## Facts

- Fletcher International, Ltd., a Bermuda hedge fund, beneficially owned all outstanding Series D-1, D-2, and D-3 preferred stock of ION Geophysical Corporation.
- The preferred stock’s rights were set out in certificates of rights and preferences, including a holder-consent provision addressing subsidiary issuances of “any security,” subject to specified exceptions.
- In connection with a joint venture transaction with BGP, Inc., ION caused its wholly owned Luxembourg subsidiary, ION International S.àr.l., to issue a convertible promissory note to BGP.
- The note was issued by ION S.àr.l. and was convertible into shares of ION common stock.
- ION did not obtain Fletcher’s consent before the subsidiary issued the note.
- Fletcher sued ION, ION S.àr.l., and ION’s directors for breach of contract (against the companies) and breach of fiduciary duty (against the directors).
- Fletcher moved for partial summary judgment on contract interpretation and liability; the court had previously declined to grant preliminary injunctive relief invalidating the note or compelling repayment.

## Issues

1. Whether the certificates unambiguously granted the Series D preferred holder a consent right over a subsidiary’s issuance or sale of “any security,” subject to the contractual exceptions.
2. Whether the convertible promissory note issued by ION S.àr.l. to BGP was a “security” and a “security of” the subsidiary for purposes of the consent provision.
3. Whether the fiduciary-duty claims against the directors were duplicative of the breach-of-contract claim and therefore should be dismissed.

## Decision

- The court held the certificates unambiguously granted Fletcher a contractual consent right over a subsidiary’s issuance or sale of “any security,” subject to the stated exceptions.
- The court held the ION S.àr.l. convertible promissory note was a “security” within the meaning of the consent provision and was a “security of” the issuing subsidiary.
- The court granted Fletcher partial summary judgment on liability for breach of contract against ION and ION S.àr.l. based on issuance of the note without Fletcher’s consent.
- The court dismissed the fiduciary-duty claims against the directors as duplicative of the contract claim.
- The court did not rescind or invalidate the note or order repayment in this decision.

## Legal Principles

- Delaware applies an objective theory of contracts; unambiguous language is enforced according to its plain meaning, giving effect to all terms.
- A broadly worded consent right covering “any security” may include instruments beyond equity, including convertible notes, when the contractual context supports a broad reading.
- A convertible promissory note issued in an investment or capital-raising context can qualify as a “security” for purposes of private contract interpretation; federal securities-law concepts (including Reves) may be used as persuasive confirmation.
- An instrument is generally a “security of” the entity that issues it and is obligated on it, even if conversion features tie it economically to the parent’s equity.
- When alleged fiduciary misconduct is coextensive with a claimed contractual breach and the contract supplies the operative duties, fiduciary-duty claims may be dismissed as duplicative.

## Conclusion

The Court of Chancery enforced the preferred stock certificates’ plain-language consent right, holding that the subsidiary’s convertible note was a “security” issued by the subsidiary and that issuing it without the preferred holder’s consent breached the contract; it dismissed parallel fiduciary-duty claims as duplicative and left remedies and any coercive relief regarding the note for other proceedings.


Fletcher Int'l, Ltd. v. ION Geophysical Corp., 2010 Del. Ch. LEXIS 125 (Del. Ch. 2010)