1 in the court of chancery of the state of delaware …

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ELITE HORSE INVESTMENTS LTD., : a British Virgin Islands company, :

: Plaintiff, :

: v : Civil Action : No. 10550-CB T3 MOTION, INC., a Delaware : corporation, :

: Defendant. :

- - -

Chancery Courtroom No. 12A

New Castle County Courthouse 500 North King Street Wilmington, Delaware Friday, January 23, 2015 1:34 p.m.

- - - BEFORE: HON. ANDRE G. BOUCHARD, Chancellor. - - - ORAL ARGUMENT ON PLAINTIFF'S MOTION FOR A TEMPORARY

RESTRAINING ORDER and RULINGS OF THE COURT

- - -

------------------------------------------------------ CHANCERY COURT REPORTERS

New Castle County Courthouse 500 North King Street - Suite 11400

Wilmington, Delaware 19801 (302) 255-0524

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CHANCERY COURT REPORTERS

APPEARANCES:

MEGAN WARD CASCIO, ESQ.CHRISTOPHER P. QUINN, ESQ.Morris, Nichols, Arsht & Tunnell LLP for Plaintiff

RICHARD L. RENCK, ESQ.CHRISTOPHER M. WINTER, ESQ.Duane Morris LLP -and-KENNETH S. AUGUST, ESQ.

of the California Bar August Law Group, P.C. for Defendant

- - -

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THE COURT: Good afternoon, Counsel.

MR. RENCK: Good afternoon, Your

Honor.

THE COURT: Mr. Renck.

MR. RENCK: Ms. Cascio has been kind

enough to let me make some introductions.

THE COURT: Sure.

MR. RENCK: It's Richard Renck of

Duane Morris on behalf of the defendant here. I also

have with me Chris Winter of my office, my partner at

Duane Morris, and Ken August from the August Law Group

of Los Angeles, who is also counsel to the company.

THE COURT: Welcome.

MR. RENCK: Thank you, Your Honor.

THE COURT: Ms. Cascio.

MS. CASCIO: Thank you, Your Honor.

Megan Cascio for plaintiff Elite Horse Investments

Limited. At counsel table with me, Your Honor, is

Chris Quinn of my firm.

THE COURT: Good afternoon.

MS. CASCIO: I want to start by

thanking Your Honor for scheduling this temporary

restraining order motion so quickly. We truly

appreciate Your Honor's attention to this matter.

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THE COURT: Certainly.

MS. CASCIO: As we had informed the

Court on Tuesday, we had hoped that the parties would

be able to work out some type of stipulated order and

avoid this hearing. Unfortunately, despite my

inquiries, the defendant was not interested in

discussing such an agreement after we had Tuesday's

hearing. So we're therefore, here today on

plaintiff's motion for a temporary restraining order.

Just a little background. Plaintiff

initiated this case pursuant to Section 225 of the

DGCL seeking a declaration, first, that four

individuals that the plaintiff and seven other

consenting stockholders are stockholders of the

defendant T3 Motion had elected to the T3 board

pursuant to a written consent. We're seeking a

declaration that they had the right to take those

seats or to be seated.

Late last week we learned that T3, and

primarily its CEO and chairman William Tsumpes,

intended to attempt to prevent those new board members

from taking their seats. Mr. Tsumpes sent an e-mail

to the other two incumbent directors but excluded the

four new directors, seeking to schedule an immediate

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board meeting to decide, among other things, to issue

stock to dilute the consenting stockholders' majority

control of T3. So faced with this blatant refusal to

honor the consents or recognize the consents, we had

no choice but to file our complaint and seek the

temporary restraining order.

Now, as we disclosed to both

defendant's counsel and the Court on the Tuesday

teleconference, seven of the eight consenting --

original eight consenting stockholders holding over

58 percent of the outstanding shares of the company

delivered a second written consent. That consent

ratified the actions taken by the first written

consent, retook those actions of electing four new

directors, and removed Mr. Tsumpes and Mr. Healy from

their position as directors.

THE COURT: I'm not sure it matters,

but when I did the math, I came out a little

differently than you did. As I understand it, the

first consent is an even 60 million shares. In the

second consent, I think it's Northside that doesn't

sign.

MS. CASCIO: Right.

THE COURT: When I looked at the first

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consent and the number attributed to Northside and I

subtracted out, I get a little different number than

--

MS. CASCIO: You get a little over --

THE COURT: -- you did.

MS. CASCIO: -- 60 percent, I think.

I think there's a little confusion. And, honestly,

Your Honor, there's still kind of a little confusion

on my part as to exactly how many shares Northside

has. But to be conservative --

THE COURT: Right. You think --

MS. CASCIO: -- and I think the

company would say it's a little bit over -- it still

is at 50. It's over 58, or 58.3 percent.

THE COURT: Okay.

MS. CASCIO: And so we're in the

ballpark, Your Honor. We're certainly over

50 percent.

THE COURT: Well, it's not disputed,

at least not yet.

MS. CASCIO: Not yet.

THE COURT: But I just noticed that

and wanted to raise it.

MS. CASCIO: Thank you, Your Honor.

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So the five remaining directors, the

four new directors plus Mr. Ki Nam, who had not been

removed by the second written consent --

THE COURT: Right.

MS. CASCIO: -- then delivered a

unanimous consent of the members of the board to

remove Mr. Tsumpes as CEO and replace him with Zhang

Mi. And Zhang Mi is a director of the plaintiff,

Elite Horse.

On Wednesday we amended our complaint

to seek declarations that the second written consent

and the director consent are valid and effective and

that the -- the actions that they purport to take be

blessed by the Court. So this is a straightforward

225 motion, we believe.

The case law from the Court says that

this action should be summary in nature. It also

supports the entry of a TRO or status quo order in the

interim, especially to address the uncertainty facing

a company when the control of its board is at issue.

And I think we cite cases in our papers, including the

Arbitrium case, that stands for that proposition, Your

Honor.

The parties apparently disagree about

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the first prong of the test for a TRO. However,

regardless of whether it must show a colorable claim

or reasonable likelihood of success on the merits,

plaintiffs more than meet that, either test.

And I want to pause for a moment, Your

Honor. The plaintiff filed its motion for a TRO

before it filed its amended complaint. However, the

grounds for granting the TRO are as strong, if not

stronger, with the existence of the second written

consent, stockholder consent.

In its opposition, plaintiff

specifically asserts that the second written consent

fails for the same reasons that it argues that the

first written consent is invalid, as I believe the

parties have joined issue on the allegations in the

amended complaint and the plaintiff's right to a TRO

based on those allegations as well.

Now, there can be no question, we

believe, as to the merits of the plaintiff's amended

complaint. It alleges that eight stockholders holding

more than 65 percent of the outstanding shares

delivered a written consent to the company on

December 26, 2014, filling four vacancies on the

board. Section 2.9 of the company's bylaws explicitly

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allows stockholder consent -- stockholder action by

consent. There can be no dispute that there were four

vacancies on the board, as the amended and restated

bylaws, approved in August 2012, authorized seven

directors.

THE COURT: Can I just stop you there?

MS. CASCIO: Sure.

THE COURT: So there are three dates,

in my mind, here.

MS. CASCIO: Uh-huh.

THE COURT: December 26th, the day of

delivery of the first consent; January 15th, the date

of the second consent; and January 20th, the date of

delivery of the second consent. To your knowledge,

has anything happened at the company between the

beginning and end of those dates that's relevant to

what we're doing today?

MS. CASCIO: Other than Mr. Tsumpes

trying to call a board meeting by only giving Mr. Nam

and Mr. Healy notice and listing actions that he

wanted to take to dilute our stockholders -- and we

attached that to our -- probably our complaint, if not

also our original motion -- I'm not aware of a changed

circumstance in the company.

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THE COURT: Right.

MS. CASCIO: If that's Your Honor's

question.

THE COURT: I understand there's an

issue about what may have been attempted; but insofar

as you know, nothing has actually happened between,

again, December 26th and January 20th, maybe most

relevantly January 15th to January 20th, that has

changed the status quo from your perspective.

MS. CASCIO: We're not aware of

anything. I will confess to the Court that we don't

have a lot of visibility into this company, either.

It purports to be a publicly traded company. It

trades on the OTC Bulletin Board, but it's been

delisted and deregistered as of, I believe, an action

in October 2013 which became effective as a 90-day

effective period. So it would have been January 2014.

There aren't any public filings regarding the

financials of the company since, I believe, the third

quarter of 2003. And the last 10-K was for 2012.

So we don't have -- they're not filing

8-Ks to tell us that they're doing. We don't have a

lot of visibility.

THE COURT: Okay.

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MS. CASCIO: I think I said, but let

me just -- to complete my thought in case I did not,

the bylaws have -- authorize seven directors. Four

were vacant. The consenting stockholders acted as

permitted by the bylaws to fill the vacancies, and

those actions were effective upon delivery of the

consents; the first consent on December 26th, 2014, to

the principal place of business of the company.

