Opinion
Civil Action No. 16301.
Submitted: May 8, 1998.
Decided May 20, 1998.
David J. Margules, Esquire (argued) and Todd C. Schiltz, Esquire, of WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP, Wilmington, Delaware; M. Norman Goldberger, Esquire and Matthew A. White, of WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff.
John H. Small, Esquire, Bruce E. Jameson, Esquire, of PRICKETT, JONES, ELLIOT, KRISTOL SCHNEE, Wilmington, Delaware; OF COUNSEL: Wayne Smith, Esquire (argued), of GIBSON, DUNN CRUTCHER, LLP, Irvine, California, Attorneys for Defendants.
MEMORANDUM OPINION
I. INTRODUCTION
On April 7, 1998, the plaintiff, Golden Cycle LLP ("Golden Cycle"), brought this action against the defendants, Global Motorsport Group, Inc. ("Global" or the "Company"), a Delaware corporation, and the members of its board of directors (the Board"), for declaratory and injunctive relief and damages in connection with Golden Cycle's attempt to solicit written consents to replace the board of directors with its own nominees, as well as Golden Cycle's ongoing tender offer to acquire 100 percent of Global's common stock. On April 9, 1998, Golden Cycle moved for a preliminary injunction: (i) barring application to its consent solicitation of the March 30 record date established by the Board; (ii) requiring defendants to redeem Global's rights plan or, in the alternative, to exempt plaintiff's $18 tender offer from the effects of the rights plan, and to exempt it from the provisions of 8 Del. C. § 203; (iii) requiring defendants to provide plaintiff access to the same information being provided to other actual or potential bidders; and (iv) requiring defendants to make curative disclosures in their Schedule 14D-9. For the following reasons the motion for preliminary injunction is denied.
Global is the nation's largest independent marketer of aftermarket parts and accessories used to customize Harley-Davidson motorcycles.
II. BACKGROUND
A. Board of Directors
Global's Board of Directors consists of the four individual defendants: Joseph Piazza, Sr., Lionel M. Allan, James J. Kelly, Jr. and Joseph F. Keenan. The Board does not have a majority of outside directors. Defendant Piazza is Global's CEO. He receives an annual salary of $300,000. Defendant Kelly is Global's CFO. He receives an annual salary of $175,000. Defendant Allan, although not employed by Global, functions as its chief legal advisor. Pursuant to a consulting agreement, Allan is paid $6,750 per month and receives a $1,000 per month office allowance. In return, Allan devotes approximately 40 hours per month to Global's affairs. As a non-employee director of the Company, Allan also receives an annual fee of $25,000, plus 2,500 stock options per year. Defendant Keenan, also a non-employee director, receives an annual fee of $25,000, plus 2,500 stock options per year. Keenan also serves as Global's non-executive Chairman of the Board, for which he is paid an additional $25,000 per year.
At the November 5, 1997 annual stockholder meeting five directors were elected. The fifth director was Ignatius J. Panzica. Panzica was the CEO at the time of the election. At the November 5, 1997 Board meeting held immediately following the annual stockholder meeting, Panzica was terminated as President and CEO. The Board named defendant Piazza as his replacement. Plaintiff contends that Panzica was terminated when, in the presence of defendant Kelly, he announced his intention to terminate defendant Allan's consulting arrangement. Kelly denies this allegation.
Several other relevant facts are also important to note. The Board is not classified, or staggered. There are no charter restrictions preventing shareholder action by written consent. The common stock ownership of the Company is concentrated in the hands of a small number of institutional investors not affiliated with the Company. These factors combine to give the common stockholders of Global an unusual degree of practical control over the outcome of this contest.
B. Composition of Stockholders
As of April 24, 1998, the Company had approximately 268 holders of record and approximately 5,161,136 shares outstanding. Golden Cycle began acquiring Global stock in January 1998 and is currently the Company's largest stockholder, owning approximately 10% of Global's shares. Ownership of a majority of the remaining shares is concentrated in the hands of relatively few institutional investors. According to a recent Board presentation, 47% of the common shares (or approximately 52% of the shares held by persons other than Global) is held by eleven institutional investors and another 19% by arbitrageurs. The Board of Directors beneficially owns in the aggregate only approximately 4.7% of the Company's stock, nearly all of which consists of shares which may be acquired upon the exercise of options.
