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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9/A
(AMENDMENT NO. 4)
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
------------------------
BRC HOLDINGS, INC.
(Name of Subject Company)
------------------------
BRC HOLDINGS, INC.
(Name of Person(s) Filing Statement)
------------------------
COMMON STOCK $.10 PAR VALUE
(Title of Class of Securities)
227174-10-9
(CUSIP Number of Class of Securities)
------------------------
JERROLD L. MORRISON
PRESIDENT AND CHIEF OPERATING OFFICER
BRC HOLDINGS, INC.
1111 W. MOCKINGBIRD LANE, SUITE 1400
DALLAS, TEXAS 75247-5014
(214) 688-1800
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications on Behalf of the Person(s) Filing
Statement)
WITH COPIES TO:
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JEFFERY M. SONE, ESQ. CHARLES S. GILBERT, ESQ.
ARTER & HADDEN, LLP JACKSON WALKER L.L.P
1717 MAIN STREET, SUITE 4100 901 MAIN STREET, SUITE 6000
DALLAS TX 75201-4605 DALLAS, TEXAS 75202
(214) 761-2100 (214) 953-6000
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This Amendment No. 4 to the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Statement") relates to the tender offer (the "Offer")
disclosed in a Tender Offer Statement on Schedule 14D-1, dated October 23, 1998
(the "Schedule 14D-1") of ACS Acquisition Corporation, a Delaware corporation
(the "Purchaser") and a wholly-owned subsidiary of Affiliated Computer Services,
Inc., a Delaware corporation ("ACS"), for 8,704,238 shares of Common Stock, par
value $.10 per share (the "Shares"), of the Company. The purpose of this
Amendment No. 4 is to amend and supplement Items 3, 4, 8 and 9 of the Schedule
14D-9 as described below.
ITEM 3. IDENTITY AND BACKGROUND.
Item 3 is hereby amended and supplemented by the addition of the following:
As previously described in Item 4 of Schedule 14D-9, over the preceding
three years, Paul Stoffel, in his capacity as Chairman of Paul Stoffel Capital
Corp., contacted certain third parties regarding the possibility of entering
into a material business transaction involving the Company and engaged in
certain other activities with regard thereto. As described in Item 3 of the
Schedule 14D-9, Mr. Stoffel undertook these activities with the expectation of
receiving compensation should his efforts result in a transaction, although no
written contract regarding these matters was entered into between Mr. Stoffel
and the Company until October 18, 1998. During May of 1998, P. E. Esping, the
Chairman of the Board and Chief Executive Officer of the Company, suggested that
the Company's Board consider retaining a nationally recognized investment
banking concern for the purpose of soliciting acquisition proposals for the
Company. The Board authorized Mr. Esping to interview investment banking firms
and to report to the Board his recommendation regarding whether or not to retain
such a firm. In the event that the Company were to have retained an investment
banking concern, it was the Board's expectation that Mr. Stoffel would continue
to be authorized to seek potential bidders for the Company and receive
compensation should his efforts result in a transaction. It was the Board's
expectation, however, that Mr. Stoffel would not receive compensation in the
event that the Company engaged in a transaction with a third party attracted
solely as a result of the efforts of investment bankers retained by the Company.
Mr. Stoffel also believed that he was unlikely to receive any compensation for a
transaction arising solely from the efforts of any third party investment
banking firm. Prior to his death on June 30, 1998, Mr. Esping conducted an
interview with at least one, and possibly as many as three, nationally
recognized investment banking firms, but did not transmit any recommendation to
the Board of the Company regarding this matter before he died. Following Mr.
Esping's death, the Board continued to believe that interviewing investment
bankers to assist with a possible sale of the Company was appropriate. However,
no further steps were taken by or on behalf of the Company to retain investment
bankers to solicit interest from third parties regarding a transaction with the
Company.
Prior to his death, Mr. Esping was the Company's principal representative in
conducting discussions with third parties regarding a potential business
transaction with the Company, including discussions with ACS. Following Mr.
Esping's death, Mr. Stoffel became responsible for supervising the Company's
contacts with all third parties regarding possible transactions, including
contacts with third parties not initially identified by Mr. Stoffel. In that
role, Mr. Stoffel was the Company's principal representative in the negotiations
between the Company and ACS, which resulted in the Offer. As previously
disclosed in Item 3 of Schedule 14D-9, Mr. Stoffel expected to receive
compensation if his efforts resulted in a transaction between ACS and the
Company.
ITEM 4. THE SOLICITATION AND OR RECOMMENDATION.
Item 4(a) is hereby amended and supplemented by the addition of the
following:
As previously disclosed in Item 4 of Schedule 14D-9, ACS proposed, on July
1, 1998, to acquire the Company for $21.00 per Share, subject to satisfactory
due diligence, negotiation of a definitive merger agreement and approval of the
respective Boards of Directors of ACS and the Company. In anticipation of
1
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an offer from ACS, on or about July 2, 1998, Mr. Stoffel first contacted
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to discuss engaging
that firm to render an opinion regarding the fairness, from a financial point of
view, to the stockholders of the Company of the consideration to be received in
a business combination between the ACS and the Company. DLJ indicated that it
would begin work in anticipation of a meeting of the Company's Board to occur
the following week. In connection with its efforts, DLJ discussed with Mr.
Stoffel his efforts to attract the interest of potential bidders for the
Company. In addition to the companies previously contacted by Mr. Stoffel on
behalf of the Company, DLJ suggested that the Company consider contacting a
major information technology provider about any interest it might have in
acquiring the Company. Mr. Stoffel contacted the company identified by DLJ, and
following an initial expression of interest, provided it with nonpublic
information concerning the Company. The company identified by DLJ has not
responded to further contacts from the Company.
In a meeting with the Company's Board on July 8, 1998, representatives of
DLJ stated that DLJ was proceeding with its work in connection with the
preparation of the opinion requested by the Company's Board of Directors.
Furthermore, representatives of DLJ indicated on a preliminary basis that, if
DLJ were formally engaged by the Company and assuming that the consideration to
be received by the stockholders of the Company in a business combination with
ACS would be $21.00 per share in cash, DLJ expected to be in a position to
render an opinion that such consideration was fair to the stockholders of the
Company from a financial point of view, subject to (i) satisfactory completion
by DLJ of its financial and business due diligence review, (ii) review and
consideration by DLJ of the structure and terms of the transaction as set forth
in a merger agreement or other definitive agreements between the Company and ACS
and (iii) completion of DLJ's internal committee procedures, including approval
of the opinion to be rendered by DLJ by its fairness opinion committee. At the
time DLJ gave such preliminary indication to the Company's Board of Directors,
the Company had not yet received from ACS a draft of the merger agreement or any
other definitive agreements and, accordingly, DLJ had not been provided with any
information regarding the structure or terms of the transaction other than the
proposed $21.00 per share price. Following this meeting with the Company's
Board, however, as previously disclosed in Item 4(a) of Schedule 14D-9, ACS
informed the Company that it was not interested in pursuing a transaction with
the Company. As a result of the termination of discussions with ACS, the Board
did not formally engage DLJ in July of 1998. Mr. Stoffel ultimately contacted
DLJ again in October 1998 to discuss engaging DLJ to render an opinion regarding
the fairness, from a financial point of view, of the consideration to be
received by holders of the Shares in a business combination between ACS and the
Company. The Company's Board of Directors authorized the engagement of DLJ for
this purpose and DLJ was formally engaged on October 15, 1998.
Item 4(b) is hereby amended and supplemented by the addition of the
following:
Following the death of Mr. Esping, certain significant stockholders of the
Company, including Kathryn Ayers Esping, Mr. Esping's widow and the Independent
Executor of his estate, indicated to members of the Board of Directors,
including Mr. Stoffel and Mr. Masterson, that as a result of Mr. Esping's death,
they were interested in liquefying their respective investments in the Company.
Although none of these stockholders proposed a specific transaction to the
Company or the Board, in reviewing the Offer and the Merger, the Board discussed
its understanding that Mrs. Esping and other stockholders of the Company were
interested in obtaining liquidity for their investments in the Company. In
addition, the Board also considered the fact that as a result of Mr. Esping's
death, the Company had lost its Chief Executive Officer and that it would be
necessary, if the Company were to continue as an independent business, to locate
a suitable replacement for Mr. Esping. The interest of certain of the Company's
stockholders in obtaining liquidity for their investment in the Company and the
need to replace Mr. Esping as chief executive officer of the Company, if the
Company were to remain independent, were factors considered by the Board in
reaching its decision to approve the Offer and the Merger Agreement.
2
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 is hereby amended and supplemented by the addition of the following:
STOCKHOLDER LITIGATION. As previously disclosed in Item 8 of Schedule
14D-9, a putative class action entitled Matador Capital Management Corporation,
Everglades Partners, L.P., Everglades Offshore Fund, Ltd. and Contrarian
Opportunities Fund, L.P. v. BRC Holdings, Inc., ACS Acquisition Corporation,
Affiliated Computer Services, Inc., Paul T. Stoffel, L. D. Brinkman, Robert D.
Masterson and David H. Monnich, C.A. 16758-NC was filed on October 30, 1998, in
the Court of Chancery of the State of Delaware against the Company, its
directors and the Purchaser and ACS by Matador Capital Management and related
companies ("Matador") seeking, among other things, to enjoin the Offer and the
Merger. A hearing on Matador's motion for an order preliminarily enjoining the
Offer and the Merger was held on November 20, 1998. On November 25, 1998 the
Court of Chancery issued an opinion and a related order (the "Opinion") denying
Matador's motion for a preliminary injunction except insofar as it sought to
require the disclosure and dissemination of certain additional information
outlined in the Opinion to the Company's stockholders. On December 2, 1998, the
Court of Chancery entered a further order (the "Order") approving the contents
of this amendment and supplement to the Company's Schedule 14D-9 and permitting
the Offer to be consummated on December 14, 1998, following dissemination of
this Amendment No. 4 to the Company's Schedule 14D-9 to the Company's
stockholders. The Opinion and the Order are attached as Exhibits 19 and 24,
respectively, to this Amendment No. 4 to the Company's Schedule 14D-9 and are
incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented as follows:
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Exhibit 1 Agreement and Plan of Merger, dated October 18, 1998, among ACS,
the Company and Purchaser.(2)(4)
Exhibit 2 Transitional Compensation Agreement, dated October 9, 1998,
between the Company and Jerrold L. Morrison.(2)(4)
Exhibit 3 Transitional Compensation Agreement, dated October 9, 19981,
between the Company and Harvey Braswell.(2)(4)
Exhibit 4 Transitional Compensation Agreement, dated October 9, 1998,
between the Company and Thomas E. Kiraly.(2)(4)
Exhibit 5 Transitional Compensation Agreement, dated October 9, 1998,
between the Company and Bernard J. Owens.(2)(4)
Exhibit 6 Agreement, dated October 18, 1998, between the Company and Paul
T. Stoffel.(2)(4)
Exhibit 7 Stock Tender Agreement, dated October 19, 1998, by and between
ACS, Purchaser and each of Paul T Stoffel, individually, and
Kathryn Ayres Esping, individually and as Independent Executor of
the Estate of PE. Esping and as Director of the Esping Family
Foundation.(2)(4)
Exhibit 8 Letter, dated October 23, 1998, to the stockholders of the
Company from the Chief Operating Officer of the Company.(l)(4)
Exhibit 9 Opinion of Donaldson Lufkin & Jenrette, dated October 18,
1998.(l)(4)
Exhibit 10 Press Release by the Company, dated October 19, 1998.(2)(4)
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3
<PAGE>
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Exhibit 11 Complaint--Matador Capital Management Corporation, Everglades