Then on January 20th, as Your Honor is

aware, the seven stockholders holding over 58 percent

of the company's outstanding stock, delivered the

second written consent to the registered agent of T3

Motion here in Delaware. That same day they also --

I'm sorry. The board then delivered the written --

the unanimous written consent of the directors

removing the CEO and replacing him.

I think it's important to note what

the defendant does not deny with respect to these

actions. Defendant does not deny that the two

stockholder consents were executed by holders of a

majority of the outstanding shares of T3 Motion, nor

does defendant deny that each of the consents were

properly delivered. Defendant further does not

dispute that T3's board had seven authorized seats and

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that four of those were vacant, at least as of

December 25th, 2014.

THE COURT: And just -- it may be

irrelevant, but just for my own edification, how long

had these slots been vacant?

MS. CASCIO: I'm not sure I have the

complete answer. I know I read in their opposition

that the last seat became vacant around the time or in

connection with the eight consenting stockholders'

investment, which occurred at the beginning of

December --

THE COURT: Right.

MS. CASCIO: -- of 2014. They

invested $6 million into the company for their

60 million shares or their 65 percent interest.

Finally, defendant does not deny that

T3 stockholders are permitted to act by written

consent pursuant to the bylaws.

Instead, defendant attacks the merits

with three challenges to the stockholder consents

themselves, none of which pass muster.

First, defendant argues that the

stockholder consents were invalid under Section 211(b)

because the section requires unanimous stockholder

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consent to elect directors.

That reliance is misplaced, Your

Honor. As we explained in our reply papers -- I

apologize for getting them in this morning, Your

Honor.

THE COURT: I reviewed them.

MS. CASCIO: Thank you.

Section 211(b) applies to elections in

lieu of -- elections by consent in lieu of an annual

meeting. The purpose is to prevent less than all of

the stockholders from attempting to eliminate the

requirement that the company hold an annual meeting by

replacing one director and saying that that director

has been validly elected up to the 13 months under

Section 211.

The -- we went through the statutory

support for that, the secondary sources that were

written contemporaneous with it. And I don't think

there's any question that we have the only correct

reading of Section 211(b).

Indeed, the one case that defendant

has presented to the Court for its proposition that

you have to act by unanimous written consent to fill

vacancies, EMAK actually acknowledged that

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"Stockholders can act in between annual meetings to

remove directors, to fill vacancies, or to fill newly

created directorships ...." That's cited in our reply

papers. That is exactly what the consenting directors

did here. First, they filled four vacancies. Then

they removed two directors. EMAK only prevented the

removal of sitting directors through a consent that

purported to shrink a board.

THE COURT: That was the -- I was

involved in that case.

MS. CASCIO: You were, Your Honor.

THE COURT: That holding was made in

the context of the Crown solicitation; right?

MS. CASCIO: Correct. That was the

Crown solicitation.

THE COURT: Right.

MS. CASCIO: They purported to shrink

the board from, like, nine to three or twelve to

three. I've forgotten how many it is. Maybe it is

seven to three.

THE COURT: Where the cross

solicitation by the dissidents actually did seek

through consents to fill vacancies, if I recall

correctly --

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MS. CASCIO: Exactly.

THE COURT: -- is that right?

MS. CASCIO: Take Back EMAK. Did

exactly what we've done here. They did it in the

reverse order, I believe. There were two vacancies of

seven, and they removed two more directors and put

three people on the board. So there were five, I

think, sitting directors out of the seven seats. And

the Court recognized that that was valid, but I know

that there was issues with respect to counting the

shares of that consent.

THE COURT: Uh-huh.

MS. CASCIO: But the action was not

challenged under -- was not found to be invalid under

Section 211(b).

Now, defendant next argues that the

first written consent is invalid because the

signatories did not hand-date their -- next to their

signatures. This argument is quickly dispatched by

review of the second written consent, which is

hand-dated and hand-signed.

THE COURT: Let's assume for a second

you didn't have the written consent. I don't know if

you'll concede anything, but would you agree you would

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have a real problem, especially as the Wexford case

construes the requirement in the statute for each

stockholder dating their consent?

MS. CASCIO: I think that's what the

Wexford case says, Your Honor. There's not a lot of

other law out there. The Wexford case does say that

you need to construe the Section 228 strictly because

you're doing this, kind of, outside of the annual

meeting or the meeting context.

THE COURT: I think I looked at it

quickly. But just having some familiarity with the

statute, I think the rationale is, you know, written

consents can only be a fact of -- effective within

certain time parameters. You need to know the date of

executions at consent so you know, you know, when you

cross the magic threshold and if that action's taken

within the requisite time period.

Anyway --

MS. CASCIO: Right, Your Honor. I

believe it's 60 days under the statute.

THE COURT: Right.

MS. CASCIO: Of course, here, we've

not been stockholders for 60 days yet. So I'm not

sure that that's really an issue.

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THE COURT: Oh, yes. So tell me about

that. When did your stockholders become --

MS. CASCIO: Around December 21st,

'14. They had escrowed the $6 million in the middle

of the summer while they completed the transaction.

And I don't have all of the documents yet, Your Honor,

but we believe that the money was transferred to the

company around November -- right around Thanksgiving,

and it took a little while to get the stock

certificates.

THE COURT: Okay.

MS. CASCIO: So around -- or to get --

I don't know. I don't actually even know if they have

the stock certificates, but recognized as shareholders

around December 1st.

THE COURT: Okay.

MS. CASCIO: So we haven't been

stockholders for 60 days. In any event, the second

written consents dated the 15th -- they signed it on

the 15th -- was delivered on the 20th. I don't think

we have an issue with respect to 228(c) for the second

written consent, which ratifies and retakes all of the

action, in addition to removing directors that were --

that was taken in the first written consent.

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Third, the defendant argues that the

written consents are invalid because the 228 notice

has not been sent promptly. Of course, the second

written consent was just delivered on Tuesday. So, I

mean, no matter what the definition of "prompt" is, I

think we're still within that time frame; but we'd

argue even if we were just standing here at the first

written consent, a month -- less than a month,

actually, I guess -- is still -- still prompt.

THE COURT: So does your client

even -- does your client have the necessary contact

information for the other shareholders even to send a

notice?

MS. CASCIO: We don't have the most

recent stock -- we don't believe we have the most

recent stock listing. We have a stock listing but --

THE COURT: Has your client requested

it?

MS. CASCIO: Not yet, Your Honor.

We're working through it. But it certainly is a

question of whether we have an obligation to send it

or the company does. I don't think that the statute

is very clear on that point. But even if we were

within -- we would be within 30 days if we were just

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talking about the first written consent.

But the defendants' reliance on Tiber

Holdings is misplaced. Tiber Holdings doesn't stand

for the proposition or does not hold, I should say,

that a written consent is invalid until the 228

notice -- 228(e) notice is sent. Tiber Holdings was a

very unusual situation. First, it actually recognizes

that -- that consents are effective when they're

delivered before the -- the notice is sent except in

unusual circumstances. The Court

specifically (Inaudible) -- I guess actually argues

the reverse. Consents may not be valid until the

notice is sent under certain circumstances. And that

was a very -- as I said, a very unusual circumstance.

The written consent was not sent until five months

after it was purported to be executed and delivered.

The plaintiff, closely held family

company, filed an action, I believe it was in

Pennsylvania. They're arguing about a provision in

the certificate of incorporation restricting stock

transfers. The defendants purport to take action by

written consent that would remove that provision from

the certificate but failed to tell the plaintiff that

their litigation is moot. Then they go on to attempt

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to settle the litigation with the plaintiff without

revealing the written consent has -- has deleted the

provision at issue.

And then for, quite frankly, something

that was not completely clear to me in the opinion,

the plaintiff then purports to take action under the

provision in the certificate of incorporation, which

allows it to put its stock to the company. At that

point, after it has purported to take action, the

company says, "We have a written consent that was

supposedly executed five months previously, and that

provision is no longer part of our certificate of

incorporation." Under those circumstances -- and as

far as we can find, only under those circumstances --

has a court ever found that a consent is not effective

until it is delivered -- or the notice is provided

pursuant to 228(e).

THE COURT: Right. So the five months

was with reference the provision of notice, not the

delivery of the consent; right?

MS. CASCIO: I'm sorry, Your Honor.

THE COURT: The five months that's

referred to in Tiber, I read the briefs to say -- and

I haven't had a chance to independently read the

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case -- that the five months related to the notice

period, not the period of delivering the consent,

which presumably would be a problem under the 60-day

requirement, in any event.

MS. CASCIO: Correct, Your Honor, yes.

THE COURT: Okay.

MS. CASCIO: It was purported to be

dated, like, in October, and then this is all

occurring in March that they actually filed the

amended certificate of incorporation with the

Secretary of State and then turn around and give the

notice --

THE COURT: The notice. Okay.

MS. CASCIO: Yes.

THE COURT: All right.

MS. CASCIO: So those facts do not

remotely resemble our case here.