C. Recent Stock Price History
Over the past two years the market price of Global's stock has been declining. During the period February 1, 1996 to April 30, 1996, the stock traded in a range of between $24.00-$27.50. By the fiscal quarter ending January 31, 1997, the stock traded in a range of between $18.25-$21.375. By the end of 1997 and the beginning of 1998, the stock traded at a high of only $13.25 and a low of $11.00. Immediately prior to the announcement of the tender offer, Global stock was trading at approximately $14.00-$15.00. Since mid-April the stock has been trading at or above $20.00.
D. Stockholder Rights Plan
In 1996 the Company adopted a Stockholders Rights Plan ("Rights Plan" or "Poison Pill"). The Rights Plan is of the type normally adopted by corporations wishing to protect against unsolicited and unwanted takeover attempts. The Rights Plan has both "flip-in" and "flip-over" features and has a 15% acquisition trigger. Global's Board of Directors can redeem the Rights for $0.001 each, or can amend the plan to make the rights inapplicable to a proposed acquisition.
E. Golden Cycle's Proposal to Purchase Global
On March 23, 1998, Golden Cycle sent Global a letter proposing to purchase all of the outstanding stock of Global at $18 per share in cash, a 26% premium over market. In its letter, Golden Cycle informed Global's CEO, Joseph Piazza, Sr., that, if the Board did not wish to proceed with negotiations or to provide Golden Cycle with an opportunity to conduct due diligence, Golden Cycle would consider attempting to seek control of Global through a consent solicitation to replace the Board and elect directors committed to selling the Company for the highest price reasonably available. One day later, on March 24, Golden Cycle filed preliminary consent solicitation materials with the Securities and Exchange Commission (SEC). Those materials cleared the SEC on April 14.
On April 2, 1998, Global filed a lawsuit in a San Francisco federal court alleging disclosure violations in Golden Cycle's preliminary proxy materials. As of the date of the preliminary injunction hearing the complaint in that action had not yet been served. On April 6, 1998, Golden Cycle filed suit against the Company and the Board in Delaware federal court alleging that they set the record date for the written consent solicitation in contravention of the rules promulgated under the Securities and Exchange Act of 1934. Additionally, on March 26, 1998, a class action lawsuit was filed in this Court on behalf of Global's stockholders against the Company, each of the members of the Board of Directors and Panzica, alleging that each of the defendants breached his fiduciary duties to the Company's stockholders by failing adequately to consider Golden Cycle's March 23, 1998 offer to purchase the Company, or to negotiate with Golden Cycle and/or other potential acquirors. On March 30, 1998, after Golden Cycle filed its consent solicitation materials with the SEC, a second class action lawsuit was filed in this Court against the same defendants asserting virtually identical claims.
On March 27, Golden Cycle sent a second letter to Global stating its disappointment that Global refused to meet with Golden Cycle to negotiate the terms of the transaction. On March 31, Global sent Golden Cycle a letter acknowledging receipt of Golden Cycle's March 23 and 27 letters and stating that before responding to the offer the Board needed to gather information. The letter further stated that the Company had retained an investment banking firm as well as a law firm in order adequately to evaluate Golden Cycle's offer. On April 4, Golden Cycle commenced a tender offer for all of the outstanding shares of Global at $18 per share in cash.
F. Board's Response
1. Board sets record date
On March 30, 1998, the Board passed a resolution, pursuant to 8 Del. C. § 213(c), setting March 30 as the record date for Golden Cycle's announced consent solicitation. A press release announcing this action was distributed on April 1, 1998. Depositions taken in connection with the preliminary injunction application show that the Board acted in setting the record date without a meeting, by unanimous written consent. The directors deposed in connection with this application testified that they signed the consent (i) on the advice of counsel; (ii) in order to start the clock running on the solicitation; and (iii) with the understanding that Golden Cycle had already begun to solicit consents.
An effort had been made to sign the resolution as early as March 26, however, the Company was unable to obtain all of the required directors' signatures, so the resolution was recirculated.
Plaintiff claims that the March 30 record date is interfering with its right to solicit consents in at least two ways. First, that some number of persons who bought shares in response to news of the March 23 proposal have been disenfranchised by the early record date. Second, that the Board's failure to give notice of its action setting the record date until April 1 caused substantial confusion among nominees who lacked notice of the need to run lists of beneficial owners as of March 30 and are unable completely to reconstruct such lists after the fact. To support their position, the plaintiff submitted the affidavit of Alan Miller, Co-Chairman of Innisfree MA Inc., a proxy solicitation service. Miller avers that the after-the-fact notice of the March 30 record date has caused some confusion and uncertainty among nominees, brokerage firms, and their agents, such as Automatic Data Processing Investor Communication Services ("ADP"). No doubt that confusion has the potential to interfere with the plaintiff's consent solicitation.
