UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
SCHEDULE 13D
(Amendment No. 2)
Under the Securities and Exchange Act of 1934
INPRISE CORPORATION
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
45766C102
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(CUSIP Number)
Robert Coates
5501 LBJ Freeway, Ste 815
Dallas, Texas 75240
972-239-5065
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
August 16, 1999
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 240.13d-1(e), 240.13d-1(f), or 240.13d-1(g), check the
following box [ ].
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
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RESPECT TO SECURITIES OF THE ISSUER
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On August 16, 1999, C. Robert Coates, acting in his capacity as a
director of Inprise Corporation, filed a civil action in Delaware against
Inprise, Dale Fuller, William Hooper, David Heller, William F. Miller and Harry
J. Saal. A copy of the Complaint is attached as Exhibit 2.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
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Exhibit No. Description
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1 Agreement dated May 7, 1999 (previously filed
with Amendment No. 1).
2 Civil Action No. 17372-NC, Complaint in the Court
of Chancery of the State of Delaware in and for
New Castle County against Inprise Corporation,
Dale Fuller, William Hooper, David Heller,
William F. Miller and Harry J. Saal.
SIGNATURE
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
August 17, 1999
- ------------------------------------
Date
Management Insights, Inc. by
/s/ Robert Coates
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Robert Coates, Chairman & CEO
/s/ Robert Coates
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Robert Coates
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
C. ROBERT COATES, :
:
Plaintiff, :
:
v. : Civil Action No.
:
INPRISE CORPORATION, : 17372-NC
DALE FULLER, WILLIAM HOOPER, :
DAVID HELLER, WILLIAM F. MILLER :
and HARRY J. SAAL, :
:
:
:
Defendants. :
COMPLAINT
A. NATURE OF THE ACTION
1. Plaintiff C. Robert Coates brings this action individually as a
director of defendant Inprise Corporation ("Inprise" or the "Company").
Plaintiff seeks, inter alia, declaratory and injunctive relief with respect to
unlawful restrictions placed upon him (and other outside directors) by the
Company and its board which (1) prevent him from discharging his fiduciary and
statutory duties as a director of Inprise; and (2) abdicate the fiduciary and
statutory duties of the directors by allowing Dale Fuller, the Company's interim
President and Chief Executive Officer, to control the flow of information to the
Inprise board and all communications with Inprise employees. Inprise has imposed
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a gag order on plaintiff and Inprise's other directors, except for Mr. Fuller,
which deprives the directors of access to first-hand information, filters
information through Mr. Fuller and other members of management, and restricts
Inprise's directors from communicating with the Company's employees and
stockholders. These Orwellian measures establish Mr. Fuller as a corporate "Big
Brother" by whom all communications about the Company must be approved and to
whom all communications about the Company must be reported.
B. THE PARTIES
2. Plaintiff is an outside director of Inprise. Plaintiff is the
president and chief executive officer of Management Insights, Inc. Plaintiff and
Management Insights, Inc. have invested over $18 million in over 3 million
shares of Inprise common stock, representing over 6% of Inprise's outstanding
common stock. However, at current market prices of Inprise's stock, the value of
that investment has shrunk to approximately $12 million. As explained below,
plaintiff is justifiably concerned that the value of the investment of the
Inprise stockholders may erode further -- and fast.
3. Inprise is a Delaware corporation headquartered in Scotts Valley,
California. The Company's common stock is quoted on The Nasdaq Stock Market. In
the last year, the market price of Inprise's common stock has declined from the
$6 range to the $4 range, and has even dipped below $3. Inprise is a leading
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provider of software and services that simplify the complexity of application
development for corporations and individual programmers. Because Inprise is a
software company, its technical employees are among its most critical assets.
There is presently great concern at Inprise concerning the loss of employees and
plaintiff has been asked as a director to consider steps to address this
concern.
4. Individual defendants Dale Fuller, William Hooper, David Heller,
William F. Miller and Harry J. Saal are directors of the Company. Defendant
Fuller is the interim President and Chief Executive Officer of the Company.
Defendant Miller is the Chairman of the Board. He has known Mr. Fuller for some
time and suggested that Mr. Fuller be appointed interim President and CEO.
