Presenting a live 90-minute webinar with interactive Q&A Director Duties in M&A Transactions After Chen v. Howard-Anderson Navigating Recent Developments in Delaware Fiduciary Law, Revlon Duties and 102(b)(7) Exculpatory Provisions TUESDAY, DECEMBER 16, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Jeffrey R. Wolters, Partner, Morris Nichols Arsht & Tunnell , Wilmington, Del. Ryan A. McLeod, Attorney, Wachtell Lipton Rosen & Katz , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Navigating Recent Developments in Delaware Fiduciary Law, Revlon Duties and 102(b)(7) Exculpatory Provisions December 16, 2014 Ryan A. McLeod Jeffrey R. Wolters RAMcLeod@wlrk.com jwolters@mnat.com MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Agenda I. Introduction II. Factual Background New Castle County Courthouse III. Procedural Background and Posture IV.Key Holdings V. Implications for Revlon Review VI.Implications for Disclosure Practice VII.Conclusions 6 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background Occam was a DE corporation headquartered in • CA that developed, marketed, and supported products for the broadband access market. Occam’s board consisted of seven directors. • Two of the directors (Krausz and Abbott) were • affiliated with investment funds that held 25% of Occam’s stock. 7 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background In 2009, Occam engaged Jeffries & Co. for advice • on potential strategic transactions. The board believed growth was necessary to enable Occam to compete, and it concluded its options were organic growth, acquisitions, or a strategic combination. Through 2009 and into 2010, Occam explored • strategic options. 8 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background The summary judgment record showed that Occam • treated its potential strategic partners differently throughout the sales process. Plaintiffs argued that this suggested Occam, and in • particular its directors affiliated with the 25% investors, favored Calix. Plaintiffs stressed that Occam held friendly meetings • with Calix resulting in proposed merger terms but rebuffed Adtran’s requests for information. And discovery suggested that Calix was willing to pay • more and had inside information. 9 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background The summary judgment record also showed that • Occam’s management created financial projections throughout the sales process. The projections showed robust growth and • substantially exceeded the estimates based on publicly available information. The Vice Chancellor found that the projections were • not given to the bidders and that “ it is reasonable to infer that if Adtran had received the June Projections, then Adtran would have valued Occam more highly and been a more persistent suitor .” 10 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background By June 2010, Occam had received two potential bids: • Adtran: all-cash at a 30-35% market premium • Midpoint equates to $8.60 per share • Calix: $7.72 per share in cash/stock mix • When the board met in June, it was told by Jeffries that • the two bids were equivalent for “illustrative purposes.” In their depositions, the directors could not recall if the • board ever knew that Adtran’s bid was 11% higher. Moreover, Jeffries did not have access at this time to • management’s projections. 11 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background Right before the July 4 holiday, the board instructed the • CEO to give Adtran a 24-hour deadline to make a firm offer. Adtran witnesses testified that this was a “24 -hour gun • to our head” and that it precluded Adtran from making a firm offer. The board also instructed Jeffries to conduct a “24 -hour • market check.” Jeffries sent emails to seven bidders. They did not • mention Occam by name. Five responded saying they were interested but needed more time. 12 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background Occam granted exclusivity to Calix, and extended this • exclusivity even as Occam outperformed. As Jeffries worked on a fairness opinion, it pushed • management for internal projections. Occam provided projections, but revised them • downward and deleted all projections for 2012. Management also did not revise projections to take account of more recent positive business developments. 13 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Factual Background In September 2010, Occam Networks and Calix, • Inc. agreed to a transaction in which Calix would acquire Occam for a mix of cash and stock. Occam stockholders received $3.83 in cash and • 0.2925 shares of Calix stock –– $7.75 in value (49.6% cash). This amounted to an approximate 60% market • premium. 14 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Procedural Posture The transaction was challenged by stockholders • holding approximately 19% of the common stock. In January 2011, the Court of Chancery issued a • preliminary injunction blocking the deal from going to a vote until corrective disclosures were made. Once the disclosures were made, stockholders • approved the transaction (64% in favor, but only 50.5% of shares not bound by support agreements). The parties then took additional discovery (over 20 • depositions and over 60,000 pages of documents) 15 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Procedural Posture Defendants moved for summary judgment. • Rule 56 provides for judgment if “there is no • genuine issue as to any material fact.” The movant bears the initial burden, but, if met, the non- moving party must adduce “some evidence of a dispute of material fact.” Court must view all evidence in the light most • favorable to the non-moving party. 16 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Procedural Posture On April 8, 2014, Vice Chancellor • Laster issued a 78-page decision granting in part and denying in part the summary judgment motion. Vice Chancellor J. Travis Laster 17 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Key Holdings DISCLOSURES SALE PROCESS Proxy failed to disclose • Revlon reasonableness • reliable internal review applies to the management projections. transaction despite split cash/stock consideration Proxy inaccurately described • information available to Certain board actions in the • Jeffries. sales process fell outside range of reasonableness Proxy inaccurately described • sales process. Directors, but not officers, • were exculpated from Directors knowingly • liability by 102(b)(7) provision approved false disclosures because no evidence of (thus no exculpation) improper motive 18 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Implications for Revlon Review What is the standard? • “Enhanced scrutiny” standard of review • Did board act reasonably to maximize value; • “range of reasonableness” When does the standard apply? • 49.6% cash deal • What are the potential remedies? • Pre-closing: injunction • Post-closing: damages • Stockholder vote may effectively cure if fully • informed 19 MORRIS, NICHOLS, ARSHT & TUNNELL LLP
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