Defendants respond with the affidavit of Daniel H. Burch, President of MacKenzie Partners, Inc., another proxy solicitor. Burch states that it is generally the case in consent solicitations that nominees do not receive advance notice of record dates. He states that "as a practical matter" he believes that most of ADP's clients ( i.e. most brokerage houses) can provide accurate information regarding their beneficial holders as of the March 30 record date.
2. Board rejects $18 tender offer
In response to the plaintiff's March 23 letter, the Board retained counsel and engaged the investment banking firm of Cleary, Gull, Reiland, McDevitt ("Cleary Gull") to provide it with financial advice. Between March 23 and April 9, the Company's management provided Cleary Gull with information for it to prepare a financial evaluation of the Company and of various possible alternatives to maximize stockholder value for the immediate future as well as the long-term.
The Board met on April 9 and again on April 11 to consider Golden Cycle's tender offer. Among other things, the Board heard a report from Cleary Gull. At the conclusion of these meetings, consistent with the advice received from Cleary Gull, the Board determined that the $18 tender offer was inadequate and should be opposed. The Board also determined, purportedly without making any decision to sell the Company or to engage in a business combination with another Company, to explore alternatives available to it to maximize stockholder value. The Board thereafter caused to be filed and disseminated to the Company's stockholders its Schedule 14D-9, containing a description of the directors' actions and the factors considered by them in reaching their conclusions and recommendations.
3. Cleary Gull financial analysis
In connection with the financial presentation made to the Board, Cleary Gull prepared a five-year financial analysis of the Company. At the time Cleary Gull began its analysis, the Company did not have a final budget for fiscal year 1999. The 1999 estimates used by Cleary Gull in conducting this analysis, therefore, where derived from an earlier analysis performed by it in connection with Global's fall 1997 acquisition of Chrome Specialties, Inc. Cleary Gull's analysis produced expected earnings per share ("EPS") of $1.50 for fiscal 1999. The 1999 numbers were then used to project results for fiscal year 2000-2003, by applying an 11.1% rate growth to 1999 budgeted net sales. At the same time, management completed work on its 1999 budget which resulted in an anticipated 1999 EPS of $1.60. This work was later incorporated into a presentation made to certain stockholders. Plaintiff claims that the presentation was materially misleading in failing to disclose to those stockholders that the 1999 EPS figure considered by the Board was only $1.50. The record reflects, however, that those stockholders were made aware that lower estimates existed and that they knew that management had failed to meet budgeted earnings in recent years.
Plaintiff points out that, at the same time, the Cleary Gull analyst who follows Global was predicting 1999 EPS of $1.40. Most of this difference is accounted for by estimated costs of responding to Golden Cycle's offer including this litigation, which costs are taken into account only in the $1.40 estimate.
Cleary Gull also presented a "comparable companies" analysis, intended to permit a comparison of various stock price ratios for Global and similar companies. The companies used for the comparison were chosen by Cleary Gull, and the Board relied on the expertise of its investment bankers in making the selections. Plaintiff contends that the companies chosen did not present a useful comparison.
4. The April 13 disclosure
On April 13, in a press release, Global publicly announced that its Board had rejected Golden Cycle's $18 offer as inadequate and that the Board had authorized its management and advisors to explore alternatives to maximize stockholder value "including entering into discussions with other parties who have expressed an interest in acquiring the Company at a more attractive price" than $18 per share. In its Schedule 14D-9, filed April 13, 1998, Global reiterated the statements made in the press release stating that the Board "has received expressions of interest from other parties which may have an interest in acquiring the Company at a more attractive price than that offered by Golden Cycle." The 14D-9 also stated that Golden Cycle has not obtained financing for its offer.
To date, the Board has taken no action to redeem the Rights, or to render the Rights Plan inapplicable to Golden Cycle's offer. The Board has, however, indefinitely extended the date when the Rights separate from the shares. Further, the Board has taken no action to exempt the offer from the operation of 8 Del. C. § 203.