C. FACTS
5. At a meeting of the Inprise board of directors on July 30, 1999, the
board approved a "Statement of Policies and Procedures for the Board of
Directors" (the "Policies") to regulate and restrict the activities of the
Company's directors. Plaintiff was the only director to oppose the Policies and
their impermissible limitations on the ability of the Company's directors to
discharge their fiduciary responsibilities. While the Policies are purportedly
"to assist Board members in performing their lawful duties as directors of the
Company", the intent and effect of the Policies is just the opposite - to
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hamstring Inprise's directors and, particularly, plaintiff from properly and
fully discharging their fiduciary duties to the Company and its stockholders. A
copy of the Policies is attached as Exhibit A hereto.
6. Section 2 of the Policies admonishes the directors that all
non-public information relating to "the business, operations, financial
condition, plans or prospects of the Company" must be held in strictest
confidence. This confidentiality restriction is not limited to trade secrets,
sensitive business plans or information or even all material information.
Instead, all information that is non-public is "confidential" and, therefore,
subject to the restrictions of the policies. The directors are instructed to
consult with the Company's Chief Executive Officer or General Counsel who will
determine whether particular information is "confidential" (i.e., non-public).
7. Section 2 also provides:
If a Board member desires to review or be provided with
ADDITIONAL confidential information in furtherance of his duties
as a director of the Company, he should request it IN WRITING FROM
A DESIGNATED OFFICER (as defined below), and specify the
additional information being sought and the reason it is being
requested. The Designated Officer, IF HE DEEMS IT TO BE IN THE
INTERESTS OF THE COMPANY after taking into account the nature of
the information so requested, may require that such information be
furnished to a director SUBJECT TO REASONABLE CONDITIONS, such as
a condition that books, records and documents (including copies,
extracts or summaries thereof) NOT BE REMOVED FROM THE COMPANY'S
OFFICES. For purposes of this paragraph, the term "Designated
Officer" means the Chief Executive Officer or the Chairman of the
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Board, or if the same person holds both such positions, the Chief
Financial Officer also shall be a "Designated Officer." If the
request for additional confidential information is made to a
Designated Officer other than the Chief Executive Officer, such
Designated Officer promptly should inform the Chief Executive
Officer of such request. (Emphasis added.)
8. Section 2 essentially gives "Designated Officers" the power to
control what information about the Company the directors will receive and how
and where they will receive it. It specifically authorizes such officers to
require outside directors who do not live near the Company's offices to travel
to the Company's offices to review information and further authorizes such
officers to confiscate the directors' personal notes summarizing the information
reviewed. Section 2 also imposes a written demand requirement on directors that
is contrary to Section 220(d) of the Delaware General Corporation Law.
Furthermore, the authorization for the Chief Executive Officer (or other
"Designated Officer") to preclude directors from retaining copies and extracts
of documents is contrary to Section 220(d), which specifically entitles
directors to make copies and extracts of corporate records.
9. Section 2 attempts to camouflage the fact that the Policies will
give Mr. Fuller control over what information his fellow directors receive and
when and how they receive it. Although Section 2 provides that a written request
can also be directed to the Chairman of the Board or, if the CEO is also the
Chairman, to the Chief Financial Officer, the practical effect of Section 2 is
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that defendant Fuller will be able to determine what information the other
directors may see and how and where they may see it. While Dr. Miller as
Chairman of the Board will nominally be a Designated Officer, he is closely
associated with Mr. Fuller and will not provide information except with Mr.
Fuller's approval, including the conditions imposed. Indeed, because Dr. Miller
is not an officer of Inprise, he does not have control of the Company's records
or the ability to direct officers or employees to produce records. In short,
directors will not be able to obtain corporate records except through Mr.
Fuller.
10. The problems with Section 2 are many, but may be illustrated by
assuming that a director learned information suggesting that the Chairman/CEO
and the CFO of the Company were involved in a financial fraud and the director
wanted to investigate the allegation. Under Section 2, the director would not be
able to informally seek information from employees to see if there was any basis
for the fraud suspicion, but would be obligated instead to tip off the very
people who were suspected of possible wrongdoing.
