Opinion
Civil Action No. 10729.
Submitted: June 2, 1989.
Decided: June 15, 1989
Michael D. Goldman, Gregory A. Inskip, Peter J. Walsh, Jr., and Stephen C. Norman, Esquires, of POTTER ANDERSON CORROON, Wilmington, Delaware; Melvin A. Brosterman and Barry M. Sabin, Esquires, of STROOCK STROOCK LAVAN, New York, New York, Attorneys for Plaintiff.
Bruce M. Stargatt, Josy W. Ingersoll, Bruce L. Silverstein, and Melanie K. Sharp, Esquires, of YOUNG, CONAWAY, STARGATT TAYLOR, Wilmington, Delaware, Attorneys for Defendants.
MEMORANDUM OPINION
On October 12, 1988, the plaintiff, The Cooper Companies, Inc. ("TCC"), entered into a definitive agreement to sell to Miles Inc. ("Miles") TCC's wholly owned subsidiary, Cooper Technicon, Inc. ("CTI"). A critical condition of that transaction was that TCC's preferred shareholders would give their consent to the sale. On October 21, 1988, TCC's preferred stockholders, the defendants Cooper Development Company ("CDC") and Cooper Life Services, Inc. ("CLS"), executed a written consent to the sale of CTI to Miles. Although it was contemplated that the sale of CTI would close no later than March 31, 1989, in fact it did not, and to date that sale has not closed.
CDC and CLS also furnished consents to an amendment of TCC's certificate of incorporation to eliminate its preferred stock "mandatory redemption" feature.
Since its original execution, the TCC/Miles agreement has been amended three times, with the result that the outside date for closing was extended to May 15, 1989, then later to May 30, 1989, and, most recently, to June 30, 1989.
On March 21, 1989, the Chairman and Chief Executive Officer of both CDC and CLS wrote a letter to TCC, taking the position that their October 21, 1988 consents were no longer valid. In response, TCC filed a complaint on March 30, 1989, seeking a declaration by this Court that the CDC/CLS consents are, and continue to remain, legally valid and binding. TCC also sought an expedited trial on the merits. Because of the perceived need for a prompt adjudication of the issue while the TCC/Miles agreement remained in force, the Court ordered that the action proceed and be tried on an expedited basis.
Trial on the merits took place on May 8, 9, and 10, 1989. Post-trial briefing was completed on May 26, 1989. Supplemental briefing on the defendants' post-trial motion to dismiss on the ground that the action is not ripe for adjudication, was completed on June 2, 1989.
This is the decision of the Court on the defendants' motion to dismiss and on the merits of the plaintiff's claim for declaratory relief.
I.
TCC is a Delaware corporation whose principal business is located in Palo Alto, California. Historically, TCC had been engaged in various health care related businesses, but in May, 1988, it began a major restructuring that resulted in the divestiture of most of those businesses. The proposed sale of CTI to Miles is part of that ongoing restructuring effort.
CDC and CLS, both Delaware corporations whose principal businesses are located in Mountain View, California, together own all outstanding shares of TCC's preferred stock.
Originally, TCC, CDC and CLS were wholly owned subsidiaries of Cooper Laboratories, Inc., a holding company founded in 1958 by the present Chairman and President of CDC and CLS, Parker G. Montgomery. Cooper Laboratories was liquidated in the early 1980's, and the common stock of TCC, CDC and CLS was spun off to Cooper Laboratories' stockholders. At that time Mr. Montgomery became Chairman of all three companies, as well as TCC's Chief Executive Officer.
In May, 1988, two family investor groups (the Singers and the Sturmans) threatened to wage a proxy contest for control of TCC. The threatened proxy battle came at a time when TCC was beginning its restructuring, which involved selling the entire company or, alternatively, all or substantially all of its assets. Because TCC's directors were concerned that a proxy battle could seriously jeopardize that program, an accord was reached with the Singers and Sturmans involving the appointment of three of their members to TCC's nine-member board of directors. Later, on July 12, 1988, the Singers and Sturmans acquired effective control when two other members of the Singer family joined TCC's board.
Throughout 1988 TCC had experienced a severe financial crisis, which TCC attempted to alleviate not only by its restructuring, but also by seeking to resolve certain ongoing financial disputes with CDC and CLS. After the Singers and Sturmans secured control of TCC in July, 1988, they began negotiating with CDC and CLS to reach a "global" settlement of all outstanding disputes. Those negotiations culminated in a series of agreements executed by TCC, CDC, and CLS on October 21, 1988 (the "October 21, 1988 settlement agreements").