G. Standstill Agreement
Global is now engaged in a process of permitting persons expressing an interest in acquiring the Company to perform due diligence. All such persons have been asked to sign a form Confidentiality and Standstill Agreement ("Standstill"), providing, inter alia, that for a period of two years neither that person nor any of its affiliates will, unless invited by the Board: (i) acquire or offer to acquire Global stock; (ii) make or solicit proxies or consents; (iii) participate in a "group" with regard to Global securities; (iv) assist anyone in any of the prohibited activities; or (v) request that Global waive the provisions of the Standstill. Global offered to make the same information available to Golden Cycle on the condition that it enter into the Standstill, which Golden Cycle, for obvious reasons, is unwilling to do.
On May 1, 1998, counsel for Global wrote to Golden Cycle's counsel proposing certain modifications to the Standstill making its terms less onerous to Golden Cycle. As of the date of the preliminary injunction hearing, the parties had failed to agree on mutually acceptable terms.
H. The Status Quo
The present state of affairs is as follows:
• Golden Cycle's $18 cash tender offer, originally set to expire at the end of April, is now set to expire on May 29.
• The market price for Global shares remains above $20 per share.
• As of the date of the preliminary injunction hearing only 4,250 shares had been tendered.
The record does not reflect that Golden Cycle has obtained any written consents in response to its solicitation.
Not only have the Global stockholders not tendered their shares or executed written consents, they also have not provided any written support for Golden Cycle's preliminary injunction motion. The absence of such support is particularly notable because a majority of the shares are held by a few institutional investors and arbitragers whose identities Golden Cycle either knows or can readily ascertain. The stockholders' lack of individual or collective action to date, at a minimum, suggests their willingness to permit management a further opportunity to pursue alternatives to Golden Cycle's $18 offer.
I. Plaintiff's Arguments
Plaintiff's preliminary injunction application seeks relief as to the following: (i) the setting of March 30 as the record date for the consent solicitation; (ii) the refusal to eliminate the Rights Plan or Section 203 as obstacles to the $18 offer; (iii) the demand that Golden Cycle agree to the restrictive Standstill as the price of gaining access to valuation information; and (iv) the defendants' dissemination of allegedly false and misleading disclosures in opposition to the consent solicitation and $18 tender offer.
1. The record date
Golden Cycle contends that the evidence demonstrates the action setting the March 30 record date was taken by a self-interested, uninformed board seeking to entrench itself in office. By acting hastily to set the March 30 record date, Golden Cycle argues, the Board eliminated a large number of voters and created obstacles to identifying others. Citing Blasius Ind. v. Atlas Corp., Del. Ch., 564 A.2d 651 (1998), Golden Cycle argues that the Company's action constitutes an inequitable and illegal manipulation of the corporate voting machinery.
2. Refusal to redeem the Rights
Plaintiff contends that because the $18 offer is all cash, for all shares, and is not structurally coercive, there is no justification for keeping the Rights Plan in place. Moreover, Golden Cycle argues, two-thirds of the Company's shares are held by institutional investors and arbitragers, having the sophistication needed to evaluate the relative merits of the $18 offer, the Company's business plan and any alternative transaction that might be proposed. Thus, there is no threat of "substantive coercion." Golden Cycle further argues that due to the composition of the Board (two employees and two non-employees with arguably material financial connections to the Company) the Board's actions are not entitled to the presumption of the business judgment rule, but rather, the Board must demonstrate that their rejection of Golden Cycle's offer was entirely fair.
3. Refusal to provide information absent Standstill
Relying on Revlon, Inc. v. MacAndrews Forbes Holdings, Inc., Del. Supr., 506 A.2d 173, 182 (1986), Golden Cycle contends that the Board's dealings with actual and potential bidders must be evaluated by whether they are reasonably calculated to maximize stockholder value in the sale of the Company. As a result, Golden Cycle argues that the Standstill demanded of it as the price for access to financial and valuation information would sterilize its fundamental stockholder rights for a significant period of time, and as such is unreasonably onerous and precluded by Revlon.
4. Disclosures claims
Plaintiff points to four disclosures which it asserts are materially misleading: (i) that other parties "have" expressed an interest in acquiring the Company at a more attractive price; (ii) that Golden Cycle has not obtained financing for the offer; (iii) the dissemination to stockholders of inflated projections that are different from those the Board reviewed in reaching its conclusions; and (iv) the Company's failure fully to disclose the compensation received by Global's directors.
