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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
| NABIL SALAMA, individually and on behalf of all others similarly situated, Plaintiff, v. IRWIN D. SIMON, JODI BUTTS, DAVID CLANACHAN, JOHN M. HERHALT, DAVID HOPKINSON, THOMAS LOONEY, RENAH PERSOFSKY, and TILRAY BRANDS, INC., Defendants. | ) ) ) ) ) ) ) ) ) ) ) ) ) ) | |||
| C.A. No. 2024- | - |
VERIFIED STOCKHOLDER CLASS ACTION COMPLAINT
Plaintiff Nabil Salama, on behalf of himself and all other similarly situated public stockholders of Tilray Brands, Inc. ("Tilray" or the "Company"),
brings this Verified Stockholder Class Action Complaint ("Complaint") against Tilray and the members of its board of directors (the "Board"), namely: Irwin D. Simon, Jodi Butts, David Clanachan, John M. Herhalt, David Hopkinson, Thomas Looney, and
Renah Persofsky (collectively, the "Individual Defendants"). Plaintiff's allegations are based upon his knowledge as to himself and as to all other matters upon information and belief, including the investigation conducted by his undersigned
attorneys, a review of public information, news reports, and documents filed with the U.S. Securities and Exchange Commission ("SEC").
1. A recent amendment to the Delaware General
Corporation Law ("DGCL") specifies a votes-cast standard for certain types of charter amendments.1 The new statutory standard,
however, specifically does not apply where a corporation's charter provides for a different voting standard applicable to those types of charter amendments. The Fourth Amended and Restated Certificate of Incorporation of Tilray Brands, Inc. (the
"Certificate")2 so provides.
2. Nonetheless, in the definitive proxy
statement that the Company filed with the SEC on September 27, 2024 (the "2024 Proxy") in connection with the annual meeting of Tilray stockholders to be held on November 21, 2024 (the "2024 Annual Meeting"), the Board incorrectly informed
stockholders that a lower, votes-cast standard applied to a proposal to approve an increase in the number of shares of common stock authorized under the Certificate purportedly from 1,198,000,000 to 1,416,000,000 (the "2024 Authorized Shares
Proposal").3 The Board also made related incorrect disclosures concerning the effect that abstentions and broker non-votes4, if any, would have on the 2024 Authorized Shares Proposal.
3. In an attempt to fix these errors at minimum expense, Plaintiff sent a
8 Del. C. 242(d) ("Section 242(d)").
2 The Certificate is attached hereto as Exhibit A.
3 As demonstrated below, notwithstanding the Board's
representation in the 2024 Proxy, the Certificate actually only provides for the issuance of up to 980,000,000 common shares. See infra Section II.
4 Broker non-votes occur where the beneficial holder of
a share does not provide voting instructions and the holder's broker is not authorized to vote the share in its own discretion.
letter to the Board detailing the issues and demanding their correction.5 In his Demand, Plaintiff identified the incorrect language in the 2024 Proxy, pointed to the relevant Certificate language requiring that "the affirmative vote of the holders of a majority of the voting power of all of the
outstanding shares of stock" be voted in favor of any propose to increase or decrease the authorized number of shares, and discussed the text and legislative synopsis of Section 242(d).
4. On October 24, 2024, Tilray's general counsel sent to Plaintiff's counsel a cursory email rejecting the Demand without analysis or discussion.6
5. Interestingly, this is not the first
time that the Company has proceeded with a stockholder vote to increase the number of authorized shares of common stock available under the Certificate predicated on a false and misleading proxy. On September 27, 2023, the Company filed a
definitive proxy statement with the SEC (the "2023 Proxy") in connection with the annual meeting of Tilray stockholders held on November 21, 2023 (the "2023 Annual Meeting"), at which it sought stockholder approval of a proposal to approve an
increase in the number of shares of common stock authorized under the Certificate from 980,000,000 to 1,198,000,000 and (the "2023 Authorized Shares Proposal"). As in the 2024 Proxy, the Board incorrectly informed stockholders that the lower,
votes-cast standard applied to the 2023 Authorized Shares Proposal and incorrectly stated the effect that abstentions and
5 A copy of this correspondence, dated October 21, 2024
(the "Demand"), is attached hereto as Exhibit B.