Those disputes included: (1) a $14.5 million debt owed by CDC to TCC under a $22 million line of credit, (2) the registration of TCC's preferred stock which was 100% owned by CDC and CLS, (3) certain golden parachute and severance benefits purportedly owed to individuals TCC had terminated and who had worked directly for Parker Montgomery, (4) intercompany accounting items, including office relocation, (5) costs and expenses associated with new insurance, and (6) certain outstanding litigation and indemnification issues.
While it was negotiating with CDC and CLS, TCC was also contracting to sell certain of its businesses to third parties. In September and November, 1988, respectively, TCC sold its contact lens solution businesses (for approximately $40 million in cash) and certain of its United States and Japanese soft contact lens businesses (for approximately $35 million in cash) to Wesley-Jessen Corporation. During September, 1988 TCC contracted to sell its Cooper Surgical Ophthalmic business to Alcon Laboratories, Inc. ("Alcon") for approximately $325 million in cash, a sale that ultimately closed in February, 1988.
Finally, on October 12, 1988, TCC entered into a definitive agreement (the "Miles Purchase Agreement") to sell Cooper Technicon, Inc. (CTI) to Miles for $212 million in cash, plus the assumption by Miles of up to $288 million of CTI's debt. The Miles Purchase Agreement was made subject to certain conditions. Those conditions included the approval of a majority of TCC's common stockholders and of a certain class of TCC's outstanding debentures, and — most critically — the approval of the holders of a majority of TCC's outstanding preferred stock, i.e., CDC and CLS.
The Miles Purchase Agreement also provided that:
. . . in no event shall the Closing occur later than 11 a.m., New York City Time, on March 31, 1989 (said time and date being referred to herein as the `Last Day to Close').
Finally, the Miles Purchase Agreement obligated TCC to close if all conditions precedent were satisfied by March 31, 1989, but imposed no reciprocal obligation upon Miles to close after January 31, 1989. That is, if the closing did not occur by January 31, 1989, TCC would remain contractually bound to close until March 31. However, after January 31, Miles was free to elect, in its sole option, whether or not to close.
TCC's parallel negotiations with CDC and CLS initially focused upon resolving the various claims flowing from TCC's termination (in July, 1988) of an intercorporate agreement under which TCC had provided administrative, accounting, and legal services to CDC and CLS. As the discussions progressed, the negotiating agenda was broadened to include, among other things, (i) TCC's obligation under an October, 1987 agreement to register the TCC preferred stock owned by CDC and CLS, and (ii) whether TCC would repurchase or redeem its preferred stock.
These negotiations clearly were influenced by TCC's simultaneous efforts to sell its businesses to Alcon and Miles. Early in the settlement discussions, TCC indicated its desire to receive the "blanket" consents of CDC and CLS to future sales of TCC's assets. Those consents were viewed as one of several elements of a possible global settlement of the three companies' outstanding disputes. CDC and CLS had no problem with furnishing consents; they were concerned only with whether it was advisable to give open-ended, "blanket" consents to unspecified future asset sales. As the negotiations progressed, those concerns were satisfactorily addressed. Ultimately the parties agreed to restrict the CDC/CLS consents to the specific asset sales to Alcon and Miles.
The consents ultimately agreed upon were embodied in two essentially identical consent documents executed by CDC and CLS on October 21, 1988. The first of these concerned the sale of Cooper Surgical to Alcon; the second concerned the sale of CTI to Miles. Because the consent to the sale of CTI to Miles is at the heart of this controversy, its full text is set forth below:
Because the sale to Alcon was successfully concluded, the formal consent to that sale is not an issue in this proceeding.
As holders of 100% of the outstanding shares of TCC's Senior Exchangeable Redeemable Preferred Stock (the "TCC Preferred Stock"), the undersigned [i.e., CLS and CDC] hereby irrevocably consent to the sale by TCC of all of the outstanding capital stock of Cooper Technicon, Inc., a Delaware corporation ("CTI") to Miles Inc., an Indiana corporation, substantially in accordance with the terms and conditions of the Purchase Agreement dated as of October 12, 1988 (the "Purchase Agreement") between TCC and Miles Inc., a copy of which has been previously delivered to us. The undersigned acknowledge and agree that the Purchase Agreement may be amended or modified by TCC and Miles Inc. and conditions of the parties there-under to close may be modified, amended or waived by TCC or Miles Inc. without any further approval or consent from the undersigned, provided that if any modification or amendment results in á material reduction in the consideration to be paid to TCC pursuant to the Purchase Agreement, such modification or amendment may be made without any further consent or approval from the undersigned only if, in connection with the completion of the transaction, TCC obtains an opinion from a nationally recognized investment banking firm to the effect that (a) the transaction is fair from a financial point of view to the shareholders of TCC, which opinion shall be deemed conclusive evidence of the fairness of the transaction to such holders or (b) the consideration to be received by TCC under the Purchase Agreement, as so amended, is comparable from a financial point of view to that originally provided for in the Purchase Agreement.