III. DISCUSSION
The parties have briefed and argued a broad array of issues relating both to the standard of review appropriate to this application and the substance of the Board's response to the consent solicitation and the tender offer. For example, much has been written and said about the status of defendants Piazza and Kelly as officers and employees of the Company, as well as the financial connections between the Company and its two purportedly disinterested directors, Allan and Keenan. Plaintiff, which would apply a standard of entire fairness or strict scrutiny to the defendants' actions, paints all four individual defendants as highly compensated insiders fighting to entrench themselves in office to protect their positions and perquisites. Defendants, in contrast, strive to show that the financial interests of the individual defendants are closely aligned with those of the Company's stockholders, as a result of their stock option positions, and argues that the Board's actions are entitled to the protection of the business judgment rule.
It is neither necessary nor appropriate for me to address many of these issues at this time. For the reasons discussed briefly, infra, no standard of review applied by this Court, however strict, would warrant relief on the existing record with regard to either the record date, the Board's failure to redeem the Rights, or its failure to exempt Golden Cycle's $18 tender offer from the provisions of Section 203. There is no basis on which to conclude that the record date, the Rights Plan or Section 203 are having any impact on Golden Cycle's efforts to attract tenders and consents, much less a material impact amounting to irreparable harm. Moreover, there is every reason to conclude that the stockholders are fully empowered to remedy any one of those perceived problems as soon as they determine to accept Golden Cycle's offer. They have the immediately exercisable power (not shown to be materially impacted by any action taken by the Board) to remove the directors and replace them with others committed to redeeming the Rights and exempting Golden Cycle's offer from the operation of Section 203. No injunction is needed to accomplish these objectives once the stockholders decide it is in their best interest so to act. Finally, for the reasons discussed, infra, I am unpersuaded that injunctive relief is available at this time to address either the access to information issue raised or the state of defendants' disclosures.
A. Preliminary Injunction Standard
On this application for a preliminary injunction, Golden Cycle has the burden of demonstrating a reasonable probability of success on the merits of its claims, that irreparable harm will result if an injunction is not granted, and that the balance of equities favors issuance of the injunction. Unitrin, Inc. v. American General Corp., Del. Supr., 651 A.2d 1361, 1371 (1995). Moreover, a preliminary injunction is an extraordinary remedy which will not issue unless it has been earned and will be denied where the remedy sought is excessive in relation to and, indeed, unnecessary to prevent, the injury threatened. Ivanhoe Partners v. Newmont Mining Corp., Del. Ch., 533 A.2d 585, 600, aff'd Del. Supr., 535 A.2d 1334 (1987).
B. The Record Date
The parties agree that the Board has the statutory power to set the record date for the consent solicitation. Section 213(b) of the DGCL vests "primary authority to fix a record date with the board of directors." Empire of Carolina, Inc. v. Deltona Corp., Del. Supr., 514 A.2d 1091, 1095 (1986) (stating that authority of directors to fix record date is "consistent with the fundamental principle of Delaware Corporate Law that duly elected directors manage the business and affairs of the corporation").
The parties disagree over whether the action taken by the Board in fixing the March 30 record date is reviewable under the Blasius "compelling justification" standard, the "enhanced duty" standard of Unocal Corp. v. Mesa Petroleum Co., Del. Supr., 493 A.2d 946 (1985), or the normal business judgment rule analysis. As the Supreme Court stated in Williams v. Geier, Del. Supr., 671 A.2d 1368, 1376 (1996): "Blasius' burden of demonstrating a `compelling justification' is quite onerous, and is therefore applied rarely." The situation presented by the Board's action in fixing the March 30 record date is critically different than the action under attack in Blasius. In that case, the Court found that the Board's actual purpose in adding two new directors was to preclude "the stockholders of a majority of [Atlas'] shares from placing a majority of new directors on the board through Blasius' consent solicitation." Id. at 655. It was the preclusive character of the directors' action that caused Chancellor Allen to hold the directors' action to be an unintended violation of their duty of loyalty. Id. at 663.
There is nothing about the action taken here remotely comparable to the action taken in Blasius. The record suggests that the early and unannounced setting of the record date has had some effect (i) in disenfranchising persons who purchased shortly before or after March 30, and (ii) in creating some confusion among nominee holders over the identity of their beneficial holders as of that date. However, there is no suggestion in the record that these problems will preclude or even substantially interfere with the ability of the Global stockholders to remove and replace the entire board, should they choose to do so. For these reasons, the application of the Blasius standard to this case is unwarranted.