Finally, the complaint states a very

strong claim that any action taken by three members of

the board is void under the company's unambiguous

bylaws. Section 3.10 of the bylaws requires the

presence of a majority of the authorized number of

directors to constitute a quorum. T3's motion has

seven authorized director seats. Thus, the three

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incumbent directors cannot constitute a quorum and

cannot take action on behalf of the company. As a

matter of public policy, the incumbent board should be

enjoined from purporting to take action that is

clearly void under the bylaws. And defendant has had

no response to this argument.

Unless Your Honor has any questions on

the merits, I'm going to turn to the irreparable harm

argument.

THE COURT: That's fine.

MS. CASCIO: The next element for a

temporary restraining order is a finding of a threat

of imminent irreparable harm. The case law

establishes that the uncertainty concerning the

legitimate board creates irreparable harm, both to the

stockholders and to the company, sufficient for the

entry of a status quo or temporary restraining order

in connection with a 225 action. That's one of the

cases, Salamone versus Gorman, which we cite in our

papers. Thus, it has, in the Court's words, become

customary for the entry of a status quo order to

preserve the corporation's affairs pending judicial

resolution of the dispute as to the control of a

board. And that's the Arbitrium case, again, that's

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cited in our papers.

Here, plaintiff is seeking to enjoin

the actions Mr. Tsumpes -- I'm sorry. I think it's

Tsumpes -- is attempting to cause the board to take

for the specific purpose of diluting a majority

position held by the consenting stockholders. The

threat of loss of their control position for any

period and that the fact the Court may not be able to

fully redress that loss, especially in this case where

such action is void, in any event, under Section 3.10

of the bylaws for lack of a board quorum is

irreparable.

In the Bass case, the Court found that

management's attempt to take effective control of a

subsidiary from the stockholders, thereby depriving

the stockholders of a control premium, constitute

irreparable harm that could not be completely remedied

with the cancellation of the newly issued stock.

I think we also cite the Flight

Options case where Vice Chancellor Noble found that

further diluting an already minority position in a

closely held company would irreparably harm the

minority stockholder because you did not know what the

majority stockholder would do with those additional

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shares in the interim. It could sell it, it could

encumber it in some way --

THE COURT: Right.

MS. CASCIO: -- involve third parties.

Here, we've got a possible sale of

enough shares to dilute our control position to a

Mexican entity beyond the jurisdiction of this court.

And we don't know the terms of that, of that potential

sale. We don't know if they will be restricted in

their further transfer. I think it's very similar to

the issues raised by the Vice Chancellor in Flight

Options.

I would also note in the Klaassen case

the Court noted that actions that were void or

voidable could constitute -- I'm sorry -- taking

actions that would later be found void could

constitute irreparable harm. And, again, since

there's no quorum purporting to issue new securities

to the Mexican entity by this three-person board would

be a void act.

THE COURT: The Klaassen case is Vice

Chancellor Laster's decision in 2013?

MS. CASCIO: Vice Chancellor Laster's.

There were a couple of decisions.

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THE COURT: That's what I thought.

MS. CASCIO: This is the post-judgment

decision of the stay pending appeal. It does refer

back to the first status quo opinion prior to the --

so the first opinion in the case where the -- I

honestly don't know if it was styled status quo or

temporary restraining order -- was put in place

because of the question of the acts being void.


MS. CASCIO: So here, the potential

sale of stock to the third party, as I said, the

Mexican entity beyond the Court's reach, would create

an imminent threat of irreparable harm to my client.

Defendant does not dispute any of

these arguments. Instead, defendants simply say

because the written consents are invalid, the

consenting stockholders are not entitled to make any

changes to the board and the CEO office and,

therefore, the plaintiff cannot be irreparably harmed.

The argument conflates the two

separate elements of a motion for a temporary

restraining order and because defendant has not

disputed the irreparable harm, the motion identifies,

including the uncertainty of the composition and the

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proper running of the company, the dilution of

control, and the risk of the company entering into

out-of-the-ordinary actions that would later be found

to be void, plaintiff has more than met its burden of

establishing irreparable harm.

Finally, the balance of hardships tips

decidedly in plaintiff's favor. Plaintiff has made a

strong showing that both it and the company itself

faces irreparable harm from the uncertainty of actions

to be taken by the incumbent board when that authority

is questioned and, in fact, potentially is void

because of the quorum issue.

On the other hand, T3 has made no

showing of hardship to be suffered from entering into

the TRO prohibiting actions outside of the ordinary

course and to prevent the dilution that Mr. Tsumpes is

seeking for his own personal reasons and not to

benefit the company.

T3 does mention the need for

additional financing, but has submitted absolutely no

evidence on that point. And, again, Your Honor, we

just invested $6 million at the very end of last year.

We would -- we would submit that without any showing

of a need of the additional funds, that T3 can't meet

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its burden on the balance of hardships issue.

So we have got on one side defendant's

passing reference to some debt and default as a need

for an additional investment, which is unestablished

and unsupported on the current record. On the other

side we have evidence the plaintiff attached to its

motion that of the e-mail Mr. Tsumpes reacting to the

consenting stockholders and informing them that they

were going to take the action to fill the four board

seats -- it's the December 25th e-mail -- where

Mr. Tsumpes threatened to close the sale of the

additional stock for the purpose of diluting the

consenting stockholders, undoing the changes they were

seeking to make to the board.

It can't be clearer, Your Honor --

just pause a minute -- that that is Mr. Tsumpes'

intent. It says, "The company will immediately take

steps to block it," "it" being adding the four

directors to the board. "This will not happen without

our support. We are involving New York Council to

handle this matter and are prepared to close the other

transactions we have pending to ensure that the

majority position that is currently held by your

investors will be reduced to a non-controlling

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position."

And the only other argument of

hardship defendant offers is the need to continue to

operate T3's business. But, of course, we're not

seeking to change the CEO pending the conclusion of

this litigation. We're just seeking to place

restrictions on the company's ability to enter into or

to take -- take actions outside of the ordinary

course.

THE COURT: So under your form of

order, Mr. Tsumpes remains in place. He's just

restricted in what he can do until we can get to a

trial; is that right?

MS. CASCIO: Correct, Your Honor.

And, you, know the three incumbents would be the

board. They just are limited in what actions that

they can take. We're not -- although I think we

probably could meet the burden, given Mr. Tsumpes'

e-mail of December 25th and the circumstances here

with this company that we should be -- that the

directors should change over to the ones that we have

elected, but we're not seeking that extraordinary

relief, Your Honor. We just want to ensure that this

company is going to be, you know, in a pause position

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so that if we can get this resolved quickly and our

directors take over the company, that Mr. Tsumpes and

the people that we believe should be removed don't

destroy the company in the interim or take action to

destroy our rights to be a controlling stockholder and

continue to control the future of this company.

THE COURT: What does this company do?

Like, what are its operations?

MS. CASCIO: They make electric

scooters, as best I can describe it. It has a fancier

name, three-wheel scooters that are primarily target

or -- or sold to police and private security, like on

college campuses.

THE COURT: Hmm. Like Segway scooters

or something --

MS. CASCIO: It's like a scooter.

Almost like my son's three-wheel scooter, but

apparently it's electric.

THE COURT: Okay. But it's primarily

a manufacturing business?

MS. CASCIO: Not quite sure about

that, Your Honor.


MS. CASCIO: I believe they own both

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the technology and they manufacture and market it.

There may be some third-party manufacturing involved.

THE COURT: Okay.

MS. CASCIO: So as I said, Your Honor,

the defendant hasn't pointed to any of the provisions

of the status quo order or the TRO as being so

restrictive that it would prevent it from continuing

to operate the business in the ordinary course and,

therefore, again, has not met its burden to show that

the hardships tilt in its favor.

So given this record, we respectfully

submit that the proposed TRO we request is entirely

appropriate and reasonable, and respectfully request

that the Court enter it.

Thank you.

THE COURT: Thank you, Ms. Cascio.

Mr. Renck.

MR. RENCK: Good afternoon, Your

Honor.

THE COURT: Good afternoon.

MR. RENCK: Let me shed a little bit

light about what the company does.

THE COURT: Sure.

MR. RENCK: She's right. It is an

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electric scooter, but it is essentially a three-wheel

Segway. You've seen them probably in the malls or at

parks and stuff. It's, you know, security detail on

essentially three-wheeled scooters or versions of

Segways.

THE COURT: And the company

manufactures it or it's principally manufactured?

MR. RENCK: They do. And that is part

of what is animating this entire dispute, is that, you

know, these things are manufactured, they're being

done the way they're being done. And, you know, this

transaction done with these stockholders was not ever

intended to be a control situation. They knew it at

the time that they entered into it. And essentially

the -- I think this would ultimately be taking the

manufacturing, moving it to China and a complete

change in the direction of the company. That's kind

of the background that animates all of what's

happening here today.