The consent set forth herein shall survive any transfer or assignment of the TCC Preferred Stock and TCC is hereby authorized to affix an appropriate legend to the stock certificates for the TCC Preferred Stock. The undersigned acknowledge and agree that this consent will be furnished to Miles Inc. in connection with the closing under the Purchase Agreement.
The undersigned agree to keep the terms of the Purchase Agreement confidential and to execute any additional documents and take any additional action necessary to evidence this consent.
By its terms the consent is irrevocable, and it has no specified duration or expiration date. Nonetheless, certain trial witnesses who negotiated the consent on CDC's and CLS's behalf testified to their belief that the consent would expire on March 31, 1989. That date was the "last day to close" under the original Miles Purchase Agreement. However, it is undisputed that no one on the CDC/CLS side ever communicated their belief to TCC or its representatives. It is also undisputed that no discussions of any kind concerning the duration or termination of the consent took place during the negotiations.
Another highly important issue covered in the parties' July — October, 1988 negotiations was what would be done with the TCC preferred stock then owned by CDC. That stock represented a major CDC asset, yet was unregistered and, therefore, was essentially unmarketable and illiquid. CDC's desire to make that investment liquid was a significant factor that motivated both its negotiations with TCC and its (and CLS's) later effort to repudiate the consents they had furnished on October 21, 1988.
CDC later transferred some of the preferred stock to CLS.
As of July, 1988, the status of the TCC preferred stock was twofold. It was the subject of a mandatory redemption provision contained in TCC's certificate of incorporation; however, that redemption right was of little immediate benefit, because it would not take effect until the year 2007. The preferred stock was also the subject of a registration rights agreement between TCC and CDC, entered into in October, 1987 when the preferred was first issued to CDC. That agreement required TCC to register the preferred stock within 270 days of its issuance, that is, by the end of July, 1988. In May or June of 1988, TCC's board of directors authorized the preparation and filing of a registration statement for the preferred stock. However, when the Singers and Sturmans obtained control in July, all registration efforts ceased.
In August, 1988, CDC and CLS formally demanded that TCC register the preferred stock, which, they claimed, should have been done by the end of July. TCC responded that it was not categorically required to register the preferred, because the registration rights agreement provided for the payment of liquidated damages if TCC failed to perform its registration obligation. These conflicting positions led to a reopening of the entire "preferred stock question" during the parties' subsequent "global settlement" negotiations.
The negotiated resolution of the preferred stock question took two forms. First, CDC and CLS gave their written consent to an amendment of the TCC certificate of incorporation to eliminate its mandatory redemption feature. Second, TCC covenanted, in the October 21, 1988 settlement agreements, that it would file two registration statements with respect to the TCC preferred stock. One would be on Form S-3 to permit a "shelf registration" of the shares. The other would be on a form appropriate to permit a dividend or other distribution of the preferred stock to the companies' shareholders or, alternatively, a sale or pledge of those shares to a third party.
That consent is also challenged in this litigation. However, as to it, CDC and CLS advance no separate argument that is independent of, or different from, their challenge to the consent to the sale of CTI to Miles. Accordingly, the consent to the certificate amendment will not be separately treated, and the Court's analysis will focus primarily upon the consent to the sale of CTI to Miles.
Those undertakings came about in the following way: throughout the settlement negotiations, CDC and CLS consistently pressed for a contractual commitment by TCC to repurchase or redeem the preferred stock. TCC's representatives recognized that from TCC's standpoint, something would eventually have to be done with the preferred stock, if only because the dividends payable on the preferred were of the "payment-in-kind" variety. If allowed to continue accumulating, those dividends would eventually "wipe out the equity of TCC" (Pl. Op. Br., p. 25).
However, TCC's representatives took the position that TCC could not commit, at that time, to purchase or redeem the preferred stock, because certain restrictive covenants in the indenture to TCC's debentures and other loan covenants precluded TCC from doing so. But TCC's representatives did advise CDC and CLS that when TCC received the proceeds from the proposed sale of CTI, it likely would be in a better position to repurchase or redeem the preferred stock. TCC also told the CDC and CLS representatives that if they consented to the elimination of the mandatory redemption provision in TCC's certificate of incorporation, that would enlarge the "baskets" within TCC's debt covenants that would facilitate TCC's repurchase or redemption of its preferred shares.
As a result of these discussions, CDC and CLS accepted and understood that: (1) TCC's debt covenants precluded any present contractual commitment by TCC to redeem or repurchase the preferred stock, and (2) TCC would attempt to negotiate such a transaction with CDC and CLS at some future time when it became free of the restraints imposed by those covenants. But, (3) TCC did agree to register the preferred stock on the terms provided in the October 21, 1988 settlement agreements. On the basis of these understandings and agreements, CDC and CLS furnished their written consents to the sale of CTI to Miles, and to the proposed certificate amendment eliminating the mandatory redemption provision.