The Unocal standard applies when a "board of directors, unilaterally ( i.e., without stockholder approval), adopts defensive measures in reaction to a perceived threat." Williams, 671 A.2d at 1377. It is an interesting question whether the act of fixing a record date, essentially a ministerial act, should be examined under Unocal's enhanced duty standard. While there is reason to doubt that it should be, I find it unnecessary to decide the question because there is no basis in the record before me on which to conclude that the March 30 record date is materially interfering with the stockholders' franchise or Golden Cycle's ability to solicit consents. Moreover, the significantly concentrated ownership of Global's common stock strongly suggests that whatever effects the setting of the March 30 record date may have, it will not, as a practical matter, interfere with the ability of the stockholders as a whole to remove the directors.
I note, however, that the haste with which the Board acted to fix the record date and the Company's failure to give prompt notice of its establishment do suggest that the director defendants, or their advisers, thought their actions would limit or interfere with Golden Cycle's ability to solicit consents. The fact remains, however, that a record date was needed, the Board had the power to fix it, and there is an insufficient record from which to conclude that the date actually fixed will interfere with Golden Cycle's consent solicitation in a material respect.
C. Disclosures
To state a claim for violation of the fiduciary duty of disclosure:
[a] plaintiff must demonstrate a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable stockholder. There must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable stockholder as having significantly altered the "total mix" of information made available.Loudon v. Archer-Daniels-Midland Co., Del. Supr., 700 A.2d 135, 143 (1997).
Plaintiff's claimed violations do not measure up to this standard.
1. Third party interest at greater than $18 per share.
Plaintiff first attacks statements or suggestions by the defendants that Global has received indications of interest at prices higher than $18 per share. The statements were made in defendants' Schedule 14D-9 and an accompanying press release, both disseminated on April 13, 1998. The press release referred to "other parties who have expressed an interest in acquiring the Company at a more attractive price." (emphasis supplied). The Schedule 14D-9 made reference to "other parties which may have an interest in acquiring the company at a more attractive price than that offered by Golden Cycle." (emphasis supplied). Plaintiff argues that these statements are belied by the April 24, 1998 testimony of defendant Keenan. In answer to the question whether "anybody [has] . . . expressed a willingness to or interest in making a bid over $18?," Keenan responded "[w]e are not at that portion of the inquiry with any of these prospective buyers at this time."
Considering all of the evidence presented, I conclude that the defendants' statements were unlikely to have misled Global stockholders. The record, including specifically other testimony by defendant Keenan, shows that, before April 13, Global and Cleary Gull were contacted by third parties who, in response to news of Golden Cycle's hostile acquisition proposal, expressed some interest in exploring a possible competing transaction with Global. Global has since entered into confidentiality and standstill agreements with some number of these parties, all signed after the Board publicly announced its determination that Golden Cycle's $18 per share cash offer is inadequate. Some number of those parties are now engaging in due diligence and continue to express an interest in acquiring the Company with knowledge that the Board has already determined that $18 per share is not an adequate price. Based on all of these facts, defendants argue that it was fair to infer by April 13 that the third parties who had expressed some interest in competing with Golden Cycle's proposal understood that a price in excess of that offered by Golden Cycle would be necessary. I agree this is a fair inference and, for that reason, conclude that the statements made by the defendants on April 13 were not misleading or deceptive.
2. Plaintiff's financing
In response to Item 4(b) of Schedule 14D-9, Global listed the significant factors considered by the Board in reaching its conclusion and recommendation as to the tender offer. Among other things, the Schedule 14D-9 refers to the fact that the consummation of Golden Cycle's offer is conditioned on:
(a) Purchaser obtaining, prior to the expiration of the Offer, on terms satisfactory to Purchaser, in its sole discretion, sufficient financing to enable the consummation of the Offer and the Proposed Merger (the "Financing Condition"), with regard to which the Board noted that the required financing has not yet been obtained and is itself subject to a variety of conditions.
Plaintiff does not claim that this disclosure is not true or that Golden Cycle has firmly committed financing for its offer. Rather, it alleges that the Schedule 14D-9 disclosure "misleadingly states the Golden Cycle had not obtained financing for the Offer," and refers to the deposition of Roger Grass, taken April 8, 1998, in which Mr. Grass testified that two banks had advised Golden Cycle that they would finance the Offer and that Golden Cycle needed only to execute a letter to secure this financing.