Partners, L.P., Everglades Offshore Fund, Ltd. and Contrarian
Opportunities Fund, L.P. v. BRC Holdings, Inc., ACS Acquisition
Corporation, Affiliated Computer Services, Inc., Paul T Stoffel,
L. D. Brinkman, Robert E. Masterson and David H. Monnich, C.A.
No. 16758-NC (Del. Ch., filed October 30, 1998).(2)(4)
Exhibit 12 Press Release by the Company, dated November 2, 1998.(2)(4)
Exhibit 13 Press Release by ACS, dated November 16, 1998.(2)(4)
Exhibit 14 Letter dated November 16, 1998 from ACS and Purchaser to the
Company.(2)(4)
Exhibit 15 Letter dated November 16, 1998, to the stockholders of the
Company from the Chairman of the Board of the Company.(1)(5)
Exhibit 16 Press Release by the Company, dated November 17, 1998.(2)(5)
Exhibit 17 Press Release by ACS, dated November 25, 1998.(2)(5)
Exhibit 18 Press Release by the Company, dated November 25, 1998.(2)(5)
Exhibit 19 Opinion, dated November 25, 1998, In the Court of Chancery of the
State of Delaware in and for New Castle County.(2)(5)
Exhibit 20 Letter dated November 30, 1998 from ACS and Purchaser to the
Company.(2)(5)
Exhibit 21 Letter dated December 2, 1998, to the stockholders of the Company
from the Chairman of the Board of the Company.(1)(5)
Exhibit 22 Press Release by ACS, dated December 1, 1998.(2)(5)
Exhibit 23 Press Release by ACS, dated December 1, 1998.(2)(5)
Exhibit 24 Order, dated December 2, 1998, In the Court of Chancery of the
State of Delaware in and for New Castle County.(2)(5)
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(1) These documents were included in the materials mailed to stockholders
pursuant to the Offer.
(2) These documents were filed with the Securities and Exchange Commission as
exhibits to this Statement, but were not included in the mailing to
stockholders. Such documents and other information may be inspected at the
public reference facilities maintained by the Securities and Exchange
Commission (the "Commission") at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports and other
information regarding registrants that file electronically with the
Commission. Such material may also be inspected at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
(3) Schedules to this Agreement have been omitted but description of such
schedules may be found in the Agreement where referred to. The Company
hereby undertakes to provide copies of such omitted schedules to the staff
of the Commission upon request.
(4) Previously filed.
(5) Filed herewith.
4
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SIGNATURE
AFTER REASONABLE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I
CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND
CORRECT.
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BRC HOLDINGS, INC.
By: /s/ THOMAS E. KIRALY
-----------------------------------------
Thomas E. Kiraly
CHIEF FINANCIAL OFFICER
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Date: December 2, 1998
5
<PAGE>
BRC HOLDINGS, INC.
1111 W. MOCKINGBIRD LAND, SUITE 1400
DALLAS, TEXAS 75247-5014
November 16, 1998
Dear Fellow Stockholders:
As you know, on October 19, 1998, BRC Holdings, Inc. (the "Company") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Affiliated
Computer Services, Inc. ("Parent") and ACS Acquisition Corporation, a wholly
owned subsidiary of Parent ("Purchaser"). Pursuant to the Merger Agreement, the
Purchaser has commenced a tender offer (the "Offer") to purchase 8,704,238
shares (the "Shares") of the Company's common stock, par value $0.10 per share
(the "Common Stock"), which is approximately 51%, on a fully diluted basis, of
the outstanding shares of Common Stock, for a price of $19.00 per Share, net to
the seller in cash without interest. The Offer, and a contemplated follow on
merger of the Purchaser with and into the Company are more particularly
described in the Offer to Purchase, dated October 23, 1998 of Purchaser and
Parent and the related Schedule 14D-9, as amended, of the Company.
The accompanying Supplement to the Offer to Purchase and Schedule 14D-9/A
(Amendment No. 3) are each intended to provide additional information related to
the Offer and should be read in connection with the Purchaser's Offer to
Purchase and the Company's amended Schedule 14D-9.
Very truly yours,
Paul Stoffel
CHAIRMAN OF THE BOARD
<PAGE>
[LOGO]
Corporate Office
BRC Holdings, Inc.
1111 W. Mockingbird Lane
Suite 1400
Dallas, Texas 75247-5014
Tel 214.688.1800
FOR IMMEDIATE RELEASE
Contact: Thomas Kiraly
Executive Vice President &
Chief Financial Officer
(214) 905-2370
BRC UNAWARE OF ANY COMPETING OFFER
Dallas, Texas, November 17, 1998 - BRC Holdings, Inc. (NASDAQ -BRCP) said today,
in response to inquiries, that it is unaware of any outstanding offer for its
common stock competing with the offer previously made by Affiliated Computer
Services, Inc. ("ACS") on October 23, 1998, and encouraged its stockholders to
carefully review the various materials distributed to them in connection with
ACS's tender offer.
<PAGE>
[ACS LOGO] NEWS RELEASE
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FOR IMMEDIATE RELEASE
CONTACTS:
Mark A. King
EVP and CFO
ACS
(214) 841-8007
ACS RECEIVES FAVORABLE COURT RULING ON BRC ACQUISITION
- SUPPLEMENTAL DISCLOSURE TO EXTEND TENDER OFFER TO MID DECEMBER -
DALLAS, TEXAS -- November 25, 1998 -- ACS (Affiliated Computer Services, Inc.;
NYSE: AFA) announced today that it intends to proceed to complete its tender
offer for 8,704,238 shares of the common stock of BRC (BRC Holdings, Inc.;
NASDAQ: BRCP) at $19.00 per share. The announcement follows a ruling by the
Delaware Chancery Court which conditionally denied the previously announced
motion, filed by Matador Capital Management Corp. (a minority shareholder),
which sought to enjoin the tender offer. ACS also announced that it has been
informed that BRC intends to provide additional information to shareholders of
BRC, regarding certain details of the transaction, as required by the court.
Jeff Rich, President and COO of ACS, said "The court's ruling was an important
recognition of the circumstances surrounding this transaction. Specifically,
the court said in its opinion that "Based on the record before me, it would
violate this well-settled principle for me to enjoin a premium cash transaction
where no competing bid has emerged and where I do not find a probability of
success on the merits of the breach of fiduciary duty claims." Mr. Rich also
stated that "We expect the completion of the tender offer to occur in
mid-December at the original $19 purchase price, per amended disclosure
statements which will be filed as soon as possible by ACS and BRC in connection
with the court's ruling. The favorable ruling also paves the way for the
completion of the merger upon closing of the tender offer." Mr. Rich also
commented, "Fortunately for BRC's shareholders, we are well on our way to
receiving enough shares from shareholders who recognize the value of our offer,
and have tendered their shares in order to finalize the deal. ACS will announce
shortly exact dates of the extension of the tender offer and the date on which
the final merger will occur. Upon completion of the tender offer, we understand
that BRC intends to promptly send a proxy statement to BRC's other shareholders,
and to hold a shareholder meeting and close the final merger in early January."
ACS is based in Dallas, Texas, and has operations primarily in North America, as
well as Central America, South America, Europe and the Middle East. ACS
provides a full range of business services including technology outsourcing,
business process outsourcing, electronic commerce,
<PAGE>
professional services and systems integration. The Company's Class A common
stock trades on the New York Stock Exchange under the symbol "AFA." Visit
ACS on the Internet at www.acs-inc.com.
BRC Holdings Inc., based in Dallas, Texas, is an information technology services
firm with 30 years experience providing consulting, project management,
technical support and system services that enable its clients to achieve their
strategic and operational objectives. BRC specializes in information technology
outsourcing, consulting, information systems, and document management. For more
information about BRC, visit the company's web site at www.brcp.com.
<PAGE>
[LOGO]
Corporate Office
BRC Holdings, Inc.
1111 W. Mockingbird Lane
Suite 1400
Dallas, Texas 75247-5014
Tel 214.688.1800
FOR IMMEDIATE RELEASE
Contact: Thomas Kiraly
Executive Vice President &
Chief Financial Officer
(214) 905-2370
BRC RECEIVES COURT RULING ON MOTION FOR INJUNCTION
Dallas, Texas, November 25, 1998 -- BRC Holdings, Inc. (NASDAQ - BRCP)("BRC")
said today that it has received notice from the Delaware Chancery Court, that
the Court will allow Affiliated Computer Services, Inc. ("ACS") to complete its
tender offer for 8,704,238 shares of BRC's common stock, provided that BRC
furnishes additional disclosure information to its shareholders in connection
with the offer. In the order, which was issued in connection with a lawsuit
filed by a minority shareholder, Matador Capital Management Corporation
("Matador"), the Court denied Matador's motion for an injunction of the offer,
except to the extent that it required BRC to provide additional disclosure
materials. BRC stated that it will provide additional materials to shareholders
promptly.
BRC, based in Dallas, Texas, is an information technology services firm with
thirty years experience in providing consulting, project management, technical
support and systems services that enable its clients to achieve their strategic
and operational objectives. BRC specializes in information technology
outsourcing, consulting, information systems and document management. BRC is
ITAA*2000 certified. For more information about BRC, visit the Company's web
site at www.brcp.com.
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MATADOR CAPITAL MANAGEMENT )
CORPORATION, EVERGLADES PARTNERS, )
L.P., EVERGLADES OFFSHORE FUND, LTD., )
CONTRARIAN OPPORTUNITIES FUND, L.P., )
)
Plaintiffs, )
)
v. ) C. A. No. 16758
)
BRC HOLDINGS, INC., ACS ACQUISITION )
CORPORATION, AFFILIATED COMPUTER )
SERVICES, INC., PAUL T. STOFFEL, L.D. )
BRINKMAN, ROBERT E. MASTERSON, and )
DAVID H. MONNICH, )
)
Defendants. )
OPINION
Date Submitted: November 20, 1998
Date Decided: November 25, 1998
William D. Johnston, Esquire, Bruce L. Silverstein, Esquire (argued), Christian
Douglas Wright, Esquire, of YOUNG, CONAWAY, STARGATT & TAYLOR, Wilmington,
Delaware; OF COUNSEL: Leon P. Gold, Esquire (argued), Scott A. Eggers, Esquire,
of PROSKAUER ROSE, New York, New York; Attorneys for Plaintiffs.
Ronald A. Brown, Jr., Esquire (argued), of PRICKETT, JONES, ELLIOTT, KRISTOL &
SCHNEE, Wilmington, Delaware; OF COUNSEL: Retta A. Miller, Esquire, of JACKSON
WALKER L.L.P., Dallas, Texas; Attorneys for Individual Defendants and BRC.
A. Gilchrist Sparks, III, Esquire (argued), Alan J. Stone, Esquire, Christopher
Carlton, Esquire, of MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware;
Attorneys for Defendants ACS and Affiliated Computer.
Lamb, Vice Chancellor
1
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I. INTRODUCTION
Plaintiffs Matador Capital Management Corporation, Everglades Partners,
L.P., Everglades Offshore Fund, Ltd., and Contrarian Opportunities Fund, L.P.