Unfortunately, that did not produce the hoped-for global resolution of the parties' differences. After the October 21, 1988 settlement agreements were signed, TCC subsequently encountered a host of regulatory, legal, and other obstacles that forced a delay of the closing on the CTI-Miles transaction. Those obstacles also slowed down TCC's efforts to register the preferred stock pursuant to the October 21, 1988 settlement agreements. These developments resulted in a meeting on January 31, 1989, where representatives of TCC and Miles formally acknowledged that the sale of CTI could not close by March 31, 1989. Accordingly, on February 8, 1989, Miles and TCC amended the Miles Purchase Agreement to establish May 15, 1989 as the last day to close. When it became obvious that the proposed sale could not close by May 15, 1989, a second amendment was executed on April 24, 1989, establishing May 31, 1989 as the last day to close.
Three months earlier, on February 13, 1989, TCC had filed its Form 10-K for the fiscal year ending October 31, 1988, wherein it disclosed its intent to use the CTI sale proceeds to reduce TCC's debt and acquire new businesses. Mr. Montgomery inferred from that disclosure that TCC had reneged upon what he regarded as TCC's promise to use those proceeds for a negotiated repurchase or redemption of the TCC preferred stock. After discussions with, and prompting by, a major shareholder of CDC and CLS, Mr. Montgomery wrote a letter to TCC on March 21, 1989. In that letter he asserted that TCC's demonstrated lack of candor and good faith in dealing with CDC and CLS had rendered their previously executed consents null and void. Mr. Montgomery also took the position that, in all events, the written consent to the sale of CTI to Miles would expire by March 31, 1989.
In response, TCC commenced this action for declaratory relief on March 30, 1989. While this case was sub judice, TCC once again was required to seek an extension of the closing date under the Miles Purchase Agreement. That latest amendment, executed on May 31, 1989, extended the last day to close to June 30, 1989. As a quid pro quo for granting the extension, Miles extracted a $21 million reduction in the purchase price. Under this arrangement, Miles would continue to have an option (as opposed to a contractual obligation) to purchase CTI.
Pursuant to the terms of the CDC/CLS consent (See Fn. 14, p. 25, infra), TCC will be obtaining an investment bankers' opinion as to the fairness of the reduced price.
II.
CDC and CLS attack the validity of their October 21, 1988 consents on four grounds, all of which TCC vigorously opposes. First, the defendants argue that the consents expired on March 31, 1989, because that was the parties' intent, and alternatively, because in the absence of a specified termination date, a reasonable duration of the consents would end on March 31, 1989. Second, CDC and CLS contend that under 8 Del. C. § 228, the consents expired within 60 days of their delivery to TCC, because the concurrent approval by TCC's common stockholders to the transactions being consented to was not obtained within that 60 day period. Third, CDC and CLS argue that the consents are invalid under principles of contract law and because TCC violated its fiduciary duty of candor. Fourth, the defendants urge that equitable relief should be denied to TCC, because TCC failed to discharge its renewed obligation to register the TCC preferred stock under the October 21, 1988 settlement agreements.
In addition to declaratory relief, TCC seeks specific performance of the provision of the consents requiring CDC and CLS to "execute any additional documents and take any additional action necessary to evidence this consent."
Finally, in their motion to dismiss, the defendants raise the threshhold question of whether the merits issues are presently ripe for adjudication. Being essentially jurisdictional, the ripeness question is first addressed in Part III, infra, of this Opinion. Because the consent validity issues are found to be ripe for adjudication, they are dealt with in Part IV, infra.
The enactment of the revised declaratory judgment statute does not obviate the requirement that there be an "actual case or controversy." Stroud v. Milliken Enterprises, Inc., Del. Supr., 552 A.2d 476, 479 (1989). One of the requisites for an actual controversy is that the case must be ripe for judicial determination. Id. at 480; Rollins Int'l, Inc. v. Int'l Hydronics Corp., Del. Supr., 303 A.2d 660, 662-63 (1973).
III.
The defendants' ground their argument that the "merits" issues are not ripe for adjudication solely upon the fact that Miles has an option, but no contractual obligation, to purchase CTI. Defendants urge that even if this Court were to decide the consent validity issues in TCC's favor, Miles is still free at any time to walk away from the Miles deal, which would render any merits adjudication academic. In response, TCC argues that that possibility alone is legally insufficient to render the merits issues "hypothetical," as that term is understood in declaratory judgment jurisprudence. Moreover, TCC contends, Miles has given every indication that it will purchase CTI if the contractual conditions are fulfilled.Whether or not a given issue is ripe for adjudication is a determination calling for a balancing of all relevant practical considerations and the sound exercise of discretion, not an analytic approach that is legalistic or formalistic. Our Supreme Court so recognized in Stroud v. Milliken Enterprises, Inc., 552 A.2d at 480, 481, where it stated:
The reasons for not rendering a hypothetical opinion must be weighed against the benefits to be derived from the rendering of a declaratory judgment. This weighing process requires "the exercise of judicial discretion which should turn importantly upon a practical evaluation of the circumstances" of the case . . . [citation omitted].