11. Section 3 of the Policies precludes directors from disclosing
"previously undisclosed material information, publicly or otherwise." This
section ignores that a director has fiduciary and statutory duties that may
require him to disclose information publicly. If a director became aware that
the Company with the knowledge of the board and management was issuing false
financial information in a 10-Q, could that director remain silent in light of
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his fiduciary duty to the stockholders and the requirements of state and federal
law? Interestingly, while forbiding the directors from disclosing any
undisclosed material information, Section 3 permits unidentified "appropriate
officers" to make such disclosures without the approval or even knowledge of the
directors.
12. Section 4 of the Policies reads:
In order to avoid selective disclosure and to assist the
Company in complying with applicable laws pertaining to disclosure
of information, ONLY THE CHIEF EXECUTIVE OFFICER, THE CHIEF
FINANCIAL OFFICER, AND OTHER OFFICERS OR EMPLOYEES as may be
specifically DESIGNATED BY THE CHIEF EXECUTIVE OFFICER in a
particular situation, may discuss COMPANY BUSINESS MATTERS with
securities analysts or members of the press. Members of the Board
of Directors (OTHER THAN DIRECTORS WHO ALSO SERVE AS OFFICERS of
the Company and in such capacity, are specifically authorized to
do so) are not to discuss ANY MATTERS PERTAINING TO THE COMPANY
with securities analysts or the press unless specifically
authorized to do so in a particular situation by the Chief
Executive Officer or the Board of Directors. (Emphasis added).
13. Section 4 gives the CEO total control over all public communication
about "all Company business matters." The section discriminates between
directors who are officers and outside directors. The section ignores that
outside directors are placed on the board specifically to represent the
stockholders and the investing public. Instead, the section precludes outside
directors from discussing "any matters pertaining to the Company," thereby
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ensuring that the stockholders and the investing public will hear only what the
management insiders want them to hear. What if a dissident outside director
decided to wage a proxy contest - would he only be permitted to discuss "Company
business matters" with securities analysts and the press if the CEO or board
said he could?
14. Section 5 of the Policies relates to trading in the Company's
securities, though it acknowledges that the Company already has a policy that
regulates that subject. Given the existing policy and procedures, the new policy
seems intended only to discourage the directors from exercising their right
under Delaware law to purchase, own and sell shares of the Company.
15. Section 6 of the Policies permits outside directors to meet or
communicate with officers or employees of Inprise "only after prior consultation
with the Chief Executive Officer, and subject to such reasonable conditions as
the Chief Executive Officer may determine." Moreover, the CEO or his designee is
to determine the time and place of the meeting. Furthermore, all officers and
employees of Inprise are to be advised that they cannot communicate with
directors "without the prior approval of the Chief Executive Officer, and that
any requests for meetings or other communications are to be reported promptly to
the Chief Executive Officer." This section will have a chilling effect on any
employee who might wish to share information with outside directors concerning
the Company. If an employee has information that does not reflect favorably on
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senior management, that employee could hardly be expected to report the
information to an outside director if he has to first notify the CEO. The
Inprise board might just as well require an employee who talks to an outside
director to submit his or her resignation. This section is particularly
troubling because there is current concern at Inprise over possible departures
of employees, and management has proposed measures to the directors which
management claims are appropriate to address the subject. Especially in these
circumstances, outside directors should have the ability to have candid and
confidential discussions with employees about whether employees are considering
leaving and why, what problems employees see at the Company and what measures
employees believe should be taken to address the problems.
16. Section 7 restricts directors (except, of course, Mr Fuller as
Chief Executive Officer) from speaking about any significant business
transactions involving the Company. In particular, "directors are not to make
any statement to third parties or the media concerning any potential
extraordinary transaction." For example, if a director in the exercise of his
fiduciary duty opposes a proposed merger, he would be forbidden from explaining
his reasons to the stockholders and the investment community. Under Section 7,
directors are also precluded from soliciting proposals for the acquisition of
the Company "or any of its stock" (presumably including the stock the directors
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themselves own). The directors are required to report to the Chief Executive
Officer "immediately" all inquiries or other communications with respect to "a
possible extraordinary transaction" and advise him of "all facts and
circumstances relating to such communication." This section also requires the
directors to report to the Chief Executive Officer "any rumors, hearsay or other
information about the Company which they may hear from third parties."