(collectively, "Plaintiffs"), filed this action seeking to enjoin the
performance of the Agreement and Plan of Merger ("Agreement"), dated October 20,
1998, between defendants Affiliated Computer Services, Inc. and ACS Acquisition
Corporation (collectively, "ACS") and defendant BRC Holdings, Inc. ("BRC"), in
which ACS proposes to acquire BRC in a two-step acquisition. A hearing on
plaintiffs' motion for a preliminary injunction against the consummation of the
first-step partial tender offer was held on November 20, 1998. For the reasons
discussed, INFRA, plaintiffs' application is granted to the limited extent of
requiring the dissemination to the stockholders of certain additional
disclosures.
A. FACTUAL HISTORY
1. BRC
BRC, formerly known as Business Records Corporation, is a Delaware
corporation engaged in the business of providing computer services, products and
software to county and local governments, primarily for use in land title
recording and political elections. During the 1990s, BRC expanded its business
to include other information technology products and services, the main focus of
which is the provision of computer outsourcing services to local governments and
clients in the healthcare industry.
As of October 21, 1998, BRC had over 13 million outstanding shares of
common stock trading on NASDAQ. Approximately 20% of such stock is controlled
by Kathryn Esping ("Mrs. Esping"), widow of P.E. Esping ("Esping"), BRC's
Chairman and Chief Executive Officer ("CEO") from 1988 until his death on June
30, 1998.
2
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The current BRC board of directors is composed of four persons, all
individual defendants in this action. In September of 1998, Paul Stoffel
("Stoffel"), a BRC director since 1989, was elected Chairman of the Board.
Stoffel is also the Chairman of Paul Stoffel Capital Corporation, an investment
banking firm. Besides Stoffel, the other three members of the board are: L.D.
Brinkman, Robert E. Masterson ("Masterson"), and David H. Monnich ("Monnich").
The latter three are all outside directors. Between them, the directors hold
approximately 3.2% of BRC's outstanding stock, the majority held by Stoffel, who
owns 307,460 shares together with options to acquire an additional 60,000.
BRC's financial results during the past four years have shown only limited
revenue growth, increasing from $101.5 million in 1994 to $107.5 million in
1997. During this time period, the company's profitability has been
inconsistent, increasing from $8.6 million in 1994 to $11.0 million in 1995, but
then decreasing to $5.6 million in 1996 and further to $2.6 million in 1997.
The company currently has $100 million of liquid assets.
2. ACS
ACS is a nationwide provider of information technology services and
electronic commerce solutions, specifically data processing outsourcing,
business process outsourcing and professional services and systems integration.
ACS' customers include retailers, healthcare providers, telecommunications
companies, wholesale distributors, manufacturers, utilities, financial
institutions and insurance companies.
3
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3. INITIAL EFFORTS REGARDING THE SALE OF BRC (1)
In the early 1990s, Esping decided that he wanted to retire as CEO of BRC.
In preparation for his retirement, he began a search for a replacement CEO.
This search was unsuccessful and in the summer of 1995, he began discussing the
sale of the company as an alternative. This same summer, at Monnich's
suggestion, Delaro & Coprell, a Boston-based mergers and acquisitions firm, was
contacted. The firm had several meetings with BRC, conducted due diligence, and
contacted two prospective acquirors. Neither of the firms contacted made an
offer.
In the spring of 1996, Esping asked Stoffel if he and his investment
banking firm, Paul Stoffel Capital Corporation, would begin researching
potential acquirors for BRC. Stoffel did so, pursuing a process of analyzing
and evaluating a number of possible acquirors, followed by discreet, selective
contacts with possible buyers. This method, apparently common in the service
industry, was chosen in an effort to avoid or minimize management disruption.
Although not evidenced by a written agreement, Stoffel undertook these
efforts with the explicit understanding from Esping that he or his firm would be
paid a fee, should their efforts result in a transaction. Therefore, at least
until Esping's death, Stoffel's communications with potential buyers were in his
role as an investment banker, not as a director, and the buyers were so
informed.
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(1) The parties disagree on many of the factual circumstances. For the
purposes only of disposing of the pending application, I will describe the facts
as I find them to exist on the basis of the preliminary record before me, noting
where pertinent the disagreement of the parties.
4
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In 1996, Stoffel and his firm identified 30 to 40 potential acquirors.
Of this group, approximately ten were contacted and provided information
about BRC. Only one of these companies, HBO & Company ("HBOC"), expressed
serious interest in a transaction.
Between May and July of 1996, negotiations between BRC and HBOC ensued.(2)
A framework for the sale was established and by July HBOC was pursuing its due
diligence. In the middle of this process, BRC lost an important hospital
outsourcing contract, and HBOC withdrew from the transaction. At Stoffel's
initiative, further negotiations ensued. HBOC initially agreed to a transaction
at a lower price, but eventually decided that it was not interested in
purchasing BRC.
During the remainder of 1996, preliminary discussions were held with two
other potential acquirers, ACS being one, but no proposals or offers were made.
According to Stoffel, over the next two years, despite BRC's discussions with
over 20 companies, there was no serious acquiror for BRC until ACS renewed its
interest in 1998. Plaintiffs disagree, pointing to the prolonged discussions
between Esping and International Sourcing Ltd. ("ISL").
4. INITIAL DISCUSSIONS WITH ISL
In October of 1997, the President and Chief Operating Officer of BRC,
Jerold Morrison ("Morrison"), introduced Esping to ISL, a shell organization
created for the purpose of engaging in acquisitions.
Between October and March 1998, BRC and ISL discussed a possible
transaction during a series of meetings and telephone conversations with Esping
and other senior management at BRC. A confidentiality agreement was entered
into that permitted ISL to conduct due diligence. On
- ----------
(2) Plaintiffs note that Stoffel pursued these negotiations despite the creation
by the board of an independent committee to be involved in the acquisition
transaction.
5
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March 17, 1998, ISL representatives met with Esping to discuss a transaction
by which ISL would acquire BRC in a cash transaction. Following this
meeting, ISL delivered a written offer to Esping, leaving the acquisition
price blank, to be finalized after ISL had the opportunity to conduct further
due diligence. However, ISL informally suggested a per share price (adjusted
for a later 2:1 stock split) in the high teens or low $20s.
Although ISL had no committed financing, it represented to BRC that it had
a letter from Credit Agricole Indosuez ("CAI") stating that it was "highly
confident" that financing could be obtained. To assist ISL and CAI in securing
financing, Charles "Chick" Young ("Young"), a co-founder and former officer and
director of ACS and the owner of ISL, requested that BRC's management team lead
a management buyout ("MBO"). To further this goal, Young sought to take BRC's
management team on a "road show" to New York for the purpose of seeking equity
investors to sponsor the MBO.
Esping, who was dissatisfied with the price range proposed by ISL,
preempted such an effort, informing ISL that BRC would no longer be pursuing the
transaction. Although BRC terminated the negotiations, ISL contends that the
companies parted on a friendly basis, with ISL stating that it would not
commence a hostile bid, since it was interested in a "friendly, negotiated
transaction" and with Esping thanking ISL and stating that he would "keep [ISL]
in mind."(3)
4. FURTHER ATTEMPTS TO FIND AN ACQUIROR
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(3) At the hearing, plaintiffs' counsel stated that one of the primary reasons
that ISL was not willing to compete with ACS by making a higher offer was its
refusal to act in a hostile manner. This is puzzling, as a July 6, 1998 letter
from ISL to the BRC board states: "We will not hesitate to communicate our
offer directly to BRC's stockholders if we do not receive prompt and credible
assurance that a fair, equal and unbiased process will be provided immediately
for ISL and the other bidder."
6
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After Stoffel and Esping's attempts to find a buyer interested in a
transaction meeting the price range acceptable to BRC failed, the board decided
to seek additional professional assistance in pursuing the sale of the company,
primarily because it believed that a Wall Street banker would have greater
capabilities "to handle a company of [BRC's] size."(4) Thus, on May 4, 1998, the
board authorized Esping to begin interviewing Wall Street investment bankers.
Esping selected approximately half a dozen firms and began the interview
process. He died before completing the search.
5. RENEWED DISCUSSIONS WITH ACS IN THE EARLY SUMMER OF 1998
Sometime just prior to or just after Esping's death, Stoffel renewed
discussions regarding a possible transaction with ACS.(5) After Esping's death,
the board authorized continuing negotiations between BRC and ACS, contingent on
ACS first making an acceptable offer. At the same time these preliminary
negotiations were undertaken, Stoffel contacted Thomas Davis ("Davis"), a
Managing Director at Donaldson, Lufkin & Jennette ("DLJ"), an investment banker,
informed Davis of the status of the negotiations and asked if DLJ would render a
fairness opinion. Although not formally retained, DLJ began preliminary
preparations for the opinion, hoping that it would be retained by BRC to
finalize and present such an opinion in connection with a BRC/ACS
- ----------
(4) Both Monnich and Morrison testified at deposition that the board believed
that a national investment banking firm might be more successful than Stoffel in
locating purchasers for a BRC acquisition. Stoffel testified that the board's
purpose in exploring the retention of another investment banker was to
supplement, not supplant, any continuing efforts on his part to locate potential
acquirors. SEE Stoffel Dep. at 45 ("It was simultaneous - I was working with
certain companies and Bill was going to start interviewing investment bankers
simultaneously. . . . I presumed that [an] investment banker either would have
worked with me or just taken my entire position. I don't know. It was never
discussed. It was just the fact that he was going to start interviewing
investment bankers and the ramifications from that were never discussed."
(5) The parties disagree on the timing of discussions involving ACS' renewed
interest in a transaction with BRC. Plaintiffs claim that these negotiations
ensued after Esping's death. Defendants contend that the negotiations started
in May, just prior to Esping's death, and continued after his death.
7
<PAGE>
transaction. DLJ did several days of due diligence and began preparing a book
summarizing its findings for presentation to the board.
ACS proposed a cash offer of $21 per share in early July and proceeded to
complete its due diligence. In this connection, ACS asked to meet with senior
members of BRC management. Due to the timing of the negotiations and the ACS
offer, the meeting was scheduled with little notice and held shortly after
Esping's funeral. The meeting did not go well, and ACS declined to proceed
further, both because it perceived that several of BRC's smaller businesses had
substantial operational problems and also because it perceived hostility to its
proposal from BRC's management team.(6)
After this transaction terminated, the board considered not selling the
company, but soon decided that a sale was the best method for the shareholders
to receive the most value. Therefore, the board decided to concentrate on
divesting itself of its problem businesses. Evidently, the board also
determined it was appropriate to renew the search for an investment banker to
assist the company in finding a buyer. The board did not follow through with
this determination after learning that Stoffel had contacted ACS again in
September and that ACS had expressed a renewed interest in negotiating a
transaction with BRC.
5. ISL'S RENEWED ATTEMPT AT ARRANGING A TRANSACTION
In late June or early July, upon learning that BRC and ACS had renewed
their discussion, Young and Richard K. Kneipper ("Kneipper"), President and
Chief Operating Officer of ISL,
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(6) Stoffel testified that these operational problems included three businesses
that were either losing money or not performing well and two businesses that
were inconsistent with BRC's other businesses. SEE Stoffel Dep. at 97-99.
Plaintiffs argue that ACS' discontinued negotiations resulted from Stoffel's
rush to have the transaction finalized, a rush that both alienated the BRC
management, still recovering from the death of their Chairman, and discomforted
ACS, since BRC management disapproved of the acquisition.
