(CN) - A "significant stockholder" in a pink sheets holding company failed to back up its breach of fiduciary duty claims against the father and sons who run the business, Vice Chancellor John Noble ruled, finding that the shareholder didn't provide proof to support its motion to amend the court's prior dismissal order.
     In May 2011, the Delaware Chancery Court dismissed most of Ravenswood Investment Co. LP's derivative claims against Winmill & Co. Inc.'s board of directors, including Bassett Winmill and his sons, Thomas and Mark.
     Ravenswood claimed the directors had initiated a stock buyback with an average $5.90 per share payout that hurt the holding company and improperly issued stock options to themselves, according to the court's May 31 order. At the heart of the investor's claims was Winmill & Co.'s performance equity plan, which concerns the directors' stock options grants, and its stock buyback plan, according to the ruling.
     The Delaware Chancery Court dismissed most of Ravenswood's claims, finding that "even if all options authorized under the [performance equity plan] were to be granted to the Defendants they would not obtain a majority interest in the Class A shares." The court also held that the directors made a "valid business decision" and were not "interested parties" to the buyback plan.
     Ravenswood now claims the court made a "material mathematical error" when it determined that the Winmills would only hold a 47 percent interest if the company fully enacted its performance equity plan, the ruling says.
     Ravenswood claimed that if the two plans went into full effect, the directors would hold 53 percent of Winmill's total shares, according to the ruling.
     Ravenswood claims the directors' larger cut of the shares "suggests more strongly that '[t]he combination of the stock buybacks and options grants constitutes a rolling 'going private' scheme by a controlling stockholder devoid of any of the required substantive or procedural protections,'" the judge writes.
     The Winmills countered that Ravenswood never argued the "combined effects" of how the two plans would affect its voting power or that the two plans were "part of a single scheme," the ruling says.
     Noble admitted that the court made a mathematical mistake, but the error was immaterial since Ravenswood only argued that the plan would have a "dilutive effect on public shareholders' equity."
     "The Court explained that 'any options plan, however, has a dilutive effect on shareholders' equity, and this effect alone does not render an options plan unfair,'" Noble states.
     Ravenswood also claimed it should be allowed to amend its class action to "allege under facts presently in the complaint that basing an option program, particularly one of this magnitude, on the extreme daily fluctuations present [in] any illiquid 'pink sheet' market, [with] odd lots trading at greatly varying prices ... was a breach of fiduciary duty and a fundamental flaw in the plan," according to the ruling.
     The shareholder claimed the court improperly held that "the Performance Equity Plan only authorizes the Board to grant stock options with an exercise price not lower than the market value as of the event," according to the ruling. However, Ravenswood claimed its argument was based on "fair value," rather than "market value," the ruling says.
     Noble found that whether it should have used fair value or market value, Ravenswood's complaint cannot be saved.
     "Although the definitions of fair value and market value are not equivalent and it is possible in this case that market value would have been higher (or lower) than fair value, a board of directors does not breach its fiduciary duties by adopting an incentive plan that issues stock at fair value," the vice chancellor found.