Case: In re Paramount Communications Inc Shareholders' Litigation 637 A2d 34 (Del Supr 1993)
Outcome: referred to
My consideration of the provisions for the no-shop and break fee provisions in this case has led me to the view that it would be desirable that applications under s 411(1) be supported by affidavit evidence directed to showing: &#8226; that the no-shop and break fee provisions are the result of a normal commercial negotiation, and explaining, at least briefly and in general terms, the factual basis for that statement (see [46] above); &#8226; that the directors of the target company, or at least those directors of it who are not affiliated with the offeror, believe that the provisions do not operate against the interests of offeree shareholders, and that in fact it was in the interests of such shareholders that the directors agreed to the inclusion of the provisions in the merger implementation agreement (see [46] above and In re Paramount Communications Inc Shareholders' Litigation 637 A2d 34 (Del Supr 1993) for a case in which a target company's directors' commitment to no-shop and break fee provisions was held, in all the circumstances, to constitute a breach of their fiduciary duty); and &#8226; in the case of the break fee, explaining, by reference to calculations based on the evidence before the Court, the percentage that the break fee represents (a) of the "equity value" of the target company, calculated in accordance with para 7.18 of the Takeovers Panel's Guidance Note 7, and (b) of the scheme consideration (the explanation might, instead, be conveyed in a submission, but still by reference to the evidence before the Court). If the independent expert is in a position to express an opinion on the matter (see s 79 of the Evidence Act 1995 (Cth)), the expert should state whether the no-shop and break fee provisions appear to be reasonable and not detrimental to the interests of shareholders, and if so, the basis for that opinion. Of course, the independent expert's opinions that agreement to the Scheme is in the best interests of the offeree shareholders and that no superior proposal is likely to be made, must not have been arrived at as a result of the very existence of the no-shop and break fee provisions (see [52] above). Convertible Notes and Options 56 The Scheme Booklet discloses, at sections 11.8 and 11.9 , the existence of convertible notes in APN and of options under an "APN Option Plan". Although the proposed Scheme is between APN and Offeree Shareholders (not option holders), INMAL is making an offer to all option holders to acquire their options at a price per option of $6.20 less the option exercise price. The acquisition by INMAL of the options is, naturally, conditional on the Scheme becoming effective. 57 As noted at [16](i) above, the Scheme provides for a deemed warranty by the APN Scheme participants of freedom from encumbrances. The deemed warranty is found in cl 3.4 of the Scheme document which provides: 3.4 Warranties by Scheme Participants Each Scheme Participant is deemed to have warranted to APN and appointed and authorised APN as its attorney and agent to warrant to INMAL, that all its APN Scheme Shares (including any rights and entitlements attaching to those shares) which are transferred to INMAL under the Scheme will, at the date of the transfer of the APN Scheme Shares to INMAL, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise, and any restrictions on their transfer and that it has the full power and capacity to sell and transfer its APN Scheme Shares (including any rights and entitlements) to INMAL under the Scheme.