8
<PAGE>
recontacted Stoffel in an attempt to revive discussions between BRC and ISL.(7)
Young indicated that ISL was willing to sponsor a MBO and sought to have BRC
management travel with ISL representatives to New York to seek financing.
During his discussions with BRC, Young represented that he had discussed the
transaction with CAI and that it had expressed both interest in the BRC/ISL
transaction and, after meeting with ISL, confidence that financing could be
obtained.(8)
The board considered Young's late June/early July proposal, but determined
that it was not in the best interests of BRC, especially considering that Young
was not willing to give Stoffel a firm purchase price and was making ISL's
proposal based on financing (including equity financing) not yet in hand. On
July 6, 1998, Young sent a letter to the board purporting to make an offer at
$20 to $22.50 per share, contingent on further due diligence and management's
agreement to remain in their positions for an agreed upon period of time.(9)
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(7) Kneipper's affidavit states that he and Young learned of Esping's illness
and Stoffel's renewed negotiations with ACS in late June 1998, but does not
state how he acquired this information. Kneipper Aff. at PARA 5.
(8) At the same time that they were negotiating with BRC, Young and Kneipper
had private discussions with John Watters, the Esping's financial advisor, to
determine the Esping family's willingness to sell its 20% interest in BRC.
Researching a potential BRC/ISL transaction, Watters had an associate undertake
due diligence of CAI and prepare a memorandum of findings. Kneipper's affidavit
states that Watters informed him that "based on such memorandum, [Watters] was
satisfied with the status of [ISL's] financing." Aff. at PARA 5. Watters'
testimony differs. Watters' deposition testimony states that he disagreed with
some of the conclusions in the memorandum prepared by his associate, including
the final point, which states that "[o]verall, the deal is likely to get done
close to the structure [CAI] has suggested but it will take 100 to 150 days,"
because he felt that this statement was "a rather naive thought." Watters Dep.
at 60. Watters' affidavit states, "I was never advised or made aware that ISL
had financing in place to make an offer for BRC." Watters Aff. at PARA 3.
(9) This letter states, in pertinent part:
As some of you are aware, commencing in October 1997 ISL had numerous
discussions with [Esping] about our interest in the acquisition of
BRC. After we and our financial partner, [CAI], completed significant
due diligence on BRC, including discussions with [Esping] and senior
management, on March 17, 1998 we met with [Esping] in order to give
him our cash offer of $40-45 per share ($20-$22.50 after the recent
stock split) subject to further due diligence. After reading our
offer letter, [Esping] stated that he thought that the price was too
low and thus prefered that we not fill in our price and give it too
him. We did as [Esping] requested but told
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BRC responded, through counsel, in pertinent part:(10)
[T]he company wishes to inform you that if [ISL] wishes to propose a
transaction with [BRC], the Board of Directors of [BRC] is fully prepared
to consider that proposal. . . . To the extent that you elect to make a
proposal, you are urged to make it your highest and best offer and to
provide evidence regarding [ISL's] ability to consummate any such
transaction, including, if that is available, bankers commitments or the
like if the funds will not come entirely from you [sic] own resources
[Mr. Young], please rest assured that the Board of Directors of
[BRC] takes very seriously its duties to the [BRC] stockholders.
Toward that end, any proposal that you make will be given appropriate
consideration. To the extent that you require due diligence, please
have your counsel contact us immediately with a description of the
information required.
Later that same day, Young's counsel responded with a letter requesting
further due diligence information, and on July 8, 1998, Young followed up with a
letter offering the same terms as outlined in an earlier proposal. In an effort
to meet BRC's request that ISL provide evidence of financing, this second letter
attached a letter from CAI. In fact, this letter confirmed that ISL had no
existing equity financing, stating only that if sufficient equity financing
became
- --------------------------------------------------------------------------------
him that ISL continued to be interested in acquiring BRC, as we told him on
numerous subsequent occasions. . . .
* * *
As we have repeatedly advised BRC representatives, ISL is prepared to
offer an all cash price of $21 [sic] -22.50 per share for all BRC common
stock, including options, subject to the completion of addition due
diligence . . . and meetings with management.
* * *
We look forward to your prompt response to this letter. We also request
that BRC advise us in advance if BRC decides that it is required to
issue a press release regarding this offer.
Kneipper Aff., Ex. C. Apparently, ISL considered this letter to be a formal
offer, because Kneipper's affidavit states, "We were a bit confused by the
response we received from BRC's counsel on behalf of BRC's board of directors,
as we had thought that we already had made an offer on July 6." Id. at PARA 8.
Regardless, BRC did not consider it to be a formal offer, as evidenced by its
response on July 7, 1998.
(10) There is some factual confusion as to who authorized the response to
Young's letter. Defendants claim that the response was the after-product of
board discussions regarding the offer; however, Stoffel's deposition testimony
states that he never saw Young's letter and was unaware that an offer of $20 to
$22.50 was proposed.
10
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available, CAI "was confident that [it] will have the capacity to successfully
lead the debt financing for [a BRC/ISL] acquisition."
Following the receipt of this letter, BRC initially determined that ISL
would be permitted to engage in further due diligence, and so informed Young,
but then reconsidered and withdrew permission the next day. This about-face was
based on a combination of: (1) the board's belief that the ACS transaction was
nearing completion, (2) ISL's confirmed lack of committed financing,(11) and (3)
the reluctance of the board to further disrupt management by requiring its
senior members to travel to New York for the purpose of locating financing for
an MBO.
On July 29, 1998, BRC received a letter from Kneipper which stated that ISL
was continuing in its efforts to finalize financing and was anticipating being
able to make a new offer to BRC which it expected would be in the best interests
of BRC and its stockholders. No such offer was ever received by the BRC board.
Despite the numerous representations made by Young, Kneipper and/or ISL, it does
not appear that ISL has yet obtained the financing necessary to pursue an
acquisition of BRC.
According to plaintiffs, between July and October 1998, ISL continued to
seek financing for a future transaction with BRC, and was actively engaged in
meetings with equity investors when the BRC/ACS merger was publicly announced.
BRC did not contact ISL in October 1998 before entering into the proposed merger
agreement with ACS.
6. REVIVED DISCUSSIONS WITH ACS
On September 16, 1998, Stoffel became Chairman of the Board of Directors
and, shortly thereafter, contacted ACS to provide a "progress update" on BRC's
efforts to address the
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(11) Watters also determined that ISL did not have the current financing
necessary to make an offer to purchase BRC. SEE SUPRA, n.10.
11
<PAGE>
problematic business areas that had contributed to ACS' decision to terminate
earlier negotiations. The parties met on September 21, at which time Stoffel
suggested that ACS reevaluate a potential acquisition of BRC. On October 1,
Jeffrey Rich ("Rich"), President, Chief Executive Officer and Director of ACS,
contacted Stoffel and offered to acquire BRC at $16 per share, which Stoffel
immediately rejected. Approximately one week later, following a meeting between
ACS and BRC's chief financial officer, Rich and Stoffel met again and Rich
raised his bid to $18. Stoffel again rejected this bid and "canceled
discussions." The following day, October 7, Stoffel met again with Rich at
Rich's request. Rich pressed Stoffel to agree to the $18 price, but Stoffel
refused. Eventually, Rich raised the offer to $19 per share and Stoffel agreed
to present that offer to the board of directors. This offer was communicated to
the board and, following informal discussions during the morning of October 8,
received their preliminary approval. Stoffel telephoned Rich and informed him
of the board's decision.(12)
During the period from June until October, Stoffel or his firm also
contacted other potential acquirors, including those previously contacted when
the company began seeking a purchaser in 1996 and also new companies contacted
for the first time. Stoffel also consulted with DLJ for further suggestions as
to potential purchasers, and then contacted, without result, the one additional
company it recommended. Morrison was also searching for potential bidders
during this period, but his efforts did not result in any firm proposals.
7. NEGOTIATION AND APPROVAL OF THE BRC/ACS MERGER AGREEMENT
A meeting was held on October 12, 1998, to discuss the draft merger
agreement prepared by ACS. After the meeting, the board authorized the
continuation of negotiations. On October
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(12) Masterson, in his affidavit, states (without elaboration) that he was
in communication with Stoffel and his fellow directors throughout these
negotiations. Masterson Aff. at PARA 23.
12
<PAGE>
15, 1998, the board held a special meeting and discussed, INTER ALIA, the status
of negotiations, proposed terms of the offer, the merger and the draft
Agreement.
In addition, the board authorized the retention of DLJ to prepare an
opinion concerning whether the $19 offer was fair to the stockholders from a
financial viewpoint. The board met twice on October 18, 1998, first, for
further discussions of the items aforementioned, and later, to receive a
fairness opinion from DLJ. After DLJ's presentation and additional discussion,
the board unanimously approved ACS' offer, the merger and the Agreement.
8. RESTRICTIVE MEASURES CONTAINED IN THE MERGER AGREEMENT
The Agreement contains four provisions restricting BRC's ability to solicit
competing bids. The first is a no-shop provision and provides:
[T]he Company shall not, directly or indirectly, through any officer,
director,employee, representative, or agent of the Company or any of its
subsidiaries, solicit or encourage (including by way of furnishing
information) the initiation of any inquiries or proposals regarding a Third
Party Acquisition.
This clause restricts BRC's ability to provide a third party with
information and from considering a third party bid unless it first receives "an
unsolicited bona fide written Acquisition Proposal" that the board "determines
in good faith, after consultation with, and the receipt of advice from, outside
counsel, [which] it is required to do so in order to discharge properly its
fiduciary duties" that such proposal "may reasonably result in a transaction
more favorable to the Company's stockholders than the transaction [currently]
contemplated."
The second provision requires BRC to "immediately cease and cause to be
terminated any existing discussions or negotiations with any parties (other than
the Parent and the Purchaser) conducted heretofore with respect to any of the
foregoing."
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<PAGE>
The third is a termination fee of $10 million (in addition to the provision
for up to $3 million in expense reimbursement) payable to ACS if the Agreement
is terminated for reasons relating to the negotiations or arrangement of another
offer, specifically: "(1) a third party makes a bona fide offer for BRC and, as
a result, the Board determines that its fiduciary duties obligate it to
terminate the agreement; (2) ACS terminates the agreement because BRC negotiates
with or enters into an agreement, letter of intent, or arrangement with a third
party with respect to that party's acquisition of the Company of more than 19.9%
of the assets or outstanding shares of the Company; or (3) ACS terminates the
agreement because the Board withdraws or modifies 'in a manner adverse to the
Purchaser its approval or recommendation of the Offer, this Agreement, or the
Merger or has recommended another offer, or has adopted any resolution to effect
any of the foregoing.'"
Finally, in connection with the Agreement, Mrs. Esping, Stoffel and ACS
entered into contracts with ACS by which they agreed to tender all of their
shares in BRC within five days of the commencement of the tender offer and to
abstain from taking any actions which would encourage another bidder to make a
competing proposal (either through solicitation or assisting third party efforts
by providing information) (the "Stock Tender Agreement(s)"). These Stock Tender
Agreements are addressed in connection with plaintiffs' claims under Title
Eight, Section 203 of the Delaware General Corporation Law ("DGCL").