The fact remains that, on April 13 and continuing until today, Golden Cycle has not secured firm financing for its offer. Thus, the statement found in the Schedule 14D-9 was true. Plaintiff's Offer to Purchase, also disseminated to Global's stockholders contains a detailed description of the tentative arrangements made by Golden Cycle to finance its offer. Defendants were under no obligation to repeat that information in itemizing the factors they considered in reaching their decision to reject Golden Cycle's $18 proposal. That information was available in the "total mix" of information available to Global's stockholders. Loudon, 700 A.2d at 143.
3. Financial projections
Plaintiff complains that the estimates of fiscal 1999 earnings per share have changed since the Golden Cycle offer was made, from $1.50 to $1.60. More particularly, Cleary Gull used the $1.50 estimate in connection with its Board presentation, while an investor presentation prepared contemporaneously (attached as Exhibit 8(a)(1) to Amendment No. 1 to defendants' Schedule 14D-9) incorporates a budget and projections based on a $1.60 per share estimate for fiscal 1999. Golden Cycle argues that the stockholders to whom this later presentation was made were not told that lower estimates had been used in the presentation to the Board. Golden Cycle also points out that the Cleary Gull analyst who follows Global's stock has published and recently reaffirmed a $1.40 per share estimate for fiscal 1999.
See supra, note 6.
Defendants respond that the differences between $1.50 and $1.60 are immaterial, that the $1.60 estimate was developed while Cleary Gull was putting together its presentation to the Board, and that the Board was advised that management had developed a higher number in finalizing the fiscal 1999 budget. They also make the obvious but persuasive point that the Board's conclusion that $18 per share is inadequate was based on the lower, not the higher, estimate. Thus, the existence of the higher estimate was immaterial to the Board's determination. Finally, the Cleary Gull representative testified that the investors to whom presentations were made were told that: (i) there "had been a range of earnings estimates within the company, some lower and some higher than the $1.60," (ii) those investors were told that the $1.60 number "is what management was representing . . . to their board as to what their current estimate for the year was," and (iii) those stockholders were aware that management "have not met their earnings targets" in the last few years.
The differences between the budget resulting in earnings per share of $1.50 and the revised $1.60 per share budget are not immaterial as a matter of law. As plaintiff points out, the two budgets vary 4.9% in revenue, 23.4% in EBITDA, 8.8% in earnings per share and 8.5% in free cash flow. These differences are not de minimis, but substantial. Nevertheless, the record before me does not support an inference or conclusion that the higher budget was prepared in bad faith or with a lack of care. The fact that the Cleary Gull presentation was based on the lower estimate does not support the inference that either Cleary Gull or the Board was unwilling to rely on the higher budget. Moreover, I cannot conclude on the record presented that any of the stockholders to whom presentations were made was misled by management's presentation.
4. Board compensation issues
Finally, Golden Cycle contends that there has been a failure fully to disclose compensation arrangements between Global and its directors. In particular, plaintiff attacks the failure to disclose the consulting arrangement by which defendant Allan renders legal services to Global (including payments in years past), the current salaries paid to Piazza and Kelly, and the amount of director's fees paid to Allan and Keenan.
Defendants respond that their disclosures about director compensation have consistently complied with the detailed requirements of the federal securities laws. As of today, items of this disclosure can be found in the defendants' Schedule 14D-9 and the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on or about May 8, 1998. Moreover, information about the amount of compensation paid to the directors was disseminated by Golden Cycle in its tender offer materials. For example, Amendment No. 2 to Golden Cycle's Schedule 14D-1 contains the text of a letter dated April 14, 1998 from Roger Grass to Mr. Keenan. That letter contains a detailed recitation of the "facts" about the compensation of the individual defendants, including the very information Golden Cycle would now have the Court order disclosed by the defendants.