* * *
The grant of declaratory judgment is always discretionary; and before a court should declare the rights of parties in a dispute, it must not only "be convinced that litigation sooner or later appears to be unavoidable," but also that the material facts are static and that the rights of the parties are presently defined rather than future or contingent . . . [citation omitted].Id. at 481.
In Schick, Inc. v. Amalgamated Clothing and Textile Workers Union, Del. Ch., 533 A.2d 1235 (1987), cited and quoted with approval in Stroud, Chancellor Allen enumerated some of the considerations pertinent to a "ripeness" analysis, including:
. . . [a] practical evaluation of the legitimate interest of the plaintiff in a prompt resolution of the question presented and the hardship that further delay may threaten is a major concern. Other necessary considerations include the prospect of future factual development that might affect the determination to be made; the need to conserve scarce resources; and a due respect for identifiable policies of the law touching upon the subject matter of the dispute.Id. at 1239. (footnote omitted); See also Siegman v. Tri-Star Pictures, Inc., Del. Ch., C.A. No. 9477, Jacobs, V.C. (May 5, 1989).
A practical evaluation of the business reality confronting this declaratory judgment plaintiff impels me first to observe that if TCC is to unburden itself of its substantial debt and restore itself to fiscal soundness, it needs the immediate cash and debt assumption that the CTI sale will afford. For that transaction to close, the consent of the preferred shareholders is needed, yet the defendants' challenge to those consents has clouded TCC's ability to satisfy that vital contract condition. Without an adjudication of the merits by this Court, TCC will have no remedy. Moreover, if an adjudication is to be had, it must occur before June 30, i.e., two weeks hence. That is because June 30 is at present the last day to close, and there is no assurance that Miles will grant any further extensions. Thus, as a practical matter, a refusal to adjudicate the merits now will likely be tantamount to denying TCC a remedy altogether, and would visit upon TCC financial injury that might be irreparable. Lastly, to paraphrase the language of Stroud, "the material facts [relating to the merits] are static and . . . the rights of the parties are presently defined . . ." 552 A.2d at 481.
CDC and CLS do not seriously dispute these considerations, but argue simply that they are outweighed by the fact that irrespective of any decision by this Court, Miles could walk away from the CTI deal at any time, and thereby render moot any judicial opinion on that subject. Defendants argue that unless and until Miles contractually commits itself (subject to fulfillment of the contractual conditions) to purchase CTI, the consent validity issues must be viewed as hypothetical.
Miles' unilateral ability to moot a merits adjudication raises admitted concerns. That those concerns are not trivial is evidenced by the defendants' cited authorities holding or suggesting (on their particular facts) that a declaratory judgment rendered in connection with the exercise of an option would be advisory, unless the optionee exercises the option or takes action unequivocally evidencing its intent to do so. The question presented here is whether that single circumstance compels the conclusion that the merits are not ripe for adjudication. I find, on these particular facts, that it does not.
See Reese v. Klair, Del. Ch., C.A. No. 7485, Hartnett, V.C. (December 16, 1986) (dictum); rev'd on other grounds, Del. Supr., 531 A.2d 219 (1987); Middle South Energy, Inc. v. City of New Orleans, 800 F.2d 488 (5th Cir. 1986); City of Philadelphia v. Philadelphia Transp. Co., Pa. Supr., 171 A.2d 768 (1961). The defendants' cited cases (all of which involved different factual circumstances) were decided before Stroud and do not employ the Stroud analytical approach.
The thrust of defendants' argument is that the "option" factor merits conclusive weight as a matter of law. But under Stroud that factor, while undoubtedly relevant (and in a different case perhaps determinative) cannot categorically be deemed controlling in all circumstances, irrespective of the equities or practicalities involved. Stroud, as I read it, mandates that all relevant practical and policy considerations be weighed and balanced in each particular case. Therefore, any conclusion that the "merits" issues are not ripe by reason of the Miles option, must flow from a discretionary judgment arrived at by weighing all practical concerns, not from an a priori approach such as that proposed by the defendants here.