9. STOFFEL'S FINDER'S FEE
After the board preliminarily approved the ACS transaction, Stoffel began
discussions with the board regarding his finder's fee, which he believed should
be $1.6 million. The board discussed Stoffel's services in negotiating the ACS
transaction, comparable industry fees for similar services and the interplay of
his fiduciary duties as a director. The board, acting without
14
<PAGE>
Stoffel, concluded that a fee of $1.3 million was reasonable, and entered
into an agreement whereby Stoffel was entitled to the sum within two business
days of the consummation of any BRC transaction occurring before December 31,
2000. Based on Stoffel's stock ownership (307,460 shares and 60,000 options),
this fee is the equivalent to more than $3.50 per share.
10. COMPETING OFFERS
As of the date of this opinion, no competing proposals have emerged.
II. DISCUSSION
A. STANDARD
Preliminary injunctive relief will be granted where plaintiffs demonstrate:
(1) a reasonable probability of success on the merits; (2) irreparable harm if
the injunction is not granted; and (3) that the harm to the plaintiffs if
injunctive relief is denied outweighs the harm to defendants if the relief is
granted. EISENBERG V. CHICAGO MILWAUKEE CORP., Del. Ch., 537 A.2d 1051, 1055-56
(1987); REVLON, INC. V. MACANDREWS & FORBES HOLDINGS, Del. Supr., 506 A.2d 173,
179 (1986).
Plaintiffs contend that the failure to issue a preliminary injunction will
cause them irreparable harm in three ways: "(1) the stockholders will
irretrievably lose their ability to sell their BRC stock on a fully-informed,
knowing basis; (2) the stockholders will be compelled to sell their stock in a
process that is fundamentally flawed; and (3) the stockholders will be deprived
of their unique opportunity to maximize the value of their stock at a premium by
selling control of BRC."
B. PLAINTIFFS' ARGUMENTS
Plaintiffs raise three main arguments in their request for preliminary
injunctive relief: (1) the board has failed to protect the stockholders'
interests and maximize the stock value, (2)
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the board has not met its duty of disclosure to the stockholders and (3) the
merger violates Section 203 of the DGCL.(13) I will elaborate on each of
these arguments.
1. FAILURE TO PROTECT STOCKHOLDER INTERESTS AND MAXIMIZE STOCK VALUE
Plaintiffs argue (and defendants fairly concede) that the proposed BRC/ACS
transaction, which will result in a change in corporate control from the BRC
stockholders to ACS, invokes heightened fiduciary responsibilities on the part
of the board that must be examined under an enhanced scrutiny test. Plaintiffs
further contend the directors have failed to meet this test in several respects;
first, by, allegedly, passively acquiescing to Stoffel's decision to sell the
company with no competitive bidding; and second, by approving and adopting
defensive mechanisms in the Agreement that are said to foreclose other offers.
Finally, plaintiffs argue that Stoffel breached his duty to act in good faith by
seeking and agreeing to accept a $1.3 million finder's fee for his negotiations
on behalf of BRC.
Where the sale of control of a corporation is at issue, the responsibility
of a corporate director is as follows:
In the sale of control context, the directors must focus on one primary
objective - to secure the transaction offering the best value reasonably
available for the stockholders - and they must exercise their fiduciary
duties to further that end.
PARAMOUNT COMM., INC. V. QVC NETWORK, INC., Del. Supr., 637 A.2d 34, 44 (1994)
("QVC"). In determining whether the directors have met this responsibility, the
Court applies a threshold examination under the enhanced security test, which
consists of:
(a) a judicial determination regarding the adequacy of the
decisionmaking process employed by the directors, including
the information on which the directors based their decision;
and
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(13) The complaint also raises an aiding and abetting claim against ACS, a
discussion of which is not relevant for purposes of plaintiffs' request for
preliminary injunctive relief.
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<PAGE>
(b) a judicial examination of the reasonableness of the
directors' action in light of the circumstances then
existing. The directors have the burden of providing that
they were adequately informed and acted reasonably.
QVC, Del. Supr., 637 A.2d at 45. However, in enacting this scrutiny, the
Court's responsibility is not to second-guess the decision-making process of the
directors:
Although an enhanced scrutiny test involves a review of the reasonableness
of the substantive merits of a board's actions, a court should not ignore
the complexity of the directors' task in a sale of control. There are
many business and financial considerations implicated in investigating
and selecting the best value reasonably available. The board of
directors is the corporate decision making body best equipped to make
these judgments. Accordingly, a court applying enhanced judicial scrutiny
should be deciding whether the directors made a reasonable decision, not
a perfect decision. If a board selected one of several reasonable
alternatives, a court should not second-guess that choice even though it
might have decided otherwise or subsequent events may have cast doubt on
the board's determination. Thus, courts will not substitute their
business judgment for that of the directors, but will determine if the
directors' decision was, on balance, within a range of reasonableness.
ID. (footnote omitted). A board will be found to have acted reasonably where it
has sought the best value reasonably available for the shareholders. ID. at 44.
In making this determination:
[T]he directors should analyze the entire situation and evaluate in a
disciplined manner the consideration being offered. . . . In addition,
the board may assess a variety of practical considerations relating to
each alternative including: [an offer's] fairness and feasibility; the
proposed or actual financing for the offer, and the consequences of that
financing; questions of illegality; . . . the risk of nonconsum[m]ation;
. . . the bidder's identity, prior background and other business venture
experiences; and the bidder's business plans for the corporation and
their effects on stockholder interests.
QVC, 637 A.2d at 44 (quoting MILLS ACQUISITION CO. V. MACMILLAN, INC., Del.
Supr., 559 A.2d 1261, 1282 n. 29). With the standards enunciated in QVC set
forth, I turn to a discussion of plaintiffs' arguments.
The argument most easily disposed of is that pertaining to the "defensive"
measures (as titled by plaintiffs) approved and adopted by the BRC board as part
of the Agreement with
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ACS.(14) Plaintiffs contend that these "defensive" measures serve to prevent
not only negotiations, but even the dissemination of information between BRC
and other potential bidders. Plaintiffs interpret these measures entirely
too broadly. Contrary to plaintiffs' suggestion, these measures do not
foreclose other offers, but operate merely to afford some protection to
prevent disruption of the Agreement by proposals from third parties that are
neither bona fide nor likely to result in a higher transaction. Quite simply,
these do not appear to prevent a third party from making a bona fide offer at
a price higher than that offered by ACS.
Similarly, these measures do not prevent the BRC board "from even
responding to unsolicited inquiries" as plaintiffs contend, but instead
restrict such a response to situations where the board has made a good faith
determination that the unsolicited offer "may reasonably result in a
transaction more favorable to [BRC's] stockholders" than the Agreement. As
Stoffel noted in his deposition, "[i]f someone wants to come in and pay a higher
price, we would welcome him and we would sell our shares to the highest bidder."
Dep. at 160.
Such provisions do not preclude "post-agreement market checks" and may
comport with the board's fiduciary duties. SEE YANOW V. SCIENTIFIC LEASING,
INC., Del. Ch., Cons. C.A. Nos. 9536 & 9561, Jacobs, V.C., slip op. at 12 n.6
(Feb. 8, 1988) (noting that the restrictive provision was not a "'lock-up'
option that would operate to preclude higher bids"). Plaintiffs have cited no
contrary authority.(15)
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(14) In fact, only one of these measures actually requires comment, since
although plaintiffs attacked four measures in their opening papers, at the
hearing on this matter, plaintiffs' counsel admitted that the no-shop provision
was the measure of primary concern.
(15) Plaintiffs' other argument fails as well. The termination fee is not
invoked by the board's receipt of another offer, nor is it invoked solely
because the board decides to provide information, or even negotiates with,
another bidder. Such a provision can hardly be said to "bar BRC from
negotiating with prior bidders (ISL) or those that expressed interest," as
plaintiffs suggest. Further, this measure is commonplace, see KYSOR INDUS.
CORP. v. MARGAUX, INC., Del Super., 674 A.2d 889, 897 (1996) ("Termination or
cancellation fees are not unusual in corporate sale or merger contexts."
(citing, INTER ALIA, REVLON, 506 A.2d at 184; QVC, 637 A.2d at 50)), and can be
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I also find unpersuasive plaintiffs' claims involving ISL and the alleged
failure of the board to consider ISL as a potential bidder. Plaintiffs claim
that the BRC board "appears to have purposefully avoided ISL in favor of a
hurried deal with [ACS]," and submit affidavits, exhibits and excerpts of
deposition testimony which they contend support their claim that ISL was a bona
fide competitor for a BRC transaction and was wrongfully excluded from the
bidding process.
ISL has had the opportunity to meet and negotiate with BRC representatives
and has conducted extensive due diligence. Yet, other than the July 6, 1998
letter (which did not furnish evidence of any real financing capability), ISL
has never presented an offer to the board for consideration. The record before
me shows that the board considered ISL's status as a bidder in early July, at
the time they were considering ACS' $21 per share offer, and decided to
terminate discussion with ISL. That decision would appear to be justified by
the embryonic state of ISL's proposal. In particular, ISL did not provide
evidence of either equity or debt financing and conditioned its offer on its
ability to arrange the participation of "[d]esignated members of BRC's executive
and senior management" as participants in the transaction. It does not appear
that the directors had a duty at that time to delay the proposed ACS transaction
in order to pursue the possibility that ISL might succeed in promoting another
bid, at least in the circumstances presented at that time. SEE IN RE ANDERSON,
CLAYTON SHAREHOLDERS LITIG., Del. Ch., 519 A.2d 669, 676 (1986) ("[D]irectors of
a Delaware corporation have no duty to delay an otherwise appropriate
transaction just because at the last minute a possible alternative arises that
might, if it could be arranged, be more beneficial to the corporation or its
shareholders than the transaction with which the company has been preceding.").
ISL was, and still is, free to make an offer to
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within the boundaries established by case law. ID. (noting that commentators
find liquidated damages provisions in the range of one to five percent of the
proposed acquisition price reasonable).
19
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BRC at any time. And, even if ISL were to make an offer,(16) it would need
to evidence its ability to finance that offer, something that it has never
been able to do. For these reasons, I cannot give serious consideration to a
claim that ISL has been precluded from making an offer, when it has had ample
opportunity and yet has failed to do so.
More troubling are plaintiffs' claims that the board breached its QVC
duties of diligence and vigilance, which "require a director to take an active
and direct role in the context of a sale of a company from beginning to end."
CEDE & CO. V. TECHNICOLOR, INC., Del. Supr., 634 A.2d 345, 368 (1993) (citing
CITRON V. FAIRCHILD CAMERA & INSTR. CORP., Del. Supr., 569 A.2d 53, 66 (1989)
(noting that "directors cannot be passive instrumentalities during merger
proceedings")). Plaintiffs contend that the board's approval was basically the
rubber-stamping of a transaction sought out and unilaterally negotiated by a
conflicted director, instead of the result of an active decisionmaking process
based on a deliberate and knowledgeable exploration of alternatives.
The record on this preliminary injunction does demonstrate some ground for
concern about the manner in which the directors managed the sale process after
Esping's death. The record shows that Stoffel took charge of the process of
selling the Company. This role became official once the other directors named
him Chairman of the Board in September. Yet, Stoffel performed this role under
a real conflict of interest in that he stood to be paid a fee only if the
Company engaged in a transaction with a person identified by his efforts. For
this reason, it was inconsistent with Stoffel's interest for the Company to
retain the services of another investment banker or to explore fully the
possibility of entering into a transaction with an entity not identified by him.