6 A copy of this email, dated October 24, 2024 (the
"Rejection") is attached hereto as Exhibit C.
broker non-votes, if any, would have on the proposal.
6. On November 22, 2023, the Board
announced that the 2023 Authorized Shares Proposal had carried. In fact, however, the proposal did not garner the necessary number of votes required under the standard provided for in the Certificate.
7. The perfunctory Rejection of the Demand,
as well as its prior application of the wrong voting standard to the 2023 Authorized Shares Proposal, make it clear that the Board intends to tabulate stockholder votes in accordance with the incorrect voting standard identified in the 2024
Proxy. Because the Company is poised to proceed with a defective vote predicated upon materially false disclosures, Plaintiff brings this action seeking expedited relief to compel corrective disclosures and ultimately keep the Board from
compromising Tilray's capital structure. Plaintiff also brings this action to remedy the harm inflicted on Tilray and its stockholders resulting from the Board improperly increasing the number of shares of common stock available for issuance
based on the (failed) 2023 Authorized Shares Proposal.
8. Dr. Nabil Salama is a Tilray stockholder and has held Tilray stock at all times relevant to the wrongdoing complained of herein.
9. Tilray Brands, Inc. is a Delaware corporation that maintains its principal executive offices in Leamington, Ontario, Canada. The Company describes
itself as a global lifestyle consumer products company and offers a portfolio of brands and products including medical and adult-use cannabis, craft beer, spirits,
beverages, and hemp foods.
10. Irwin D. Simon has been the Company's President, Chief Executive Officer, and Chairman of the Board since May 2021.
11. Jodi Butts has been a member of the Board since May 2021.
12. David Clanachan has been a member of the Board since May 2021.
13. John M. Herhalt has been a member of the Board since May 2021.
14. David Hopkinson has been a member of the Board since May 2021.
15. Thomas Looney has been a member of the Board since May 2021.
16. Renah Persofsky has been a member of the Board since May 2021.
SUBSTANTIVE ALLEGATIONS
17. The General Assembly enacted Section
242(d) in 2023 to establish a new default voting standard for Delaware corporations seeking to increase or decrease the number of shares authorized for issuance under their charters. Section 242(d) provides in relevant part:
(d) ... unless otherwise expressly required by the certificate of incorporation: ...
(2) An amendment to increase or decrease the authorized number of shares of a class of capital stock ... may be made and effected, without obtaining
the vote or votes of stockholders otherwise required by subsection (b) of this section if ... a vote of the stockholders entitled to vote thereon, voting as a single class, is taken for and against the proposed amendment, and the votes
cast for the amendment exceed the votes cast against the amendment ....
18. The "unless otherwise expressly required
by the certificate of incorporation" lead-in to Section 242(d), however, unambiguously provides that the statutory votes-cast standard will not apply where corporate charters specify an alternative voting threshold applicable to amendments that
would increase or decrease the number of authorized shares.
19. The legislative synopsis, consistent with
the statutory lead-in, speaks to what charter language constitutes a proper "opt-out" from Section 242(d) or "opt-in" to "the majority of outstanding shares" voting standard set forth in Section 242(b) of the DGCL:
Notably, the "unless otherwise expressly required by the certificate of incorporation" lead-in to subsection (d) permits a corporation to "opt in" to the stockholder votes that otherwise would be required under subsection (b) in connection with any subdivision or combination of the issued shares or increase or decrease in the authorized number of shares contemplated by subsection (d). Any such provision in
the certificate of incorporation must expressly state that the stockholder vote otherwise required under subsection (b) is required to adopt any amendment to the certificate of incorporation specified in subsection (d) or must expressly "opt out" of
the provisions of subsection (d). A general recitation in the certificate of incorporation of the vote generally required under subsection (b) without a specific reference to the amendments specified in subsection (d) is not sufficient.