The defendants' argument also appears to confuse the concepts of ripeness and mootness, which raise two conceptually distinct kinds of issues: i.e., (i) those that are truly hypothetical, and therefore not ripe, at the time the complaint is filed, and (ii) questions that initially are ripe because they involve an actual case or controversy between the litigants, but which may later become moot for reasons external to the legal dispute. The question that concerned the Stroud Court is of the former type, i.e., disagreements that have no "significant current impact and may never ripen into legal action," and matters where "the facts are not fully developed . . ." 552 A.2d at 480 (emphasis added). In the instant case, the pertinent (i.e., merits-related) facts are fully developed and a merits adjudication would have a significant current impact upon the parties. Therefore, while it is true that a determination of the merits issues could be rendered moot by Miles' subsequent unilateral action, those issues cannot properly be characterized, for that reason alone, as "hypothetical."
An example of a truly hypothetical or "nonripe" issue isStroud itself, which involved a challenge to the validity of a proposed statutory notice of a corporate stockholders' meeting that the corporation had not officially put into effect. An example of the latter type of question would be an action brought by a tender offeror seeking an adjudication of the validity of a target corporation's defensive measures taken in response to the offer. Such actions have, in most cases, been viewed as presenting "ripe" issues, even though any adjudication could subsequently be rendered moot if the offeror were to withdraw its offer by reason of the nonfulfillment of one or more standard conditions or "outs." If the defendants' ripeness argument were valid, then all takeover litigation instituted by an offeror where there are any conditions to closing, would be potentially "hypothetical" in that sense. See, e.g., Revlon, Inc. v. MacAndrews Forbes Holdings, Inc., Del. Supr., 506 A.2d 173 (1986); Mills Acquisition Co. v. MacMillan, Inc., Del. Supr., ___ A.2d ___, Nos. 415 416 (May 3, 1989).
Finally, Miles' ability to moot this action does give this Court reason to pause, and on different facts that fact might conceivably tip the scales on the side of "nonripeness." However, to so conclude in this particular case would be an unsound exercise of discretion, because of the unique circumstances confronting the Court, namely: (a) the case has now been fully tried on the merits and briefed; (b) it appears just as likely that Miles will exercise its option as that Miles will not; (c) resolving the merits at this point would involve risking a relatively small, incremental portion of the Court's resources (i.e., the effort required to decide the case), yet a merits decision could result in TCC's financial salvation; and (d) on the other hand, a decision not to proceed would risk (if not assure) that TCC will face serious financial jeopardy. Given those practical realities and the lack of "middle ground" alternatives, the more prudent course would be to hazard the risks involved in a decision to proceed.
In this connection the Court notes that this case was permitted to go to trial without the Miles option arrangement having been brought to its attention beforehand. Both TCC's original and amended complaints failed to disclose the Miles option, and left the distinct impression that Miles was subject to a bilateral contractual obligation to acquire CTI. At the office conference where TCC's motion for expedited trial was considered, there was no mention of that option. Only in the defendants' pretrial memorandum (filed the day before the trial), and then during the first day of trial, was the existence of the option arrangement disclosed and thereafter confirmed. Although the option has been found not to warrant dismissal in this particular case, it is a circumstance that clearly is relevant to a ripeness determination. It should, therefore, have been promptly disclosed by the plaintiff.
Accordingly, I find that this action is ripe for adjudication.
IV.
I turn now to the merits, and will address the defendants' consent invalidity arguments seriatim.
A.
CDC and CLS first argue that the consents expired on March 31, 1989, because the parties so intended. They further argue, in the alternative, that because the consents do not specify a termination date, they are valid for only a reasonable time, which should be no later than March 31, 1989. Both arguments, in my view, lack merit.First, I find no persuasive evidence, in either the language of the consents or the trial testimony and exhibits, that March 31, 1989 was the intended expiration date. The consents specify no termination date, and the language of the "CTI sale" consent indicates that the parties intended for the consents to be coextensive with the Miles Purchase Agreement. The CTI sale consent expressly describes its subject as being the sale of CTI to Miles, "substantially in accordance with the terms and conditions of the Purchase Agreement dated October 12, 1988 (the "Purchase Agreement") between TCC and Miles, Inc." The consent then goes on to provide that:
TCC argues that the parol evidence rule precludes any consideration of evidence extrinsic to the consents and the Miles Purchase Agreement. Because the Court has considered the extrinsic evidence and finds it insufficient to support the defendants' legal contentions, the parol evidence issue need not be decided.
The undersigned [CDC and CLS] acknowledge and agree that the Purchase Agreement may be amended or modified by TCC and Miles, Inc., and conditions of the parties thereunder to close may be modified, amended or waived by TCC or Miles, Inc. without any further approval or consent from the undersigned [i.e., CDC and CLS] . . .