As it happened, the record shows that, after Esping's death, there was no
further effort
- ----------
(16) A doubtful occurrence based on the most recent affidavit of Kneipper,
which states: "ISL has no interest in getting embroiled in a bidding contest
with [ACS]." Aff. at PARA 10.
20
<PAGE>
made to retain a national investment banker to assist BRC in locating the
highest and best transaction available. Monnich testified that the directors
revisited this issue in July and reaffirmed their interest in exploring such
a retention, but it does not appear that any steps were taken to accomplish
this objective between July and the time the Agreement was signed in October.
Similarly, there is little in the record to show that, at the time the $19
ACS transaction was proposed in October, the directors or their advisers made
any substantial effort to contact other potential bidders to obtain a higher
bid. These facts do raise at least some question whether the directors had an
adequate basis on which to conclude that the ACS transaction was the best
reasonably available at the time they approved the Agreement.
Nevertheless, there are substantial facts in the record which tend to the
opposite conclusion. The Company was "shopped" for a period of years before
BRC/ACS transaction was approved. In all that time, only one firm proposal was
ever made, the one that is now embodied in the Agreement. While no national
investment banker was retained, Stoffel and his firm performed substantial
investment banking services on behalf of the Company. The scope of those
services was reviewed by DLJ personnel in July and the additional contact
recommended by them was performed. Finally, no superior offer has been made to
the Company, despite the provisions of the Agreement which specifically permit
such offers and allow the directors to negotiate with persons making potentially
superior proposals. The ACS transaction was announced more than one month ago
and will remain outstanding, subject to a competing offer, for some additional
time. The failure of any potential competitor to make a proposal in that time
frame is evidence that the directors, in fact, obtained the highest and best
transaction reasonably available.
Delaware law is clear that a court will not deprive shareholders of the
opportunity to receive a premium on their shares without some showing of a
fiduciary or disclosure violation.
21
<PAGE>
SEE YANOW, Del. Ch., Cons. C.A. Nos. 9536 & 9561, slip op. at 8 ("This Court
has exercised its power to enjoin a corporate tender offer on only the rarest
occasions, and even then, only most sparingly. Thus far tender offers have
been enjoined only in situations where by reason of the conduct of the
fiduciaries responsible for the offer, the transaction became involuntary,
either because the offer was actionably coercive or because it involved
materially false or misleading disclosures.").
Based on the record before me, it would violate this well-settled principle
for me to enjoin a premium cash transaction where no competing bid has emerged
and where I do not find a probability of success on the merits of the breach of
fiduciary duty claims. SEE TCG SEC., INC. V. SOUTHERN UNION CO., Del. Ch., C.A.
No. 11282, Chandler, V.C., slip op. at 27-28 (Jan. 30, 1990) (Because the
[bidder's] offer is the only transaction available and because entry of an
injunction against the merger would inevitably threaten [the subject company's]
shareholders with loss of an opportunity to cash in their investments at a
substantial premium, I am satisfied that the risk of inflicting dire financial
results upon the stockholders by issuance of such an injunction outweighs the
harm, if any, that [plaintiff] would suffer if the relief it seeks is denied.")
2. DISCLOSURE ISSUES
After plaintiffs' opening brief was filed, defendants amended their
disclosure statements on Schedules 14D-1 and 14D-9, setting out additional
information regarding the background of the offer. They now take the position
that these additional disclosures mooted most of plaintiffs' disclosure claims.
SEE, E.G., AMERICAN GENERAL CORP. V. TEXAS AIR CORP., Del Ch., Cons. C.A. Nos.
8390 ET. AL, Hartnett, V.C., (Feb. 5, 1987). Those claims that were not mooted,
they argue, fail as a matter of law.
22
<PAGE>
Several of plaintiffs' disclosure claims continue to merit discussion.
First are a series of issues relating to the disclosure of the process leading
up to the acceptance of the ACS bid. In part, these issues relate to the
dominant role played by defendant Stoffel in the sale process after Esping's
death and to Stoffel's pecuniary interest in concluding a transaction with ACS.
Relatedly, plaintiffs question the failure of the Schedule 14D-9 to disclose
that, in both May and July of 1998, the BRC directors decided to explore
retaining a nationally prominent investment banking firm to assist in the sale
process. Esping led the initial effort, but he died after the third of four
planned interviews. The record does not reveal why no further efforts were made
after Esping's death. Second, plaintiffs complain that the statement of the
"Reasons for the Transaction" in the Schedule 14D-9 is inaccurate and
incomplete. In this regard, they rely on deposition testimony of directors
Stoffel and Monnich of other reasons motivating the board of directors to
approve the transaction, such as the recent death of Esping and the desire on
the part of a significant group of stockholders to cash out. Finally,
plaintiffs argue that, in the circumstances of this case, at least some
disclosure of the evaluative materials prepared by DLJ and presented to the
directors in connection with DLJ's opinion is required.
Before addressing the substance of these claims, it is important to observe
that the form in which disclosures have been made to the BRC shareholders is
affected by the two-step structure of the proposed acquisition of BRC by ACS,
i.e., a partial cash tender offer for 51% of the BRC common stock to be followed
by a cash-out merger. Due to this structure, the BRC stockholders are being
asked to decide to approve the sale of their corporation as a part of their
decision whether or not to tender shares in the first-step offer. In connection
with that decision, the only communication they have or will receive from their
directors is BRC's Schedule 14D-9, which contains the recommendation of the BRC
board of directors that they "accept the Offer, tender
23
<PAGE>
their Shares pursuant to the Offer and, if required by applicable law,
approve and adopt the Merger Agreement." No proxy statement will be sent to
BRC's stockholders in connection with the proposed merger until after the
tender offer has succeeded and ACS has acquired a majority of the voting
stock. As a practical matter, the only decision stockholders will face at
that time is whether or not to dissent and seek appraisal, approval of the
merger proposal itself being assured by ACS' vote.
At argument, counsel for ACS suggested that I should construe the BRC
directors' state law based fiduciary duty of disclosure more narrowly in the
case of a Schedule 14D-9 than would be true in the case of a proxy statement,
because Schedules 14D-9 are reactive documents requiring, by federal law, only a
limited amount of disclosure. The point is well taken, of course, that it is
federal law, not state law, that prescribes the items of disclosure required by
Schedule 14D-9 and that mandates the dissemination of that disclosure statement
to the stockholders of the subject company. The actual recommendation itself,
however, is the product of state law, in this case the requirement under Section
251 of the DGCL that the BRC directors approve and recommend the proposed
Agreement. State law, not federal law, establishes the norms within which such
approval and recommendation is given. Thus, it is hardly surprising that state
fiduciary duty law has a role to play in regulating what directors actually say
when recommending approval of a proposal or transaction to their stockholders,
whether that recommendation is communicated in a Schedule 14D-9 or some other
document. ZIRN V. VLI CORP., Del. Supr., 621 A.2d 773, 778 (1993) (stating, in
connection with Schedule 14D-9, that "[t]he requirement that a director disclose
to shareholders all material facts bearing upon a merger vote arises under the
duties of care and loyalty.").
24
<PAGE>
For example, in this case, when they approved the transaction with ACS,
the BRC directors were acting under a duty "reasonably to seek the
transaction offering the best value reasonably available to the
stockholders." QVC, Del. Supr., 637 A.2d at 44. Their recommendation of
that transaction necessarily carries with it an implicit representation that
their actions in approving the sale of BRC to ACS comported with the duty
articulated in QVC. Delaware law requires directors who disclose such a
recommendation also disclose such information about the background of the
transaction, the process followed by them to maximize value in the sale, and
their reason for approving the transaction so as to be materially accurate
and complete. CF. ZIRN, Del. Supr., 621 A.2d at 778-79.
In assessing whether the disclosures made by the directors in this case
satisfy their fiduciary obligations, the focus of my inquiry is on "what a
reasonable investor would consider important in tendering his stock." ZIRN,
Del. Supr., 621 A.2d at 779. This is the familiar, objective standard first
enunciated by the United States Supreme Court in TSC INDUSTRIES V. NORTHWAY, 426
U.S. 438, 449 (1976), and later adopted by our Supreme Court in ROSENBLATT V.
GETTY OIL COMPANY, Del. Supr., 493 A.2d 929, 944 (1985). The application of
this standard does not require a blow-by-blow description of events leading up
to the proposed transaction. That is, the directors are "not required to
disclose all available information," STROUD V. GRACE, Del. Supr., 606 A.2d 75,
85 (1992), but only that information necessary to make the disclosure of their
recommendation materially accurate and complete. SEE ZIRN, Del. Supr. 621 A.2d
at 779 (directors must provide "all the information which a reasonable
shareholder 'would consider important in deciding whether to sell or retain
stock'" (quoting ROSENBLATT, 493 A.2d at 944)).
25
<PAGE>
a. DISCLOSURE OF THE SALE PROCESS AND STOFFEL'S ROLE
As discussed above, this case presents several unusual factual elements
that combine to raise questions about the process pursued by the board of
directors in agreeing to a sale of the company. At the center of these matters
is Esping's untimely death. This ended, apparently for good, the process of
retaining a national investment banking firm to assist in the sale of the
Company. It also thrust Stoffel into a more important role as the chief
negotiator for the Company, despite his conflicted interest. Finally, although
the record on this point is sparse, Esping's death evidently also led Mrs.
Esping and possibly other large shareholders(17) to favor a speedy sale of the
Company and to communicate their desires to the directors who acted on them.
While the Company's Schedule 14D-9 does, as amended, contain significant
disclosure of Stoffel's fee arrangement, it is materially incomplete in other
respects. Most prominently, it omits any reference to the board's consideration
of retaining a national investment banker and it fails to disclose that, if such
a banker had been retained, Stoffel would have had no expectation of earning a
fee in connection with any transaction identified by such other investment
banker. Similarly, there is no disclosure of contacts with Mrs. Esping, her
advisers, or other stockholders after Esping's death.
The Schedule 14D-9 also fails to disclose how or when DLJ was first
contacted and asked to perform services for BRC. It mentions that DLJ met with
senior management and counsel to the company and reviewed the principal
provisions of the Agreement on October 10-11 and that a representative of DLJ
was present at a board meeting on October 12. It further states that DLJ was
retained on October 15, for the purpose of rendering a fairness opinion. It
does not disclose
- ----------
(17) These other shareholders are identified in Monnich's deposition as
investors from Omaha and Dallas.
26
<PAGE>
that DLJ was first contacted in or about July in connection with ACS' earlier
offer and does not disclose that Stoffel consulted with DLJ regarding the scope
of his work. Significantly, it also does not disclose that DLJ was selected by
Stoffel.
In my view, largely because of Stoffel's conflict in the matter, these
omitted matters bear significantly on an understanding of the process leading to
the BRC/ACS transaction, and there is a substantial likelihood that disclosure
of these omitted matters would assume an "actual significance in the
deliberations of the reasonable shareholder" in whether to tender shares or not.
ZIRN, Del. Supr., 621 A.2d at 779 (quoting TSC INDUSTRIES, 426 U.S. at 449).
For this reason, the Company's Schedule 14D-9 is inadequate and must be amended
before the tender offer closes. In so concluding, I note the admonition of the
Delaware Supreme Court in ZIRN that "a fiduciary's duty is best discharged
through a broad rather than a restrictive approach to disclosure." ZIRN, Del.
Supr., 621 A.2d at 779-80.