S.B. No. 114, 152nd Gen. Assem. (Del. 2023) (emphasis added).
20. When Section 242(d) was codified, numerous
law firms recognized that charter-specified voting thresholds expressly applicable to the amendment(s) in Section 242(d) would continue to govern. By way of example and not limitation:
7 Baker Hostetler LLP, Delaware Implements Amendments to the Delaware General Corporation Law, Effective as of Aug. 1, 2023 (Aug. 21, 2023) (emphasis added), available online at: https://www.bakerlaw.com/insights/delaware-implements-amendments-to-the- delaware-general-corporation-law-effective-as-of-aug-1-2023/.
8 Jones Walker LLP, Delaware Governor Signs Into Law Amendments to the DGCL and Delaware Alternative Entity Statutes (July 19, 2023), available at:
21. The language in Tilray's Certificate
clearly specifies the vote "that otherwise would be required under subsection (b)" of Section 242, as well as the type of "amendment to the certificate of incorporation specified in subsection (d)[,]" namely: "[a]n amendment to increase or
decrease the authorized number of shares of a class of capital stock[.]" Specifically, Article IV, Section (B) provides that:
The number of authorized shares of Common Stock
or Preferred Stock may be increased or decreased (but not below the number of shares of Common Stock, or Preferred
Stock then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of stock of the Company entitled
to vote thereon, without a vote of the holders of the Preferred Stock, or of any series thereof, or Common Stock unless a vote of any such holders is required pursuant to the terms of
any certificate of designation filed with respect to any series of Preferred Stock (a "Certificate of Designation").
("Article IV.B", which provides the "Applicable Voting Standard" (emphasis added, original emphasis omitted)).
https://natlawreview.com/article/delaware-governor-signs-law-amendments-to-dgcl-and- delaware-alternative-entity.
9 Bayard, P.A., Delaware General Corporation Updates Enacted Into Law (July 26, 2023) available at: https://www.bayardlaw.com/insights/delaware-general-corporation-updates- enacted-into-law.
22. Prior the 2023 Annual Meeting, the
Certificate authorized the issuance of up to 980,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of September 26, 2023, there were 723,282,580 shares of common stock issued and outstanding, with another 32,199,140
reserved for issuance. Tilray has not issued preferred stock.
23. On September 27, 2023, the Company filed
the 2023 Proxy, through which the Board solicited stockholder approval of the 2023 Authorized Shares Proposal. As the Board stated in the 2023 Proxy:
The Board has unanimously approved an amendment (the "Authorized Shares Proposal") to the Charter to increase the number of authorized shares of
capital stock from 990,000,000 to 1,208,000,000, consisting of 1,198,000,000 shares of common stock, par value $0.0001 per share ("Common Stock"), and 10,000,000 shares of preferred stock, par value$0.0001
per share. The Authorized Shares Proposal only increases the number of authorized shares of Common Stock and will not change the number of authorized shares of preferred stock.10
24. In soliciting stockholder approval of
the 2023 Authorized Shares Proposal, however, Defendants misstate the applicable voting standard:
10 (emphasis omitted).
Elsewhere in the 2023 Proxy, Defendants likewise misstated that approval of the 2023 Authorized Shares Proposal "require[d] the affirmative FOR' vote of at least a
majority of the voting power shares of common stock casting votes in person (online during the virtual meeting) or by proxy at the Annual Meeting by the holders entitled to vote thereon."
25. That is not the applicable standard. The
Certificate specifically provides the Applicable Voting Standard-i.e., "the affirmative vote of the holders of a
majority of the voting power of all of the outstanding shares"-that had to be satisfied for the 2023 Authorized Shares Proposal to carry. The votes-cast standard in Section 242(d) did not apply to the 2023 Authorized Shares Proposal.