THE COURT: I did see, you know, that

discussion at the beginning of your papers, but it's

not disputed -- well, certainly not disputed in the

papers. So you'll have to tell me otherwise now --

that the defendants -- excuse me -- that the

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plaintiffs -- I guess we have one plaintiff, but the

eight stockholders or seven, if you look at the second

consent, to be more precise, as to the time that those

consents were signed owned a majority of the

outstanding shares of the company; right?

MR. RENCK: Right. You're right. We

have not taken that position at this point in the

litigation because, you know, we felt like there was

kind of a rifle shot to deal with this, and it was

based on these consents, not necessarily on whether

they actually had them or not, had the stock equity.

As far as the -- you asked about, you

know, what does the company -- or what does the

plaintiff know about the company, and the answer was

there's not much because they haven't had filings.

You know, the company is working closely with auditors

and trying to get their, you know, financial house in

order, to get caught up on their SEC filings; but this

idea that the company, plaintiff had no visibility

whatsoever is not right. They just did a big

transaction in November of 2014. It was extensive due

diligence. I don't have the due diligence list with

me, but they know what was going on.

I may back up and maybe start kind of

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at the ending here on the irreparable harm and the

balance of the equities and then we can kind of wade

into the consent issue. I mean, we didn't argue a lot

about the quorum issue because of exactly what Your

Honor asked Ms. Cascio. You know, when this thing

came in to the company last Friday, you know, they

just didn't take any of those actions that were in

that e-mail.

THE COURT: Right.

MR. RENCK: So --

THE COURT: None of the actions that

were referenced in the e-mail have happened to date?

MR. RENCK: Correct. And, you know,

that -- you know, as of Tuesday, there was a

standstill agreement in place. So --

THE COURT: Okay.

MR. RENCK: -- you know, none of that

has been done.

THE COURT: Remind me -- maybe this

was discussed on Tuesday's call -- the nature of the

standstill that's been in place as of Tuesday. Did

you basically agree to the provisions that are in the

form of a TRO order?

MR. RENCK: Correct, Your Honor.

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THE COURT: Tuesday until now?

MR. RENCK: We did agree to do that

until now, kind of let everybody deal with this on

kind of a slower basis. They have not taken those

actions.

But, you know, we don't think -- and I

think that that's why there's no irreparable harm

here, Your Honor. That immediacy has gone. The

company is not doing anything right now. This is a

stockholder that is a minority stockholder.

Everything that they've complained of in their papers

that might happen to them, whether it's a dilution or

whether it's anything else, there are other ways to

deal with that if it actually happens and they feel

like they're aggrieved.

THE COURT: Well, I mean, if the order

goes away and there's merit to their claims, there's

enormous irreparable harm potentially, isn't there?

Because all sorts of things could be done to change

the status quo while there's a cloud under who had the

right to act on behalf of the company. Would you

really disagree with that?

MR. RENCK: Well, I do, Your Honor. I

mean, you know, let's just take whatever -- let's go

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through that e-mail. If the issue is you've got --

and, you know, they did say, you know, they put the

$6 million in. They don't know what happened to it.

There's a big, long list of all these debts that got

paid right after that deal was done in the deal docs

that -- you know, there's the wiring instructions. So

all of them went out to pay the debts of the company

that they had, but they still have significant debts.

There is -- that's the explanation for that.

But, you know, if you're going to do a

deal with this company out of Mexico or whenever it

is -- I'm not sure exactly -- but I think that may be

right, that's not been done. They were well deep into

due diligence back in November when this all came

about. Even if you did do that and issued equity to

this investor on a basis that is, you know -- if you

do it at a price that's fair and, you know -- I don't

know why they have a right to preserve their equity

ownership at the same percentage it is right now.

They didn't bargain for that in the agreement. They

did with the stock purchase agreement. They didn't

pay for a control block. So --

THE COURT: Well, but -- I mean, the

issue for today is whether as of a certain day in the

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past -- we can debate whether that's December 26th or

January 20th, but it sounds like it's irrelevant for

today's discussion -- they have majority control of

this board and, in turn, have changed the management

of this company. And those people ought to be

deciding what equity investments ought to be in play

or not. That's the key question.

So I think you really got to get to

your merits about why you think that consent's

invalid.

MR. RENCK: Sure, Your Honor. Your

Honor, you know, we think that 211(b) is pretty clear

about this. There -- EMAK talks in a lot of different

places and there's a lot of language in there about

acting in lieu of an annual meeting or between annual

meetings or in between annual meetings. You know, in

the Chancery Court opinion of Vice Chancellor Laster

in talking about the Crown consents, you know, makes

the observation that, you know, "Stockholders cannot

simply use a non-unanimous written consent to ...

elect successor directors, between annual meetings."

And so, you know, when you read 211(b)

--

THE COURT: Successor directors.

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We're talking about vacancies.

MR. RENCK: I'm sorry?

THE COURT: You used the word

"successor directors." We're talking about filling

vacancies here.

Let me ask a different question. For

this company, T3 I guess it is, is there anything that

prevents a stockholder -- I think it's assuming they

had 20 percent. I looked at the bylaws real quick --

from taking any action at a special meeting?

MR. RENCK: No. They can call a

special meeting, Your Honor.

THE COURT: And would you agree, at a

special meeting these stockholders could fill the

vacancies with their nominees?

MR. RENCK: Well, I think so, if they

comply with 211(b). You know, my reading of 211(b) --

and I think it's important --

THE COURT: 211(b) speaks to annual

meetings, doing something in lieu of an annual

meeting. So my question is could -- would you agree

that the plaintiff and their stockholder group,

assuming they validly called a special meeting --

because I looked at the bylaws for this company.

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They're in the record. And a special meeting can be

called for any purpose. That's what it says. I think

you need 20 percent of the stockholders to call it,

but it can be called for any purpose.

So my question is: Assume a validly

called special meeting. Would they have the right at

that meeting to elect directors to fill vacancies, in

your view?

MR. RENCK: If they call a special

meeting, yes, Your Honor, as long as they go through

whatever -- if there's notice requirements and any of

those, you know, type of hoops that they have to jump

through, then, yes, at a special meeting they could

have done this. But that's not how they've done this,

Your Honor.

THE COURT: I understand. Let's go to

Section 228. Section 228 says you can -- unless your

charter says you can't act by written consent, you can

take any action by written consent that may or could

be taken at an annual or special meeting. And forget

about your 211(b) argument for a moment. Wouldn't

that suggest, well, therefore, if they could do it at

a special meeting, they could do it by written

consent?

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MR. RENCK: I don't think so, Your

Honor. I mean, I -- you know, I -- I read EMAK. I

know Your Honor was involved in it. So you certainly

have more familiarity than I do with it. But, you

know, they were acting in between annual meetings in

doing what they were doing.

THE COURT: There's actually like two

consents going on in EMAK. One is, as Ms. Cascio

pointed out, I think it was the Crown side. Crown was

an Ackerman-affiliated entity that had a preferred

security and purported to take certain actions

pursuant to the voting rights of that preferred

security. That was one thing that was going on.

The second thing that was going on was

that Take Back EMAK, which was a plaintiff insurgent

slate, was seeking to elect directors, including some

that were, by virtue of filling a vacancy, not an

annual meeting, but after an annual meeting -- in

fact, the whole reason it was done that way was

because they missed their opportunity at the annual

meeting.

With respect to the second, there was

no dispute or holding that said they couldn't do that.

The issue concerned whether or not they validly had

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enough shares because of an arrangement in acquiring

some of the shares.

Now, I'm not saying it expressly says

you can, except for the sentence that Ms. Cascio

pointed to, which in turn cites a treatise, which in

turn cites lots of authorities. I'm just drilling

down with you sort of what's in those underlying

authorities. It certainly had always been my

understanding of the law that absent a charter or

bylaw provision expressly telling you if you have the

ability to act by written consent, that you could,

indeed, elect directors to fill a vacancy by consent.

Now, I've seen your 211(b) argument.

But I'm looking at 211(b), and it seems to me what it

says is if you were trying to elect directors by

consent in place of an annual meeting, that specific

circumstance, not in place of, for example, every

scenario by which you could elect a director. And

that's why I focused you on the special meeting

scenario.

MR. RENCK: And I understand, Your

Honor. I understand that's the argument that

Ms. Cascio made, and, you know, that this -- the "in

lieu of" language. But, you know, as I read the EMAK

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Supreme Court decision, I didn't get the flavor that

that was where -- you know, that that -- I looked at

all the briefs in front of the Supreme Court. This

issue wasn't briefed that heavily. I listened to the

oral argument. It was only one sentence by your

former partner about -- that -- kind of, that dealt

with this issue. It was only a couple minutes, if at

all, about this. So I -- it wasn't fleshed out that

heavily in, kind of, the presentation. But, you know,

when you read Justice Holland's opinion, you know,

he's -- he clearly seems to be talking about actions

in between meetings.