It should also be observed that this issue, like that confronted by the
Supreme Court in ARNOLD V. SOCIETY FOR SAVINGS BANCORP, INC., "turns on [a]
partial disclosure issue." Del. Supr., 650 A.2d 1270, 1277 (1994). That is,
the disclosures as they stand create a misleading impression that the agreement
to sell to ACS is the product of an exhaustive, multi-year canvassing of the
market. The record before me on this preliminary injunction application shows a
substantially different reality - a sale process foreshortened by Esping's
untimely death and, in the end, led by a potentially conflicted director.
b. THE REASONS FOR THE TRANSACTION
In response to Item 4(b) of Schedule 14D-9, the directors have disclosed a
list of six items they reviewed or considered in reaching their conclusions that
the $19.00 per share is fair to the stockholders and that the tender offer and
the merger are in the best interests of BRC and its
27
<PAGE>
stockholders. These items include: the terms and conditions of the offer
(item (i)); information concerning the performance and prospects of the
Company and of comparable companies (item (ii)); prior efforts made to
solicit expressions of interest or proposals from other bidders (item iii));
DLJ's fairness opinion (item iv)); the premium to market represented by the
price offered (item (v)); and the fact that the terms of the Agreement do not
preclude the directors from responding to superior offers.
This list of "reasons" does not include any disclosure about the effect of
Esping's death on the Company or the interests of Mrs. Esping or other
stockholders in cashing out. Yet, the record before me strongly suggests that
these undisclosed matters actually were considered by the board of directors as
reasons to approve the transaction, perhaps even as the primary reason or
significant reasons to do so.(18) In response to Item 4(b)'s required disclosure
of the reasons for the directors' recommendation, stockholders of a Delaware
corporation "are entitled to an accurate, candid presentation." EISENBERG, Del.
Ch., 537 A.2d at 1059. Where, as is true here, a board "does undertake to
formulate and disclose a statement of reasons for its recommendation,
shareholders can be expected to put some weight upon such a statement." NEWMAN
V. WARREN, Del. Ch., 684 A.2d 1239, 1246 (1996).(19)
I do not mean to suggest that the Schedule 14D-9 must disclose the private
reasons of one or more of the directors in approving the transaction. Nor need
it disclose the details of the
- ----------
(18) When asked why the BRC board decided to sell the company and was
recommending the BRC/ACS merger, Monnich testified: "Most significantly, the
fact that the top guy [referring to Esping] died." Monnich Dep. at 55. He also
testified that the board had not disclosed the reasons why it is recommending a
sale of the Company at this time. Id. at 56. In further questioning, Monnich
stated: "It's a fair price for the shareholders, and therefore, it should go
through. And greater than 50 percent of the shareholders want it to go through
at $19." Id. at 56-57.
(19) I also find that there was no duty to disclose Morrison's view that
the $19 tender offer price is inadequate. See Newman, 684 A.2d at 1245-46.
28
<PAGE>
board's discussions and deliberations. SEE GENERALLY, NEWMAN, Del. Ch., 684
A.2d at 1245-47. Nevertheless, if as appears to be the case, the timing or
approval of the transaction was, in some significant part, driven by Esping's
death and the desire of certain large stockholders to sell the Company, that
fact should be disclosed.
c. THE DLJ ANALYSIS
Plaintiffs also challenge the disclosures relating to the DLJ fairness
opinion. In particular, they argue that the Schedule 14D-9 should disclose the
"reasons for DLJ's conclusions, the fairness range used by DLJ, whether or not
DLJ was advised of other expressions of interest in the Company,(20) and the
analytical basis for the opinion, including whether it was based on a multiple
of earnings, multiple of EBITDA, discounted cash flow analysis, or net asset
value analysis." POB at 46. I am unable to conclude that such disclosures are
required in this case.
The law is well established in this State that disclosures of this nature
are not ordinarily required. ABBEY V. E.W. SCRIPPS CO. Del. Ch., C.A. No.
13397, Allen, C., slip op. at 8 (Aug. 9, 1995) (stating that "all of the work
and consideration that enter into the ground leading to [an investment banker's]
opinion will . . . rarely if ever be material.") IN RE DATAPRODUCTS CORP.
SHAREHOLDERS LITIG., Del. Ch., C.A. No. 11164, Jacobs, V.C. (Aug. 22, 1991) slip
op. at 16-17 (stating that "[o]ur law rejects the proposition that disclosure of
the detailed facts and specific analyses underlying a financial advisor's
valuation methodology is automatically mandated in all circumstances.")
- ----------
(20) In their reply brief, plaintiffs argue that DLJ rendered its opinion
"without knowing that [ACS] itself had offered $21 per share for BRC three
months earlier." PRB at 29. The document cited to by plaintiffs, DLJ 0011,
refutes this assertion.
29
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Here, Plaintiffs submitted an affidavit from a qualified financial analyst
who takes issue with certain of the methods and assumptions employed by DLJ.
Davis of DLJ replied to these criticism. On the whole, while there may be fair
grounds on which persons expert in valuing corporations could disagree about the
most appropriate assumptions to make and methods to employ, I am unable to
conclude that this case presents the unusual circumstances in which the
disclosure sought would be material to stockholders in determining whether or
not to tender their shares. The DLJ analysis is consistent with the opinion it
gave and supportive of the directors' recommendation. In the circumstances,
while stockholders might find it of interest to know, at least in summary, the
ranges of value reflected in DLJ's work, I am unable to conclude that a
reasonable stockholder would consider such information important in deciding
whether or not to tender his or her stock. Thus, I will not require its
disclosure. ZIRN, Del. Supr., 621 A.2d at 779.
d. BALANCING OF HARMS
In part, I am persuaded to enter an order requiring further disclosures
because such an order does not, as a practical matter, pose any substantial
threat to the ability of the BRC stockholders to receive the benefit of the ACS
premium offer for their shares. SEE YANOW, Del Ch., Cons. C.A. Nos. 9536 & 9561,
slip op. at 8. The termination date in the Agreement is January 31, 1999. At
argument, counsel for all defendants conceded that there was adequate time
remaining before that date to permit the dissemination of corrective
disclosures. The process of making addition disclosures will necessitate a short
extension of the ACS tender offer, but it need not interfere with the purchase
of shares pursuant to that offer as soon as the supplemental disclosures are
disseminated to the BRC stockholders and a brief period passes to allow those
stockholders to act on the basis of materially complete information.
30
<PAGE>
3. THE SECTION 203 ISSUE
Section 203 of the DGCL provides:
Notwithstanding any other provisions of this chapter, a corporation shall
not engage in any business combination with any INTERESTED stockholder for
a period of 3 years following the date that such stockholder became an
interested stockholder.
8 DEL C. Section 203(a) (emphasis added). An INTERESTED stockholder is defined
as one who "is the OWNER of 15% or more of the outstanding voting stock of the
corporation." ID. at Section 203(c)(5) (emphasis added). An OWNER is defined
as a party who either beneficially owns the stock or has (1) the right to
acquire such stock or (2) "any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting . . . or disposing of such stock with any
other person that beneficially owns, . . . directly or indirectly, such stock."
ID. at Section 203(c)(8)(i-iii).
Plaintiffs claim that the proposed BRC/ACS merger is barred by Section
203(a) because, by virtue of having reached an "agreement, arrangement or
understanding" with Mrs. Esping regarding the acquisition of her BRC stock, ACS
"became an INTERESTED stockholder of BRC before the board of BRC approved the
proposed merger or the action by which [ACS] became an interested stockholder."
My review of the record fails to reveal any substantial basis to conclude that
ACS entered into an "agreement, arrangement or understanding" with Mrs. Esping
that was not approved in advance by the BRC board.
Mrs. Esping's deposition testimony states that she was first informed of
the opportunity to sell her shares the morning of Friday, October 16, 1998,
during a telephone conversation with Stoffel. This was more than a week after
the BRC board had preliminarily determined to support a transaction with ACS at
$19 per share, subject to the negotiation of definitive documents. In this
conversation, Stoffel told her that she would need to sign documents in
connection with the sale of her shares. She replied that as long as her
advisors recommended the transaction, she had
31
<PAGE>
no objection to doing so. After discussions with her son and her attorney,
who both recommended the transaction, Mrs. Esping made the determination to
sell her shares and told Stoffel she wanted to look at the papers, which were
not then available. She then asked her attorney to review the documents, and
he did so by Sunday, October 18, 1998. Mrs. Esping then executed an otherwise
unexecuted copy of the Stock Tender Agreement sometime in the evening of that
same day.(21)
The foregoing constitutes the entire record relevant to Mrs. Esping's
knowledge and execution of the Stock Tender Agreement. Importantly, there is no
evidence of any communications between Mrs. Esping and ACS regarding discussions
or negotiations pertaining to the Stock Tender Agreement. Instead, the record
reflects that Mrs. Esping's only communications involving the Esping/ACS Stock
Tender Agreement (other than those with her son or her advisors) were with
directors of BRC.
The deposition testimony ACS' Rich states that he was first informed that
Mrs. Esping was in favor of the BRC/ACS transaction on October 19, 1998. Rich
further testifies that "[he] never talked to the Esping family." Consistent with
this testimony, counsel for ACS, during argument in this matter, represented to
the court that ACS not aware that Mrs. Esping had signed the Stock Tender
Agreement until after it was informed that the BRC board had met and finalized
the merger.
Plaintiffs do not refute this record evidence. Instead, they rely merely on
the boilerplate words of the Stock Tender Agreement as proof that ACS and Mrs.
Esping's "agreement, arrangement or understanding" came before the BRC board
approved the transaction. In the
- ----------
(21) Morrison testified that Kiraly left the board meeting after it reconvened
at 6:00 p.m. to go to Mrs. Esping's and have her sign merger-related documents,
including the Stock Tender Agreement.
32
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circumstances of this case, it would make a mockery of Section 203 to enjoin a
transaction negotiated by the BRC board in which Mrs. Esping's agreement to
tender was given as an accommodation to the BRC board in order to satisfy one of
ACS' demands on it. SEE SIEGMAN V. COLUMBIA PICTURES ENTERTAINMENT, INC., Del.
Ch, 576 A.2d 625 (1989). The only "agreement, arrangement or understanding"
reflected in the record at the time the BRC board approved the BRC/ACS merger is
one between Mrs. Esping and BRC. That agreement, obviously, does not trigger the
preclusive provisions of Sections 203(a).
Moreover, there is reason to believe that even if one found that the
agreement between ACS and Mrs. Esping came into existence before the BRC board
approved the merger, the BRC board "approved . . . the transaction which
resulted in the stockholder becoming an interested stockholder." 8 DEL C.
Section 203(a)(1).
The BRC board met to consider approving the Agreement on October 18, 1998,
and the draft minutes from that meeting reflect that it began to meet before
noon. The draft minutes list the agenda for the morning's discussions as
including, "[d]etailed discussion of the Agreement, including provisions
relating to . . . voting agreements that the estate of P.E. Esping and Mr.
Stoffel would be asked to execute." The draft minutes do not go on to detail the
exact nature of these "detailed discussions;" however, the listing of the
"voting agreements" as a specific topic of general board discussion regarding
the Agreement, and the further notation that such discussion was held, is some
evidence of the board's previous or contemporaneous approval of the Stock Tender
Agreements. SEE SIEGMAN, Del. Ch., 576 A.2d 625 (board approval of transaction
several hours prior to the time at which acquiring corporation became an
interested stockholder is sufficient to bring the transaction within the
exception from the 3-year prohibition pursuant to the provisions of subsection
203(a)(1)).