The consent language makes it clear that (a) the terms of the CTI sale consent are governed by the Miles Purchase Agreement, and (b) if TCC and Miles chose to amend or modify that Agreement, the amendments or modifications would be binding upon CDC (and CLS) without any further need to obtain those parties' approval. It is evident from the breadth and generality of the consent language that the parties intended for the consent to endure so long as the Miles Purchase Agreement remains in force. Thus, if the Miles Purchase Agreement were modified to extend the "last day to close" beyond March 31, 1989 (as has now thrice occurred), that modification would bind CDC and CLS.
The only exception, not relevant here, would involve a material reduction in the purchase price. Even in that case, no further consent by CDC or CLS would be required if TCC obtains an opinion from a nationally recognized investment banking firm as to the fairness of the transaction.
Nor is there persuasive extrinsic evidence that requires a different result. The extrinsic evidence, if credited, shows (at most) that CDC and CLS believed that (a) the consent would not endure beyond March 31, 1989, and (b) the consent language permitting amendments and modifications to the Miles Purchase Agreement applied only to trivial, technical, or minor provisions thereof. But that evidence does not go far enough. If such were the defendants' beliefs, they were totally subjective and were never communicated or otherwise manifested to TCC, either orally or in writing, during the negotiations leading up to the October 21, 1988 settlement agreements. Finally, there is no persuasive evidence that TCC shared (let alone assented to) the defendants' professed belief that the consents would legally expire on March 31, 1989 and could not be extended by amending the Miles Purchase Agreement. Contracts must be founded upon expressions of intent that are manifested and communicated, not those that are uncommunicated or disguised. See Warner Communications, Inc. v. Chris Craft Indus., Del. Ch., C.A. No. 10817, Allen, C. (May 15, 1989); Mesa Partners v. Phillips Petroleum Co., Del. Ch., C.A. No. 7871, Walsh, V.C. (December 20, 1984).
The defendants point to various expressions and statements made by TCC or its representatives (including TCC's October 12, 1988 Form 10K, See Miles Exhibit 4) as evidence that TCC also believed that the Miles Purchase Agreement would expire on March 31, 1989. There is little doubt that between October, 1988 and January, 1989, TCC sincerely did entertain the belief and expectation that the CTI transaction would close, at the latest, by March 31, 1989. However, that evidence does not prove that TCC believed or understood that the Miles Purchase Agreement could not be amended to extend that closing date, or that any such extension would not bind CDC and CLS.
Second, the evidence is insufficient to establish the defendants' proposition that March 31, 1989 marks the outer limit of a "reasonable time" for the consents' duration. The common law contract principle that would impose a "reasonable time" limitation might conceivably come into play if the Miles Purchase Agreement were to remain executory for an excessive period, and thereby threaten some legitimate preferred shareholder or other cognizable interest. But this is not such a case, nor is that scenario likely to occur. Here the delay has been less than three months. To induce Miles to grant its latest 30 day extension, TCC had to consent to a $21 million reduction in the purchase price. The likelihood that any further extensions would be similarly costly gives TCC every economic inducement to close as soon as possible.
No reason has been shown why the consents should not remain binding for the time needed to consummate this critical transaction. That is what the written consents contemplate, and there is no demonstrated equity or similar circumstance (such as detrimental reliance by the defendants or a third party) that would justify according talismanic significance to the March 31 date. That date was simply the originally agreed upon "last date to close" under the Miles Purchase Agreement. The contracting parties who chose that date (TCC and Miles) have the undoubted contractual power to modify it, and indeed they did so on three separate occasions. A finding that the consents expired on March 31, 1989 would effectively nullify those parties' contract modifications, as well as the CDC/CLS consents whose terms are governed by those contract modifications.
B.
The defendants next argue that the consents expired on December 20, 1988, 60 days after they were delivered to TCC, by reason of 8 Del. C. § 228(c), which pertinently provides:
[N]o written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the corporation. . . .
The defendants' argument runs as follows: Section 228(c) provides that written stockholder consents in lieu of action taken at a meeting will automatically expire, unless written consents "signed by a sufficient number of holders or members to take action" are delivered to the corporation within the 60 day period specified by the statute. The "corporate action" referred to in the October 21, 1988 consents, were (respectively) the approval of the sale of CTI, and the authorization for the proposed certificate amendment. Because neither of those corporate actions could be achieved without the concurrent approval of TCC's common shareholders, and because common shareholder approval was not obtained within the 60 day period, the defendants conclude that the consents failed to become "effective to take the corporate action referred to therein." Therefore, they argue, the consents expired on December 20, 1988,i.e., 60 days after their delivery to TCC.
That argument fails, because even if § 228 is assumed to be applicable in this context, the defendants misinterpret its requirements. Section 228(c) requires the delivery of "consents signed by a sufficient number of holders or members to take action." The term "action" in that particular sentence refers to "the corporate action referred to therein," that is, the action referred to in the consent itself. 8 Del. C. § 228(c). The "corporate action[s]" referred to in the consents at issue here are the approval of the holders of TCC's preferred stock of the sale of CTI to Miles and of the proposed certificate amendment. CDC and CLS are the owners of 100% of the TCC preferred stock. Therefore, their written consent was all that was required "to take action" within the meaning of 8 Del. C. § 228(c).