And so I just -- I guess -- I

understand the "in lieu of" argument and that the --

but I just -- I'm not sure 211 was intended to be that

restrained; that it was only the "in lieu of." Even

the ... You know, even the -- I think it's Black and

Alexander statement that they attach to their reply

papers talking about those amendments, you know, seems

to be contemplating, you know, the 211(b) was put in

place to do exactly and prevent exactly the kind of

mischief that's happening. And, you know, it talks

about ... 211(b) -- Section 211 has been amended to

make it clear that unanimous written consent to the

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election of directors can serve as a substitute for

the annual meeting process. Okay. Furthermore, as

amended --

THE COURT: Cannot? Is that what that

was? Can or cannot?

MR. RENCK: Can.

THE COURT: Can, okay. Then it

probably goes on to explain --

MR. RENCK: Then it goes on to explain

we're trying to prevent the mischief of insurgents

coming in. And that could be at any time. It doesn't

have to be at the annual meeting. It could be exactly

this is the situation. You know, 211(b)'s

introductory sentence, it says, "Unless directors are

elected by written consent in lieu of an annual

meeting as permitted by this section, an annual

meeting of stockholders shall be held for the election

of directors [at] a date and ... time designated ...."

As far as I know, this is the section that deals with

electing directors.

And, you know, I read 228 as being the

more general statement that stockholders can act by

written consent and here's the mechanism for acting.

And generally the statement is if you're acting by

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written consent, it's whatever the vote is that's

required to do what you're trying to do. So if you

have something that you're trying to do that requires

a two-thirds vote, you have to have a two-thirds vote

by the consent.

I view 220(b) as being a more specific

version of that. If you are electing directors -- and

I think it can be in between annual meetings because

that seems to be what EMAK is saying. If you were

acting in between annual meetings, you still have to

comply with this section. And I don't think that --

THE COURT: Whoa, whoa, whoa. Okay.

So EMAK has a specific sentence. Hold on one sec. It

says, "Stockholders" -- I'm quoting now.



created directorships ...." It's a flat clear

statement. Now, how would you do it between an annual

meeting if you're not doing it in a special meeting or

written consent?

MR. RENCK: Well, those would be the

two ways, Your Honor.

THE COURT: Right, okay. So that --

so the next question I have: Did you look at the

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treatise that EMAK cites?

MR. RENCK: I did not have it, Your

Honor.

THE COURT: Okay. So when you look at

that treatise, you're going to see a sentence that

says the following -- and it will cite a bunch of

cases. "The case law suggests stockholders may,

operating independently and over the opposition of the

board, fill vacancies and create and fill new

directorships either by causing a special meeting to

be convened or by using written consents under

Section 228."

That's what it cites to, which in turn

cites the two decisions by Chancellor Seitz and a

decision by Chancellor Allen.

So you're telling me, like, a version

of the law that's very different than anything I'd

ever understood that seems pretty well-documented. So

you're going to have to help me out how this sentence

in 211, which appears in the context of a sentence

referring to annual meetings, isn't just saying that

if you wanted to elect directors to a vacancy at an

annual meeting and to do it by -- instead of having an

annual meeting and do it by consent, then you have to

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do it by unanimous consent, or there is another

circumstance, and, that is, everybody could be removed

and you fill the slots, but only dealing in the

context of when you're purporting to act in the

context of doing something in place of having the

annual meeting.

MR. RENCK: Your Honor, I understand.

And it strikes me, though, as odd that the construct

is that you can -- if you just look at 228 and you're

doing -- you're filling vacancies between annual

meetings, you can do that through the version of using

written consents, which had a history of not being,

you know, very well thought of. They took their time

to get settled in. And if you're going to use that --

if you're going to look to 228 and say that, then

why -- it strikes me as odd that you can act in

between meetings in a way that is less restrictive by

using just a mere majority than what you could do at

an actual annual -- you know, doing it, you know, in

lieu of an annual meeting. If you were going to do it

at kind of annual meeting time and you weren't going

to go out and hire the, you know, room and the hotel

and hire the, you know, inspector of elections because

you had just a small electorate that is all on the

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same page about what they're going to do and that's

kind of -- that was my understanding of why they do

this, is that, you know, it doesn't make sense to --

to make people jump through hoops they don't have to

jump through if there's no dissenting opinion. If you

go back and think about why it is a board has to act

by unanimous written consent -- because there's always

been a history of the Court saying "Look, we value

people getting around the table and debating if there

is dissent and" -- because you might be able to

convince somebody to come over to your side.

And so it strikes me as odd that if

you're going to replicate or, you know, not use the --

an annual meeting to do an election and that has to be

unanimous unless you have, you know, no people in

there, you know, why is it that you can have an

insurgent come in in the middle of the year and do it

on a lesser standard? It just -- it strikes me as an

odd construct. And I just -- I think that the 211(b)

is a much more specific -- even though it's in a

section titled "Meetings ...," but it's a subchapter

talking about, you know, meetings and elections and

voting. And I'm not aware of, you know, another

section that so specifically talks about electing

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directors to office. You know, 228(b) is, you know,

pretty general. It talks about anything.

And so, Your Honor, we -- you know, we

think that 211(b), you know, says that you got to

either do this -- if you're going to do this -- if

you're going to fill vacancies, you're going to have

to do this unanimously or you got to have all the --

all the spots have to be empty. And, you know, I

think that's where, you know --

THE COURT: So your proposition is

that your directors are -- this board is frozen until

the company's next annual meeting. No stockholder

could come along, either hold a special meeting under

your theory -- well, a moment ago I thought you were

agreeing they could hold a special meeting and elect

directors, in which case logically they have to be

able to do by consent.

MR. RENCK: Yeah.

THE COURT: But -- so under your

theory, you're saying nobody can change this board

until the next annual meeting.

MR. RENCK: No, that's not what I'm

saying, Your Honor, because --

THE COURT: What's the circumstance

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they can in between the annual meeting?

MR. RENCK: They can call a special

meeting.

THE COURT: Okay. So, then, how do

you deal with the language -- let's look at 228 for a

minute. So the first sentence -- I hope you can hear

me. The first sentence of 228 says, "Unless otherwise

provided in the certificate of incorporation" -- I

don't think you contended that the charter takes away

their consent right -- "any action required by this

chapter to be taken at any annual meeting or special

meeting of the stockholders of a corporation or any

action which may be taken at any annual or special

meeting of [the] stockholders ...," and then it goes

on.

They can do it by consent. So if you

could do it at a special meeting, which you just

agreed with me they could, why isn't it that make

clear they can do it by consent?

MR. RENCK: You know, I -- I think

it's because I'm wedded to this idea that -- even if

you have a special -- if you have a special meeting,

you're not acting by consent. So everybody's there.

You go through the notice procedure. You do whatever

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you have to do. You go get your room, you get your

inspectors of elections. You have everybody sitting

there. You get the breakfast delivered in, and you

have your special meeting because it's not an annual

meeting.

THE COURT: I may not get breakfast at

this one.

MR. RENCK: Some of them have bagels

and stuff.

But that's different than acting by

written consent. If you're acting by written consent,

you're not at a meeting, whether it's special or

annual. That's where I think this issue -- that's

where I'm wedded to the 211(b) issue is that that is a

very specific provision of the DGCL that talks about

how you can elect directors via written consent. And

I think it trumps the more general idea that you can

just generally act by written consent under 228

because it's a specific application of that.

And if you're going to do it by

written consent and elect directors and it's going to

be in between an annual meeting -- you know, there's

no meeting, no special, no annual, no nothing. You're

doing this on your own just like they've done here --

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it either has to be unanimous, because everybody's on

board, or you need to call the special meeting so that

people can, you know, voice their dissent. And I

think that's how this construct was set up.

THE COURT: All right. So what else

do you have?

MR. RENCK: I think we've talked a

little bit about the irreparable harm. Again, I just

don't -- they haven't taken any of those actions.

That's come and gone. They -- they make a lot about

the three-director issue. I mean, if there's a -- if

there's an injunction in place or a TRO they can't do

anything, anyway, other than what's in the -- you

know, permitted. But if not, I mean, the bylaws are

pretty clear that, you know, the directors could act,

even if they're less than a quorum, to fill it if they

were able to act and actually do things. But they

haven't taken that because they're at three right now

and they've agreed not to do anything.

I do think that all of this harm that

they say that would occur to them is something that

they could have protected themselves from

contractually. They haven't. And I don't think it's

something that the Court can't sort out if later they

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decided that any actions taken to dilute them happen

to be unfair for some reason, why it was an

infringement motive or whether it was, you know --

they say that the -- any new equity was sold for, you

know, a wasteful price or whatever the suit might be.

But that's -- we just don't have that right now, and

the specter of that is not there.

As far as the balance of the equities,

again, you know, we think that these things are so

clearly invalid, that, you know, the company needs to

be able to do this and they can protect themselves.

They've been protected. They are minority

stockholders right now. They have all the protections

of the DGCL, the document -- you know, the governing

documents of this company and, you know, fiduciary

duties. So if the -- if the board, you know -- if

they get to where they have more than three people and

they can do when they do things that the plaintiff

feels aggrieved about, I have no doubt that they will

assert them. I think -- I suspect that this is just

the first salvo of a longer-running dispute between

these parties as it is.