33
<PAGE>
Mrs. Esping's testimony is ambiguous as to the exact time that she executed
the Stock Tender Agreement, but her deposition testimony is clear that her
signing did not take place until Sunday evening, hours after the board appears
to have discussed the Stock Tender Agreements at its meeting. Therefore, even
if I find an "agreement, arrangement or understanding" to exist (which I do
not), there is reason to believe that the exception of Section 203(a)(1) would
be found to apply.
III. CONCLUSION
For all of the foregoing reasons, I deny the motion for preliminary
injunction except insofar as it seeks to require the disclosure and
dissemination of the additional information outlined in Part II.B.2. of this
Opinion. To that extent, I will enter an order preliminarily enjoining the
consummation of the tender offer, now scheduled to expire on November 30, 1998,
until such time as BRC and the defendant directors shall have made corrective
disclosures consistent with the matters discussed herein and those disclosures
shall have been adequately disseminated to BRC's stockholders. Counsel for the
defendants are directed to submit, on notice, an appropriate form of order, with
the proposed supplemental disclosure attached, at their earliest convenience.
It shall be given the Court's prompt attention so that the period of restraint
is as short as is reasonably necessary. IT IS SO ORDERED.
/S/ STEPHEN P. LAMB
----------------------------
Vice Chancellor
34
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[ACS LETTERHEAD]
November 30, 1998
BRC Holdings, Inc.
1111 W. Mockingbird Lane
Suite 1400
Dallas, Texas 75247
Attention: Thomas A. Kiraly
Re: Extension of the Offer
Ladies and Gentlemen:
Affiliated Computer Services, Inc. ("Parent") and ACS Acquisition
Corporation (the "Purchaser") exercise their right under Section 1.1 of the
Agreement and Plan of Merger dated October 19, 1998 (the "Merger Agreement")
among Parent, the Purchaser and BRC Holdings, Inc. to extend the Expiration Date
of the Offer to 12:00 Midnight, New York City time, on Monday, December 14,
1998.
Capitalized terms used but not defined herein have the meanings assigned to
such terms in the Merger Agreement.
Sincerely,
AFFILIATED COMPUTER SERVICES, INC.
By: /S/ MARK A. KING
--------------------------------------
Mark A. King, Executive Vice President
and Chief Financial Officer
ACS ACQUISITION CORPORATION
By: /S/ MARK A. KING
--------------------------------------
Mark A. King, Vice President
<PAGE>
BRC Holdings, Inc.
November 30, 1998
Page 2
cc: Arter Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attention: Jeffrey M. Sone
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: David G. Luther, Jr.
<PAGE>
BRC HOLDINGS, INC.
1111 W. MOCKINGBIRD LANE, SUITE 1400
DALLAS, TEXAS 75247-5014
December 2, 1998
Dear Fellow Stockholders:
As you know, on October 19, 1998, BRC Holdings, Inc. (the "Company")
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Affiliated Computer Services, Inc. ("ACS") and ACS Acquisition Corporation, a
wholly owned subsidiary of ACS ("Purchaser"). Pursuant to the Merger Agreement,
the Purchaser has commenced a tender offer (the "Offer") to purchase 8,704,238
shares (the "Shares") of the Company's common stock, par value $0.10 per share
(the "Common Stock"), which is approximately 51%, on a fully diluted basis, of
the outstanding shares of Common Stock, for a price of $19.00 per Share, net to
the seller in cash without interest. The Offer has been extended by the
Purchaser and is now scheduled to close on December 14, 1998. The Offer, and a
contemplated merger of the Purchaser with and into the Company, are more
particularly described in the Offer to Purchase, dated October 23, 1998, of
Purchaser and ACS and the related Schedule 14D-9, as amended, of the Company.
On November 16, 1998, a Supplement to the Offer to Purchase and Schedule 14D-9/A
(Amendment No. 3) were mailed to the Company's stockholders to provide
additional information related to the Offer.
As a result of a purported class action law suit filed by certain stockholders
in the Delaware Court of Chancery seeking to enjoin the Offer (as previously
disclosed in Amendment No. 3), the Delaware Court of Chancery entered an order
on November 25, 1998 requiring the Company and its Directors to make certain
additional disclosures to you in connection with the Offer. The accompanying
Schedule 14D-9/A (Amendment No. 4) is being provided in accordance with the
Court of Chancery's Order and should be read in connection with the Purchaser's
Offer to Purchase, as supplemented, and the Company's Schedule 14D-9, as
amended.
Very truly yours,
Paul Stoffel
CHAIRMAN OF THE BOARD
<PAGE>
[ACS LOGO] NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
CONTACTS:
Mark A. King
EVP and Chief Financial Officer
ACS
(214) 841-8007
ACS EXTENDS TENDER OFFER FOR BRC HOLDINGS
DALLAS, TEXAS -- December 1, 1998 -- ACS (Affiliated Computer Services, Inc.,
NYSE: ACS) today announced that it has extended its tender offer for
8,704,238 shares of the common stock of BRC Holdings, Inc. (NASDAQ: BRCP) to
12:00 Midnight, New York City time, on Monday, December 14, 1998. The
extension is in anticipation of a ruling by the Delaware Chancery Court
approving the form and substance of additional information to be sent to
BRC's stockholders regarding the tender offer as required by the court in
connection with its previously announced decision to deny the motion of
Matador Capital Management Corp. to enjoin the tender offer except insofar as
it sought to require the dissemination of the above referenced information.
It is expected that such information will be sent to BRC's stockholders
immediately after the court approves the additional disclosure.
As of today, 6,194,131 shares of BRC stock had been tendered pursuant to the
tender offer and not properly withdrawn.
ACS is based in Dallas, Texas, and has operations primarily in North America, as
well as Central America, South America, Europe and the Middle East. ACS
provides a full range of business services including technology outsourcing,
business process outsourcing, electronic commerce, professional services and
systems integration. The Company's Class A common stock trades on the New York
Stock Exchange under the symbol "ACS." Visit ACS on the Internet at
www.acs-inc.com.
BRC Holdings Inc., based in Dallas, Texas, is an information technology services
firm with 30 years experience providing consulting, project management,
technical support and system services that enable its clients to achieve their
strategic and operational objectives. BRC specializes in information technology
outsourcing, consulting, information systems, and document management. For more
information about BRC, visit the company's web site at www.brcp.com.
<PAGE>
FOR IMMEDIATE RELEASE
CONTACTS:
Mark A. King
EVP and Chief Financial Officer
ACS
(214) 841-8007
[email protected]
ACS TENDER OFFER FOR BRC SHARES TO PROCEED
DALLAS, TEXAS - December 1, 1998 - ACS (Affiliated Computer Services, Inc.;
NYSE: ACS) today announced that in connection with its tender offer for
8,704,238 shares of the common stock of BRC Holdings, Inc. (NASDAQ: BRCP) the
Delaware Chancery Court has agreed to permit the offer to proceed upon the
sending to BRC's stockholders additional information which has been submitted to
the court regarding the tender offer. This ruling stemmed from the Court's
earlier ruling on November 25, 1998, which denied the motion of Matador Capital
Management Corp. to enjoin the tender offer except insofar as it sought to
require the dissemination of the above referenced information, which is expected
to be mailed to BRC's stockholders within the next 24 hours.
Jeff Rich, President and COO of ACS said, "The tender offer, which was extended
earlier today, is now set to close at 12:00 Midnight New York City time, on
Monday, December 14, 1998. As of yesterday, 6,194,131 shares of BRC stock had
been tendered pursuant to the tender offer. We are obviously pleased with the
Court's decision, which allows BRC shareholders the opportunity to accept our
offer."
Statements about the Company's outlook and all other statements in this release
other than historical facts are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward looking
statements rely on a number of assumptions concerning future events and are
subject to a number of uncertainties and other factors, many of which are
outside ACS' control, that could cause actual results to differ materially from
such statements.
--MORE--
<PAGE>
While the Company believes that the assumptions concerning future events are
reasonable, it cautions that there are inherent difficulties in predicting
certain important factors, especially the timing and magnitude of technological
advances; the performance of recently acquired businesses; the prospects for
future acquisitions; the possibility that a current customer could be acquired
or otherwise be affected by a future event that would diminish their information
technology requirements; the competition in the information technology industry
and the impact of such competition on pricing, revenues and margins; the degree
to which business entities continue to outsource information technology and
business processes; uncertainties surrounding budget reductions or changes in
funding priorities or existing government programs and the cost of attracting
and retaining highly skilled personnel. These factors, when applicable, are
discussed in the Company's filings with the Securities and Exchange Commission,
including the most recent Form 10-K, a copy of which may be obtained through the
Company without charge. ACS disclaims any intention or obligation to revise any
forward-looking statements whether as a result of new information, future event,
or otherwise.
ACS is based in Dallas, Texas, and has operations primarily in North America, as
well as Central America, South America, Europe and the Middle East. ACS
provides a full range of information technology services, including technology
outsourcing, business process outsourcing, electronic commerce, professional
services and systems integration. The Company's Class A common stock trades on
the New York Stock Exchange under the symbol "ACS". Visit ACS on the Internet at
www.acs-inc.com.
BRC Holdings, Inc., based in Dallas, Texas, is an information technology
services firm with 30 years experience providing consulting, project management,
technical support and system services that enable its clients to achieve their
strategic and operational objectives. BRC specializes in information technology
outsourcing, consulting, information systems and document management. For more
information about BRC, visit the company's web site at www.brcp.com.
--END--
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MATADORE CAPITAL MANAGEMENT )
CORPORATION EVERGLADES )
PARTNERS, L.P., EVERGLADES )
OFFSHORE FUND, LTD., and )
CONTRARIAN OPPORTUNITIES )
FUND, L.P. )
Plaintiffs, )
) C.A. No. 16758
v. )
)
BRC HOLDINGS, INC., ACS )
ACQUISITION CORPORATION, )
AFFILIATED COMPUTER )
SERVICES, INC., PAUL T. STOFFEL, )
L.D. BRINKMAN, ROBERT E. )
MASTERSON, and DAVID H. )
MONNICH, )
)
Defendants, )
ORDER
For the reasons set forth in the Court's Opinion dated November 25, 1998,
the Court hereby Orders as follows:
1. The consummation of the pending tender offer by Affiliated Computer
Services, Inc. for 8,704,238 shares of BRC Holdings, Inc. ("BRC") is hereby
preliminarily enjoined until BRC and the individual defendants (collectively
the "BRC Defendants") mail the supplemental disclosure document attached
hereto as Exhibit A (the "Supplemental Disclosure") to BRC's stockholders of
record.
<PAGE>
2. Assuming that the Supplemental Disclosure is filed with the United
States Securities and Exchange Commission and mailed to BRC's stockholders on
or before December 2, 1998, this preliminary injunction will expire
automatically and without any further action of the Court or the parties at
11:59 p.m. on December 14, 1998. If the Supplemental Disclosure is mailed
after December 2, 1998, the injunction will expire automatically and without
any further action of the Court or the parties at 11:59 p.m. on the eighth
business day after the date of the mailing.
3. This order is effective immediately subject only to the filing by
the plaintiffs of a bond, without corporate surety, in the amount of $10,000,
on or before December 2, 1998 at 5 p.m.
/s/ Stephen P. Lamb
--------------------------------------
VICE CHANCELLOR STEPHEN P. LAMB
DATED: December 2, 1998.
