless indifference or deliberate gamesmanship."
CytoDyn and counsel for the challenging directors did not immediately respond to a request for comment.
The plaintiffs are represented by Lisa Zwally Brown, Hal S. Shaftel, Daniel Friedman and Sarah E. Atlas of Greenberg Traurig and Drew G.L. Chapman and John P. Johnston of Baker Botts LLP.
The defendants are represented by Sidley Austin LLP, with a team led by partner Andrew Stern, Isaac Greaney, Alex Kaplan and senior associate Charlotte Newell.
The case is Paul A. Rosenbaum, Jeffrey P. Beaty and Arthur L. Wilmes v. CytoDyn Inc. et al., case number 2021-0728, in the Court of Chancery of the State of Delaware.
--Additional reporting by Charlie Innis. Editing by Andrew Cohen.
Law360 (October 18, 2021, 5:14 PM EDT) -- Stockholders who lost a bid for a Delaware Chancery Court order putting on the ballot their slate of director candidates for CytoDyn Inc. have asked the same vice chancellor to block the late-stage biopharmaceutical company's election pending a state Supreme Court appeal.
Without an injunction, the motion filed Friday argued, investors will be denied a chance to choose between the dissident slate and an incumbent slate that last week noted in a regulatory filing a "substantial doubt" that the business can continue as a going concern.
Vice Chancellor Joseph R. Slights on Monday gave CytoDyn and its incumbent directors one day to reply to the injunction motion. The response order came five days after the court refused to order the challengers put on the ballot for an Oct. 28 annual meeting and vote, concluding that those who sued were playing "fast and loose" with the nominating process.
"If the vote occurs before appellate review, plaintiffs will have lost their opportunity in this crucial election cycle given the deeply troubled status of the company to present nominees for election to the board even if they are correct regarding the merits of this case," the injunction motion said.
The motion marked another twist in CytoDyn's tangled history, which most recently saw the company receive U.S. Department of Justice and U.S. Securities and Exchange Commission subpoenas focused on statements to the public on use of a CytoDyn drug as a potential COVID-19 treatment.
In August, five board challengers sought expedited Chancery Court action on a proposed ruling that the group had complied with company bylaws and an order "permanently enjoining the company and its board from taking any actions to prevent the proxy group from exercising their rights."
The five candidates for CytoDyn's six-member board — described by the company as an "activist group" — include the CEO of a company that served as a CytoDyn consultant and unsuccessfully sought a CytoDyn agreement to buy the business, InCellDX, for $350 million in May 2020.
Last Wednesday, Vice Chancellor Slights found that the dissidents filed their nomination notice a day before it was due, short of the companies' advance notice bylaws and also lacking in disclosures about potential conflicts of interest.
Among other points in favor of an injunction pending appeal, the motion filed Friday said, was the vice chancellor's observation that he "need not dwell" on the issue of irreparable harm because those who sued failed to prove the merits of their claim.
Rules of the court, however, require consideration of "the irreparable harm that Plaintiffs — and the company's shareholders — face," the injunction motion said, "if they are deprived respectively of their right to nominate candidates and vote on those candidates."
CytoDyn filed its own definitive proxy statement for the meeting last week.
The injunction motion said the prospective appeal "'raises serious issues that this Court itself recognized may be uncharted and thus ultimately should be subject of appellate review before becoming moot."
According to the quarterly SEC filing referenced in the motion, CytoDyn said that "the Company had losses for all periods presented," with a net loss of about $30.9 million for the quarter that ended on Aug. 31 and an accumulated deficit of about $542.7 million as of the same date.
"These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern," the SEC filing said.
CytoDyn argued that one of the proposed nominees, Bruce Patterson, had served as a consultant for CytoDyn and unsuccessfully tried to negotiate an agreement for the company to buy InCellDx for $350 million. Patterson and his wife collectively own about a third of InCellDx's stock, according to Wednesday's opinion.
Vice Chancellor Slights said the board "legitimately suspected" that Patterson and others were eager to revisit the failed attempt to merge the companies, adding: "For plaintiffs not to appreciate the presence of that elephant in the room reflects either reckless indifference or deliberate gamesmanship."
CytoDyn and counsel for the challenging directors did not immediately respond to a request for comment.
The plaintiffs are represented by Lisa Zwally Brown, Hal S. Shaftel, Daniel Friedman and Sarah E. Atlas of Greenberg Traurig and Drew G.L. Chapman and John P. Johnston of Baker Botts LLP.
The defendants are represented by Sidley Austin LLP, with a team led by partner Andrew Stern, Isaac Greaney, Alex Kaplan and senior associate Charlotte Newell.
The case is Paul A. Rosenbaum, Jeffrey P. Beaty and Arthur L. Wilmes v. CytoDyn Inc. et al., case number 2021-0728, in the Court of Chancery of the State of Delaware.
--Additional reporting by Charlie Innis. Editing by Andrew Cohen.
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