I think that was all I had, Your

Honor. Unless Your Honor has some additional

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questions.

MR. RENCK: I guess I didn't talk

about the dates and the stuff.

THE COURT: Sure.

MR. RENCK: I mean, I think most of

this either falls or rises on this 211(b) argument.

THE COURT: Right.

MR. RENCK: The date thing, I think

they clearly recognize they had a problem. I think

the Wexford case, you know, does say, you know, you've

just got to do it. You need to be able to tell when

the 60-day clock starts and ends.

The delivery issue I do think makes a

difference. And I think the Tiber case makes that

point, is that's the mischief that can happen when you

do something by written consent and you don't

promptly -- I mean, promptly is probably context

specific; but, you know, if you do something by

written consent and then don't tell anybody and you do

a lot of things pursuant to that written consent and

then all of a sudden you tell somebody, you know --

THE COURT: Well, what's -- let's be

practical here, though. I mean, I know what the

statute says -- and I did look at the Wexford case, at

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least the part you say, briefly. But let's be real

about the prejudice here.

You certainly know about it and your

client know about it and knew about it very quickly,

whether or not it was -- technically the notice went

out to all the other shareholders. You're in court;

you're expressing your views. It escapes me what on

earth would be the conceivable prejudice to other

shareholders, especially ones that might be of like

mind with you, since you're obviously advocating

against what they're doing in the first place.

MR. RENCK: Well, Your Honor, there

was some delay between the notice. I mean, you know,

the consent -- the first one was delivered -- it was

dated what, December 17th or something like that. It

was delivered -- or ... let me get --

THE COURT: It's December 17th.

MR. RENCK: December 17th. You know,

it was finally delivered to the company during the

Christmas holiday on December 26th. You know, the

second written consent was executed on January 15th.

THE COURT: What was the date this

case was filed? Remind me.

MR. RENCK: It was last Friday. I

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think it was the 16th.

THE COURT: Okay.

MR. RENCK: And so, you know, there

has been some delay here that, you know, these

consents are getting, you know, entered and then it

seems like, you know -- I'm not sure what the delay

is, why there was a delay in getting these to the

company. But, you know, even the second one, it

purports to be, you know, done --

THE COURT: Well, what's --

MR. RENCK: -- on the 15th and we get

it on the 20th.

THE COURT: What's the prejudice?

That's really my question.

MR. RENCK: Well, the second one,

there wasn't much on it, Your Honor, because we had

already been, you know, kind of, to the point where we

had agreed to the standstill. So, you know, nobody

had agreed to that.

THE COURT: Even -- even the first

one, what's the prejudice?

MR. RENCK: Well, Your Honor, they

didn't take any actions between the date of -- you

know, there was nothing that happened, although, you

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know --

THE COURT: The prejudices, we might

have had otherwise had a chance to dilute them before

somebody could get in court? I hope that's not what

you're saying.

MR. RENCK: No, Your Honor. No. And

you're right. The company didn't do anything there;

but the problem is now is that the balance of the

hardships is -- is an issue because the company is

locked down and can't, you know -- it can't do a big

-- you know, the big transactions that it needs to do,

and we're kind of stuck in this litigation. And I do

think --

THE COURT: So let me ask you on that.

This seems like a pretty narrow dispute. Maybe you

disagree, and I guess I want to hear if you do. How

long do you think it can take to get to trial?

MR. RENCK: Well, you know, it

depends. I mean, we've tried to keep it narrow for

purposes of this. I mean, I suspect, you know, the

first written consent that came in, all the -- you

know, it was written -- you know, I don't read

Chinese. So, you know, I --

THE COURT: I thought that was one of

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your many skills.

MR. RENCK: No, Your Honor. I do a

lot of things, Your Honor, you know, but that's not

one of them.

And I -- you know, so whether there

were defenses to that because of some language issue,

I don't know. And whether you have to depose people

in China, I just -- I haven't gotten that far, Your

Honor.

THE COURT: Okay.

MR. RENCK: But I suspect this will --

this dispute is going -- if it goes forward, will kind

of -- as these things are prone to do, will somewhat

expand, you know, beyond the narrow discussion we're

having today about 211(b) and 228.

THE COURT: Okay.

MR. RENCK: Thank you, Your Honor.

THE COURT: Thank you, Mr. Renck.

Ms. Cascio.

MS. CASCIO: Just a few points, Your

Honor.

THE COURT: Sure.

MS. CASCIO: Excuse me.

I heard Mr. Renck say that the

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transaction by which my client and the other

consenting stockholders purchased 65 percent of the

company was never intended to be control and that we

knew that. There isn't any evidence of that. I'm not

going to represent what the stock purchase agreement

says, Your Honor, because I haven't seen it yet. But

what I haven't heard from them is there was a

stockholders agreement that required us to vote for

their -- for their directors, there was a standstill

that prevented us from taking any action for a period

of time while they worked out the transaction with the

Mexican entity, or that they amended the bylaws to

take away the right for us holding 65 percent of their

company's stock to act by written consent while they

finalized their Mexican --

THE COURT: Right. It has been done

under the charter anyway, doesn't it? They have to

take it -- I guess it's academic because it didn't

happen.

MS. CASCIO: There was no action, Your

Honor. There is no restriction that I'm aware of --

again, this is in its infancy, but I haven't heard

from the defendants, that there was a restriction that

they placed us on taking the action that we took here.

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I think there was a question about

what visibility my clients had into this company. I

believe the question was -- was what had -- that Your

Honor posed to me was what had occurred between

December 26th and January 20th. And I said that we

didn't know the due diligence occurred before that.

But I really meant -- and I want to

just be clear so the Court -- because I don't want to

make a representation -- I don't know what this

company has been done, but I don't know what they have

done since December -- or between December 26th and

January 20th, in part because they don't file 8-Ks. I

don't -- we don't have visibility --

THE COURT: Right.

MS. CASCIO: -- into.

THE COURT: That was the time frame of

my question.

MS. CASCIO: Next point. Honestly, I

can't remember -- recall from my notes how it came up

as I stand here. But the -- I guess the question was

with respect to the -- Your Honor posed a question

about the irreparable harm. And the point is that I

think that 225 actions, that TROs or status quo orders

are customary these types of fights that we're having

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right now.

And ... we discussed EMAK. And I

think Your Honor and I are on the same -- in alignment

in understanding the facts of that case. And I do

think it applies to only successor directors.

But going back to 211(b) -- and it's

in our papers, but maybe I can pull together your

discussion with Mr. Renck about the purpose of 211(b).

The purpose of 211(b) was to answer Chancellor Allen's

question in the Hoschett case. The question we quoted

was, "... when directors are designated through a

consent process that removes holdovers and designates

replacements, as here, for what term do they hold

office?"

And the question was raised because

that was a 211 case. Plaintiff brings a 211 case.

The defendant says, "Oh, well, we had written consents

a couple of months ago that elected directors. So

we've complied with Section 211. We don't have to

hold an annual meeting."

It doesn't say -- neither 211 nor the

Hoschett -- Hoschett -- Hoschett --

THE COURT: I think it's Hoschett.

MS. CASCIO: -- case says that you

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cannot take action by written consent in between

annual meetings with respect to changing the board.

Mr. Renck says we don't have to worry

about the things that were in the e-mail because

they've come and gone. But he also said that the

Mexican entity transaction had been -- they'd been

working on it for months. In their papers I believe

they said that Mr. Tsumpes had notified that he was

going to convert some stock before we even purchased

our shares. So I just -- honestly, there's no comfort

that these things will not be revived again if there's

no order maintaining the status quo in the interim.

Unless Your Honor has any other

questions, thank you.

THE COURT: I don't.

Mr. Renck, anything else?

MR. RENCK: Your Honor, may I make one

statement?

THE COURT: Sure.

MR. RENCK: Mr. August reminded me of

a fact and it's about the successor directors. One of

these seats was a successor director, because as you

recall from our papers, you know, one of the -- there

was a -- a condition added to the deal documents at

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the very last minute requiring the resignation of one

of the board members. And so, you know, I -- I --

THE COURT: Did he resign?

MR. RENCK: He did. And so one of

these purported four that they've added is, I would

call that a successor director. You know ...

THE COURT: But how? Because if he

resigned, then it creates a vacancy. You might say

there was some trickeration surrounding circumstances

of his resignation, I guess, but if he resigned, I

think you just have a vacancy.

MR. RENCK: Okay. Well, I did want to

make that -- you know, because that was a condition

that they had put on to that.

THE COURT: Okay.

MR. RENCK: So it wasn't like a

long-running vacancy that had been sitting there.

THE COURT: I understand.

MR. RENCK: It was pretty close in

time.

THE COURT: I'd like to recess

briefly, and I think I'll be in a position to give you

ruling, but I'd like to take a few minutes. If I

don't think I'll be able to give you a ruling, I'll

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let you know, but if you can just bear with me, we'll

stand in recess for a bit.