Information bearing on the interest of directors is, of course, of interest to stockholders when they are asked to rely on the recommendation of those directors to resist a takeover effort. This would seem to be particularly true in the case of a board of directors lacking a majority of outside, independent members. Thus, for example, I agree with the plaintiff that information about the consulting arrangement between Global and defendant Allan, and details of Allan's compensation as a director, are material facts. Similarly, the stockholders should be informed about all compensation arrangements between Global and defendant Keenan. These two are the only directors not directly employed by Global. The full scope of their not insubstantial financial relationships with the Company are undoubtedly relevant to the stockholders' decision-making processes. On the present record, however, I am unable to conclude that this information is not now before the stockholders as a result of the Company's filings. Thus, I cannot conclude that the entry of an order requiring the Company to disseminate supplemental materials making all of the disclosures Golden Cycle seeks would "significantly alter the `total mix' of information made available." Loudon, 700 A.2d at 143.
D. Standstill Agreement
Plaintiff contends that a sale of the Company is inevitable, therefore, the Board's duty has "change[d] from the preservation of [the Company] as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit." Revlon, 506 A.2d at 182. In this context, the plaintiff states, dealings with actual and potential bidders are evaluated by whether they are reasonably calculated to maximize the sale price. Equity-Linked Investors v. Adams, Del. Ch., 705 A.2d 1040, 1055 (1997). Golden Cycle contends that Global's refusal to provide information unless Golden Cycle first executes the Standstill is preventing the maximization of stockholder value, and as such is precluded by Revlon.
In Delaware, it is the well established that there "is no single blueprint" that a board must follow, in the context of a sale of the company, in order fulfill its fiduciary duties. Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (1989). "Rather a board's actions must be evaluated in light of relevant circumstances to determine if they were undertaken with due diligence and in good faith. If no breach of duty is found, the board's actions are entitled to the protections of the business judgment rule." Id. (Citing Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954-55 (1985)).
Even assuming the plaintiff is correct and Revlon duties are implicated at this time, the plaintiff is still not entitled to the relief it requests. The record before me is insufficient to establish that the directors have breached their fiduciary duties by not providing the plaintiff with the information it seeks. Currently, the Board, in the face of what it perceives to be an inadequate offer, is engaged in a process of examining alternatives to Golden Cycle's $18 offer. In connection with this, it has refused to give Golden Cycle access to valuation information unless and until it signs the Standstill on such terms as the parties may mutually agree. Again, assuming, arguendo, that Revlon duties apply in the current situation, as long as the Board acts with care and in the good faith pursuit of shareholder interest, it may tilt the playing field, and, at least for some period of time, keep Golden Cycle at arms-length. In re J.P. Stevens Co., Inc. Shareholders Litigation, Del. Ch., Cons. C.A. No. 9991, Allen, C. (Aug. 8, 1988).
Defendants argue that the Revlon duties have not been implicated, rather, that the Board's actions should be measured under the business judgment standard. At this stage of the proceedings a decision on which standard is appropriately applied to the Board's actions is not necessary.
The decision to deny the injunctive relief the plaintiff requests in this regard is, of course, based on the premise that the Board is acting in good faith. To date, there has been only limited discovery into the facts surrounding the Board's exploration of alternatives to Golden Cycle's $18 offer. The information in the record regarding the process is comprised principally of the Company's public disclosures and representations made by the defendants' counsel. As events unfold, closer examination into these issues may become necessary and appropriate.
Plaintiff attempts to cast on the defendants the burden of establishing the entire fairness of the process the Board is currently engaged, which is to explore alternative offers to Golden Cycle's $18 offer. In the absence of evidence of bad faith on the part of the Board, placing this burden on the defendants while this process is ongoing would be inconsistent with the interests of the Company, and potentially destructive of stockholder interest in value maximization.
E. The Rights Plan
Finally, Golden Cycle seeks preliminary injunctive relief requiring the directors to redeem the Rights or to render the Rights Plan inapplicable to Golden Cycle's tender offer and requiring the directors to exempt that offer from the operation of Section 203. Because the relief requested is wholly unwarranted and unnecessary at this time, it will be denied. As discussed, supra, the market price of Global's common stock remains more than $2.00 higher than Golden Cycle's tender offer and, as a result of this fact, virtually no shares have been tendered into Golden Cycle's offer. In the circumstances, there is no basis on which I could conclude that the Rights Plan (or the threatened application of Section 203) is having any effect on Golden Cycle's ability to attract tenders. Nor will it do so unless Golden Cycle raises its offer, or unless changes in market conditions render its $18 offer competitive.
IV. CONCLUSION
For all the foregoing reasons, the plaintiff's application for a preliminary injunction is, in all respects, denied. IT IS SO ORDERED.