(Presumably the directors will be issued steno pads so they can write down
whatever gossip, cocktail party chatter or other comments they may hear
regarding the Company!)
17. Finally, the Policies in Section 8 threaten retaliation against any
director accused of violating Mr. Fuller's gag order directives. Directors and
officers are required to report suspected violations of the Policies to (of
course) the Chief Executive Officer, who (unlike the other directors who may not
speak unless spoken to) can make such inquiries "as he deems appropriate" and
"may, in his discretion" decide whether to report the director to the full
board. The board of directors can then impose such punishment on the director
"as it deems appropriate," including determining that the director's actions
"were not taken by the director in his capacity as a director of the Company
and/or were taken in bad faith." This amounts to a thinly veiled threat that, if
a director says or does anything that Mr. Fuller does not like, the Company will
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sue the director and claim that he does not meet the criteria for advancement or
indemnification of his legal fees under the Delaware General Corporation Law.
<PAGE>
COUNT I
UNLAWFUL RESTRICTIONS ON THE ABILITY
OF PLAINTIFF AND OTHER DIRECTORS TO
EXECUTE THEIR FIDUCIARY DUTIES
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18. Plaintiff repeats and realleges the allegations of the paragraphs
above as if fully set forth herein.
19. As directors of a Delaware corporation, plaintiff and Inprise's
other directors are charged with the duty to manage the Company. 8 Del.C.
Section 141. Section 141(a) provides that any limitation on the directors' duty
to manage the corporation be set out in the certificate of incorporation. In
discharging their statutory responsibility, plaintiff and the other Inprise
directors owe concomitant fiduciary duties of care, candor and loyalty to the
Company and its stockholders. Those duties impose on the Inprise directors
affirmative obligations to promote and protect the financial interests of the
stockholders, to inform themselves of all material information reasonably
available and to proceed with a critical eye in assessing information.
20. The Inprise board has impermissibly limited the Inprise directors
in completely discharging their fiduciary duties to the Company and its
stockholders. Indeed, the Policies attempt to turn the Company's outside
directors into ventriloquists' dummies who speak and act only through the CEO.
21. The Policies interfere with plaintiff's ability to satisfy his duty
to inform himself of all material information reasonably available regarding the
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Company and its affairs. The Policies give defendant Fuller control over the
directors' access to information from the records, officers and employees of
Inprise. Plaintiff and Inprise's other directors cannot discharge their duty to
inform themselves fully and assess information critically by having their
information flow through and be controlled by Mr. Fuller. In particular,
directors are prevented by the Policies from obtaining information from
employees at a time when the directors are being asked to consider management
proposals directed to the treatment of employees. The Policies also violate
Section 220(d) of the DGCL by imposing new requirements on the statutory right
of directors to obtain information about the corporation's business and affairs,
including a written demand requirement and elimination of the right to copies
and extracts of corporate records.
22. The Inprise directors have placed defendant Fuller in a position
(a) to obtain and control crucial information not available to other directors,
(b) to be the gatekeeper determining what information plaintiff and the other
directors get; (c) to disseminate selected information to plaintiff and the
other directors; and (d) to put his "spin" on the information he chooses to
disclose. The Policies make plaintiff and other outside directors "second class
citizens" on the board with inferior ability to discharge their fiduciary and
statutory obligations than Mr. Fuller, the management insider.
WHEREFORE, plaintiff seeks an Order:
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A. Declaring that the Policies are void and that the restrictions on
the access to information and on communication are unlawful restraints on
plaintiff's ability to discharge his fiduciary duties as a director of a
Delaware corporation and violate his statutory rights under the DGCL.
B. Preliminarily and permanently enjoining Inprise and the individual
defendants from taking any action to enforce the Policies and the restrictions
contained therein.
C. Awarding plaintiff the reasonable costs of this action, including
attorneys' fees.
D. Granting such additional relief as the Court deems proper.
PRICKETT, JONES, ELLIOTT
& KRISTOL
Michael Hanrahan
John H. Small
Paul A. Fioravanti, Jr.
1310 King Street
Wilmington, Delaware 19801
(302) 888-6500
Attorneys for Plaintiff
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OF COUNSEL:
Mark T. Josephs
Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
(214) 953-6000
Dated: August 16, 1999