(A short recess was taken from 2:36

p.m. until 2:48 p.m.)

THE COURT: All right. Thank you. I

am in a position to give you my ruling, and I'll

provide that now.

Pending before the Court is a motion

of plaintiff Elite Horse Investments Ltd. for a

temporary restraining order against defendant T3

Motion, Inc., which I'll refer to as "the Company" or

"T3." For reasons that I'm going to explain, I'm

going to grant the motion for a temporary restraining

order.

Some brief background. The plaintiff

is a stockholder of the Company, a Delaware

corporation, that's based in California. Section 3.02

of the Company's bylaws, which are Exhibit A to the

amended complaint, authorizes seven directors on its

board of directors. Before December 26th, 2014, the

Company's board comprised three members: William

Tsumpes, who was also the Company's CEO; Steven Healy;

and Ki Nam. Thus, at that point in time, the board

had three members and four vacancies.

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On December 26th, 2014, the plaintiff

and seven other stockholders who held 60 million

shares of the Company, or approximately 65 percent of

its shares, delivered a signed stockholder written

consent dated December 17, 2014, to elect four

individuals to the Company's board as new directors.

Those individuals are Zhang Mi, Yao Ran, Ying Jie Xu,

and Wu Jiang. I'm going to refer to the consent

that's dated December 17, 2014, as the first

stockholder consent, which is attached as Exhibit B to

the amended complaint.

On Thursday, January 15th, 2015,

Director Tsumpes contacted Steven Healy and Ki Nam to

hold a board meeting sometime over the weekend or on

Monday. Tsumpes' e-mail is attached as Exhibit D to

the amended complaint. Tsumpes did not notify the

four purportedly new directors about this board

meeting. The tentative agenda of the urgent matters,

as it's explained in the e-mail, of company business

to be considered at the meeting included selling

equity to a third-party investor, converting debt held

by Tsumpes and an entity called T-Energy to common

stock, and converting unpaid salary owed to Tsumpes to

common stock.

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On January 16, 2015, plaintiff

initiated this action pursuant to 8 Del. Code Section

225 seeking a declaratory judgment that the new

directors were validly elected to the Company's board

by the first stockholder consent. There have been

subsequent factual developments as alleged in the

amended complaint, which the plaintiff filed on

January 21st, 2015.

On January 15th and 16th, 2015, the

new directors and Ki Nam executed a unanimous written

consent effective upon the removal of William Tsumpes

and Steven Healy from the board to, first, remove

Tsumpes as CEO and, second, appoint Zhang Mi as the

CEO. That was a director consent that was executed,

and that's attached as Exhibit G to the amended

complaint.

On January 20th, 2015, the plaintiff

and six other stockholders, who held approximately

58 percent of the Company's stock, delivered a signed

written consent dated January 15th, 2015, that

ratified and retook the actions reflected in the first

stockholder consent and removed Mr. Tsumpes and Steven

Healy from the board. And I'll refer to that consent

as the second stockholder consent, which is attached

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as Exhibit E to the amended complaint. If effective,

after the second stockholder consent, the board would

be comprised of Ki Nam and the four new directors.

On January 20th, 2015, the director

consent that I referred to earlier also was delivered

to the Company.

On January 21st the plaintiff filed an

amended complaint asserting two counts. In Count I,

plaintiff seeks a declaratory judgment that the first

and second stockholder consents were valid and

effective. In Count II, plaintiff seeks a declaratory

judgment that the director consent was valid and

effective.

Plaintiff now seeks a temporary

restraining order for two overlapping reasons. One,

to prevent the board from taking certain actions that

would purportedly cause irreparable harm to the

Company and, two, to maintain the status quo for the

company pending resolution of the plaintiff's 225

claim.

I think there has been agreement in

this case to expedite the proceedings. So I'm not

going to separately address that, and we'll talk a

little bit at the end how this case will proceed in

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terms of a schedule.

Let me just briefly comment on the

legal standard for a TRO and then I'll go to my

analysis.

For establishing a temporary

restraining order, the plaintiff has to demonstrate

three elements: a colorable claim on the merits,

existence of imminent irreparable harm, and the

balance of the hardships that favors it as the moving

party. I should add, I think that is the correct

legal standard. But even if I were to apply, as I'll

articulate a little further later, that the standard

were the higher standard applicable to a preliminary

injunction motion of demonstrating a reasonable

probability of success on the merits, I believe that

standard has been met as well.

Of those elements, imminent

irreparable harm is the most important element,

although in this case, interestingly enough, most of

the attention really has been spent on the merits.

And it does seem to be largely controlled by those

merits.

In my opinion, the plaintiff has

demonstrated all three elements, though, very clearly

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in this case. There are three arguments that are made

by the defendant that deal with the merits. And I'll

go through those in turn.

The primary argument, as I think

counsel candidly acknowledged, is the contention that

the first stockholder consent was unlawful under

Section 211(b) because, as a less than unanimous

stockholder consent, the first stockholder consent did

not remove all the company's directors before filling

vacancies.

It is preliminary, but I disagree very

plainly with the interpretation of Section 211(b)

that's been articulated here. And I don't find,

frankly, that provision to be relevant here.

Section 211(b), in my view, applies

when a stockholder written consent electing directors

purports to be in lieu of -- and I emphasize "in lieu

of" -- an annual meeting. The first stockholder

consent here does not purport to be in lieu of an

annual meeting. It simply seeks to elect directors to

preexisting vacancies, and it seeks to do so, in

effect, between annual meetings.

Section 228 of the Delaware General

Corporation Law provides that -- and I'm quoting --

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"Unless otherwise provided in the certificate of

incorporation," any action that is required or

permitted to be taken at an annual or special meeting

may be taken by written consent of stockholders.

Section 2.09 of the Company's bylaws includes

practically identical language, permitting

stockholders to take any action that is required or

permitted to be taken at an annual or special meeting

by written consent. Thus, the question becomes

whether at a special meeting and, thus, by written

consent, the Company's stockholders may elect

directors to fill vacancies, i.e., at a moment that

would be between annual meetings.

In my opinion -- and, again, I'm not

reaching a final conclusion on the issue because this

is preliminary and we've only had limited time to

research and brief these issues. But, nonetheless, as

I said, I think it would even meet the reasonable

probability of success standard. I believe the

plaintiff will be able to establish that stockholders

may, indeed, elect directors to fill vacancies at a

special meeting and, thus, may do so by written

consent.

As the plaintiff notes in its reply

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papers, the Supreme Court stated in Crown EMAK

Partners, LLC versus Kurz that -- and I now quote --



created directorships ...." In doing so, the Supreme

Court cited a leading treatise on Delaware corporation

law, which states -- and I now quote again -- "The

case law suggests that stockholders may, operating

independently and over the opposition of the board,

fill vacancies and create and fill new directorships,

either by causing a special meeting to be convened or

by using written consents under Section 228."

The authorities cited by that treatise

include Chancellor Allen's decision in DiEleuterio

versus Cavaliers of Delaware, Inc. and two decisions

by Chancellor Seitz, including a seminal decision in

Campbell versus Loew's.

Citing to Campbell versus Loew's, Vice

Chancellor Laster recently held in the Klaassen versus

Allegro Development Corporation case that, quote, "As

a matter of common law, stockholders having the power

to vote in an election for the vacant directorship can

fill the vacancy."

Now, there's some subsequent history,

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if I recall correctly, concerning the Klaassen case;

but I'm pretty confident, without having

double-checked prior to this hearing because we did

this rather quickly, that that conclusion is not

something that was in contention in the subsequent

history of the Klaassen case. I can be proven wrong

on that, but that's my understanding.

The treatise that I referred to

earlier that EMAK cites goes on to state, "The case

law suggests that any intention to deprive

stockholders of the power to fill both vacancies and

newly created directorships must be explicit and

unambiguous."

Here, no provision of the Company's

charter or its bylaws has been identified that says

anything to the effect that only directors may fill

vacancies or stockholders may not fill vacancies. To

the contrary. Section 223(a) of the Delaware General

Corporation Law provides default rules providing that

directors may fill vacancies. And there is

practically identical language in Section 3.05 of the

bylaws providing that director vacancies may be filled

by directors, but not ruling out that they cannot also

be filled by stockholders.

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Furthermore, the Company's bylaws,

Section 2.02 in particular, expressly provide that

special meetings of stockholders may be called for any

purpose or purposes.

So for all these reasons, and

considering the entire framework of the statutory

context and taking into account the Company's charter

and bylaws, I conclude that it is reasonably colorable

and, as I indicated earlier, indeed, reasonably

probable that the plaintiff will be able to

demonstrate that the consenting stockholders here had

the ability under Delaware law to elect the new

directors to fill vacancies and that the Company's

Section 211(b) argument is without merit.