The plaintiff argues that § 228 does not apply to consents given in the context of a negotiated commercial transaction to which the corporation is a party, but, rather applies only to consents furnished in lieu of a stockholders' meeting involving the corporation's internal affairs. The Court's ruling assumes without deciding that § 228 is applicable, and leaves for another day the question of that statute's transactional reach.
The Court also notes in passing that the defendants' § 228 argument is inconsistent with their contractual intent argument (and with Mr. Montgomery's March 21 letter to TCC) that the consents expired on March 31, 1989. That position also appears fatally inconsistent with Mr. Montgomery's testimony that as of October 21, 1988, all parties looked forward to a closing on January 31, 1989 — an event that would have made no sense if (as defendants now argue) the consents had expired on December 20, 1988, five weeks earlier.
C.
The defendants next argue that the consents should be denied effect in equity, because they (CDC and CLS) were induced to give the consents on the basis of misrepresentations made by TCC's Co-Chairman. The misrepresentations are said to consist of various statements to CDC and CLS, the clear and intended import of which was that the CTI sale proceeds would be used (among other purposes) to repurchase or redeem the TCC preferred stock. Defendants argue that although those representations fell short of a contractual commitment, they amounted to a violation of TCC's fiduciary duty of candor owed to the defendants as preferred shareholders, and constitute a sufficient basis for this Court to avoid the consents on fiduciary and contractual grounds.In response TCC argues that it owed no fiduciary duty, because it did not deal with CDC and CLS as a fiduciary but, rather, as an adversary in a commercial, arm's length bargaining relationship where both sides were independently represented by legal counsel. TCC further argues that even if it owed a duty to the defendants, no duty was violated, because TCC representatives made no misrepresentations of any kind during the negotiations.
I find it unnecessary to address the legal issues raised by these arguments, because the defendants' effort to avoid their consents on equitable grounds founders on the facts and the evidence. The defendants have failed to prove that TCC (mis) represented that the CTI sale proceeds would be used to redeem or repurchase the TCC preferred stock. All the evidence shows, as the Court has found, is that TCC represented that at a future time, when it was free of its debt covenant restrictions, TCC would sit down with CDC and CLS and attempt to negotiate a redemption or repurchase transaction of some kind. Apparently because TCC was unable to make a more definitive or concrete commitment, CDC and CLS were able to secure TCC's agreement to register its preferred stock. Thus, that even though there could be no assurance that the preferred stock would be repurchased or redeemed, at least that stock would be made marketable.
Finally, it appears that TCC has, in fact, attempted to negotiate a repurchase or redemption transaction with the defendants, but thus far the parties have been unable to reach an accord. That the negotiations did not succeed cannot transform TCC's statements into material misrepresentations that would serve as a basis for the defendants to now avoid their written consents.
D.
Finally, the defendants argue that TCC's application for specific performance should be denied, because TCC failed to satisfy its obligation to register the preferred stock pursuant to the October 21, 1988 settlement agreements. CDC and CLS seek to rely upon the principle that specific performance will not be granted to a party that fails to show substantial performance on its part. See Safe Harbor Fishing Club v. Safe Harbor Realty Co., Del. Ch., 107 A.2d 635, 638 (1953).
I find it unnecessary to address this contention, because the defendants advance it only as a defense to TCC's claim for specific performance, i.e., for an order directing CDC and CLS to execute new consents. Because the Court has found that the October 21, 1988 consents are valid and effective, there is no need to require the defendants to execute new ones. In this instance declaratory relief is a sufficient remedy. Therefore, no useful purpose would be served by adjudicating a defense to a remedy (specific performance) that will not be granted.
Furthermore, to address the "failure to register" argument at this stage would be unwise, because that dispute is the subject of a counterclaim that the defendants intend to pursue in a separate trial. By agreement of the parties, that counterclaim was severed from the issues recently tried. If that counterclaim is to be prosecuted, considerations of judicial economy counsel that its merits be addressed once, not twice. At this stage any expression of a judicial viewpoint on the "failure to register" defense would amount essentially to a dry run of the Court's later consideration of the same "failure to register" issue, reincarnated as an affirmative claim. In addition to being unnecessary, that approach would generate a new set of potential procedural complications (e.g., law of the case and collateral estoppel issues) that, if possible, should be avoided.
V.
For the reasons set forth, the defendants' motion to dismiss is denied, and judgment will be entered in the plaintiff's favor declaring the October 21, 1988 consents at issue legally valid and effective. Counsel shall submit an appropriate form of order.