The company's second argument is a

technical one. Specifically, the company argues that

the signatures of the consenting stockholders were not

individually dated regarding the first stockholder

consent and, thus, that that consent did not comply

with the requirements of 8 Del. Code Section 228(c),

which provides, quote, "Every written consent shall

bear the date of signature of each stockholder or

member who signs the consent ...." And the Company

cites to Vice Chancellor Lamb's decision in H-M

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Wexford, LLC versus Encorp for the proposition that

this Section 228(c) requirement is to be strictly

construed.

Here, the first stockholder consent is

dated December 17th. It's typewritten on the first

page, and on the signature page it states that, quote,

"... the undersigned" -- and I'm ellipsizing a little

language -- "have executed this Written Consent on and

effective for all purposes as of the date first

written above."

Now, I must say, to be practical

here -- and I didn't appreciate this until the

argument -- given that the stockholders here only

acquired their shares on December 1st and conceivably,

therefore, the consent must have been, at least to be

an act of a stockholder, signed and delivered within

the 60-day provision that the statute provides for,

it's not even clear to me what this signature

requirement, in an equitable sense, would be really be

designed to prevent against. Nonetheless, the Company

has raised a legitimate point based on the language of

Section 228(c) and the H-M Wexford decision; but I

don't need to resolve that issue because of the second

stockholder consent which ratified and retook the

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actions that were taken in the first consent because

that consent -- I'm now referring to the second

stockholder consent -- is hand-signed and hand-dated

by seven of the eight original consenting

stockholders, and it's undisputed on this record that

those seven of eight stockholders held a majority of

the Company's shares, something in the order of

magnitude of 58 percent of the Company's outstanding

shares.

Thus, even if the Company had raised a

legitimate defense as to the timing issue concerning

the dating of the first stockholder consent, in my

view, the plaintiff has stated a colorable claim --

indeed, it is reasonably probable to win on the merits

-- concerning the validity of the second stockholder

consent.

Finally, with regard to the merits

arguments, the Company argues that the first

stockholder consent is invalid because the Company has

failed to comply with the "prompt notice" requirement

of Section 228(e). The first stockholder consent was

delivered to the Company on December 26th, less than

30 days ago. The second stockholder consent was

delivered to the Company on January 20th, just three

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days ago. The Company has not identified any

authority interpreting the prompt notice requirement

of Section 228(e) to require notice within these time

frames. And I decline to do so for today's purposes,

particularly since I really cannot conceive of any

prejudice to the Company or any of its stockholders

from having not received notice to this point. And

there's no authority cited anywhere in the ballpark of

requiring such notice within a 30-day time frame, even

if we were to go with the longest period that's at

issue here. It's actually less than 30 days.

So for all the reasons I've stated,

based on the allegations of the complaint and the

documents that are attached to it, I conclude that

plaintiff has stated a colorable claim and -- again,

I'll repeat -- has satisfied even the higher standard

for a preliminary injunction of a reasonable

probability of success that the action it has taken

with the stockholder consents are valid and effective

to fill four vacancies on the Company's board.

So let me turn to irreparable harm,

which, frankly, almost follows as a matter of course

in a Section 225 case of this nature. The plaintiff

offers two theories of irreparable harm. Either one

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could be sufficient. I'll focus on the first to

start.

The first is the uncertainty of the

composition of the Company's board, which does,

indeed, put a cloud over how the Company manages

itself. This is plainly irreparable harm, in my view.

Given that the new directors, if validly elected,

would represent a majority of a seven-person board,

there is a sufficient and legitimate risk that any

material board action taken before resolution of this

lawsuit could irreparably harm their interest as well

as the Company's interest. And those forms of harm

include conceivably the potential dilution of a

controlling stockholder, which is a highly significant

act that may involve third parties and be

impracticable to unwind later if they're found to be

wrongful actions.

It is, indeed, I think for those

reasons -- and I'll elaborate on this a little more --

very customary, as Ms. Cascio pointed out, to enter

something akin to a status quo order of the nature of

this TRO order that I've been presented with in cases

of this nature for that very reason. So, in my view,

there's plainly a showing of irreparable harm

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sufficient to satisfy the standards for a TRO.

In my opinion, the threat of that

irreparable harm to the Company's stockholders, to the

Company itself, and to the stockholders represented by

the plaintiff during the pendency of this lawsuit

tilts the balance of the hardships in favor of

granting the relief requested by the plaintiff. There

really hasn't been an identification of harm per se

that I can discern to the Company that's really been

pressed. It would be hard to do so, given that the

current CEO is going to remain as CEO during the

pendency of this case. He'll have his actions

limited, admittedly, but we're going to get to a

prompt resolution of this case.

And as I pointed out earlier, the

proposed order doesn't really appear to differ

materially from status quo orders that this court

commonly enters in Section 225 cases of this nature

that preclude directors who are presently in control

of a Company from engaging in a transaction outside

the ordinary course of the corporation's business

until the control issue can be resolved.

So for all those reasons, I'm going to

grant the motion for a temporary restraining order.

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And I guess I want to talk a bit about

where we go from here.

This has to obviously move quickly.

It's a 225 case. It needs to move quickly. I would

hope you get the flavor from my ruling is that it

would be obviously desirable if, you know, cooler

heads prevailed and both sides went back and tried to

figure out a resolution that does not, you know,

necessitate further proceedings, particularly if the

company is in some sort of, you know, financial -- I'm

not going to say financial difficulties, but

particularly if it doesn't have the luxury of a lot of

resources to spend on litigation that can become

expensive very quickly.

So in either event, do counsel have

thoughts about -- this has to have a trial date to

have a conclusion point. Do you guys have thoughts

about a trial date? Either one.

MS. CASCIO: I hurriedly sketched some

out because I thought -- I anticipated this potential

question.

I don't think there's a lot of

discovery that needs to occur. I think they are

mainly legal issues. We've kind of started to flush

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them out already here today. I don't expect there

will be a lot of document production. I know

Mr. Renck -- I heard Mr. Renck say that the issues

might expand, but I think that the law isn't -- I

haven't had an opportunity to refresh myself recently.

But I think the law is that you're supposed to keep

225 actions very narrow, and these other issues about

fiduciary duties that might -- anything along the

lines that we generally see in our Chancery actions

are not supposed to be addressed in the 225 action

because it needs to be moving along quickly.

So just sketching things out quickly,

I think we should be able to get this case to a trial

the first week of March, the first two weeks of March

time frame, Your Honor.

THE COURT: Okay. Mr. Renck.

MR. RENCK: Your Honor, I think when

we talked last Tuesday, you mentioned 60 days. That,

I think, might be a little more doable just because of

if we are going to have to take discovery where there

are foreign language issues, we're going to have

translation issues, Your Honor has entered the TRO.

When I say the -- when I argued that

the company doesn't have the tremendous resources of

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the $6 million -- I don't think they're gasping right

now, either; but, you know, I think that would also

give people a little room, especially in the next few

days, to try to see if there's a -- you know, now that

we have the benefit of Your Honor's ruling -- to see

if there is ways for cooler heads to prevail.

But, you know, I don't see -- I don't

see this thing expanding into breach of fiduciary duty

type things; but I could see potential arguments, you

know, already in what we've looked at as to whether

they even own the stock. We've not junked up this

proceeding with that. And it may not come to pass.

THE COURT: (Inaudible) their

6 million?

MR. RENCK: It may not come to that,

but, you know, I think 60 days is probably a little

more realistic.

THE COURT: I'm not sure there's a

real material difference between the time frame

Ms. Cascio is talking about and the 60 days, in any

event. The reality is this: My March schedule is

pretty busy already.

So what I suggest you do is you get on

the line with my scheduling secretary and try to find

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a date in March. I think we're probably looking at a

one-day trial. But why don't you reflect on that,

call my scheduling secretary, find it -- I think your

request for that time frame is fair, Ms. Cascio, and

it falls, frankly, in the neighborhood of 60 days,

anyway. So I don't think you're really very apart.

And it's going to largely dictated by what I can give

you, anyway. So just give her a call, figure out a

date, nail one down, and we'll go from there.

Is there anything else you need from

me today?

MS. CASCIO: Not from our side, Your

Honor.

MR. RENCK: I'm sure we can work out a

schedule from there, Your Honor.

THE COURT: All right. Have a good

day. Have a nice weekend.

(Court adjourned at 3:10 p.m.)

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CERTIFICATE

I, NEITH D. ECKER, Chief Realtime

Court Reporter for the Court of Chancery of the State

of Delaware, Registered Diplomate Reporter, Certified

Realtime Reporter, and Delaware Notary Public, do

hereby certify that the foregoing pages numbered 3

through 81 contain a true and correct transcription of

the proceedings as stenographically reported by me at

the hearing in the above cause before the Chancellor

of the State of Delaware, on the date therein

indicated, except for the rulings at pages 62 through

77, which were revised by the Chancellor.

IN WITNESS WHEREOF I have hereunto set

my hand at Wilmington, this 10th day of February 2015.

/s/ Neith D. Ecker --------------------------------- Chief Realtime Court Reporter Registered Diplomate Reporter Certified Realtime Reporter Delaware Notary Public

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