IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE ADAMS GOLF SHAREHOLDER : LITIGATION : : Consolidated : C.A. 7354-VCL
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(302) 255-0525
 
 
 
EFiled:  Oct 25 2012 03:35PM EDT   Transaction ID 47341143  Case No. 7354­VCL 
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CHANCERY COURT REPORTERS
APPEARANCES: GINA M. SERRA, ESQ. Rigrodsky & Long, P.A. -and- DONALD J. ENRIGHT, ESQ. of the District of Columbia Bar Levi & Korsinsky, LLP -and- SHANE T. ROWLEY, ESQ. of the New York Bar Faruqi & Faruqi, LLP -and- KIM E. MILLER, ESQ. of the New York Bar Kahn Swick & Foti, LLC For Plaintiffs R. JUDSON SCAGGS, ESQ. ANGELA WHITESELL, ESQ. Morris Nichols Arsht & Tunnell LLP -and- CARRIE L. HUFF, ESQ. of the Texas Bar Haynes and Boones, LLP For Defendant Adams Golf, Inc. and the individual defendants
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How are you doing?
you?
Rigrodsky & Long on behalf of plaintiffs. I would
like to introduce to the Court Donald Enright from
Levi & Korsinsky, Shane Rowley from Faruqi & Faruqi.
THE COURT: Good to see you again.
MS. SERRA: And Kim Miller from Kahn
Swick & Foti. Miss Miller has been admitted pro hac
vice and will be presenting today's argument.
THE COURT: That's fine.
MS. MILLER: May it please the Court.
Your Honor, it's a pleasure to present to you for the
first time today.
MS. MILLER: Thank you. It's been a
while since I've been here. My firm represents
Armand Charbonneau, who held 11,000 shares of
Adams Golf common stock during the class period. The
price of the transaction is $10.80 per share. So he
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actually voted ultimately in favor of the deal.
99 percent voted in favor.
We're before the Court today upon
plaintiffs' unopposed motion for final approval of
settlement in this case. The hearing today was set by
the Court's order dated July 24, 2012, pursuant to
which notice was made to shareholders of Adams Golf
common stock notifying them of the settlement and this
hearing of their right to object.
With respect to the notice, Your
Honor, first, I want to apologize. In this instance,
we actually submitted a notice that you weren't quite
happy with and we submitted another one that provided
some additional information to the shareholders about
the history of why we were interested and brought the
case originally, and that revised notice was sent out
to shareholders. And in accordance with the
affidavits, the affidavit by Miss Gayle James of
ComputerShare, there were 387 notices that were
initially mailed to shareholders. And we actually
checked with counsel for Adams this week and they
informed us that 510 additional ones were sent out
that were requested by the brokers.
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before I get into the disclosures themselves, on
March 19, 2012, Adams Golf and the Adidas Group
jointly announced that TaylorMade-adidas golf business
segment of TaylorMade had entered into a definitive
merger agreement the day before on March 18 to acquire
all the outstanding shares for 10.80 per share. My
firm was the one that filed first in this case. The
announcement was March 19. We filed about five days
later. When our client reached out to us originally,
he obviously had large holdings and he was concerned
about both price and process. And one of the things
that struck us in looking over the case, it was clear
the company was doing quite well -- remarkably well,
in fact -- compared to the prior year and things
seemed to be going quite well for them. And one thing
that my client was particularly noting in the
announcement itself, Mr. Barney Adams, who was the
interim CEO at the time the announcement was made, he
stated in the release the merger provides strong
opportunities for our employees, suppliers and
partners. I realize this does not go to the technical
aspects of the deal. But this was something that made
a shareholder with large holdings say, "Hey, what
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about EBITDA revenue, net income multiples for
comparable transactions, and it appeared that Adams
was low.
March 23rd and several others followed. You
consolidated the cases in an order dated April 11th.
We actually filed, with the assistance of our expert,
an amended complaint after the proxy came out on
April 25, 2012.
it right: Charbonneau. Had he worked with you all
before?
the first time we worked with him, Your Honor.
THE COURT: What inspired him to reach
out to you?
and he just contacted us. We have done cases like
this before and, in fact, we're currently lead counsel
in a case in Minnesota and proposed colead in a case
in California. Recently we've been sort of floating
around. And he reached out to us without having a
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THE COURT: And what is his
occupation?
investor. He's not otherwise working.
On April 30 we filed a motion for
expedited proceedings and the motion for preliminary
injunction, and ultimately we worked out a schedule
with defendants for an expedited schedule and
documents were produced on May 8th. We received about
1722 documents. Those consisted of board minutes,
board presentations by the banker, which was Morgan
Stanley for Adams. Correspondence, including letters
of interest between adidas and Adams, an engagement
letter from Morgan Stanley, a fairness opinion, a
separation agreement between Adams and its former CEO
Oliver, known as Chip Brewer, as well as e-mails
exchanged between Adams, Morgan Stanley and counsel,
including e-mails that talked about a blow-out for
supporter, drafts and final versions of SEC filings
and related materials.
this case. We took the deposition on May 15th, 2012
in New York of Ben Frost, the Morgan Stanley banker.
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We took another contested deposition in Fort Worth,
Texas. My notes say May 15th, but I don't think those
depositions were actually taken on the same day. But
they were taken within a day of each other, around the
15th of May. Of course, while we were taking those
depositions, we were also working to prepare our
preliminary injunction opening brief, looking at
documents, talking to our expert. And ultimately we
decided -- I think our PI opening brief was due on
May 17, and we had reached an agreement by that time
with defendants. We were working on finalizing the
MOU. So we reached out to them and said, "Can we have
a one-day extension and not file our preliminary
injunction brief?" And then we signed the MOU the
next day.
actually set for May 30. So the supplemental
disclosures went out on May 18th. So the shareholders
had time to digest that information. The vote, I
should say, was also May 30th and the deal closed on
June 1st. And now, with respect to the disclosures,
Your Honor, I think -- I have done some homework here,
and I have read many of your transcripts, since I
haven't been before you before. I feel like Mitt
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Anyway, so I assume that a question
you might have is, "Gee, Miss Miller, what is your
best disclosure?"
MS. MILLER: And you probably didn't
even listen to anything I said up until this point.
THE COURT: I absolutely listened to
what you said. You actually have done a good job
covering things. You gave me the depositions, which
is nice. I always like to have them.
MS. MILLER: Yes, I did.
THE COURT: Either you realized that
or Miss Serra made sure you had them in there. So all
that was good.
MS. MILLER: Yes.
MS. MILLER: So our best one -- and I
actually -- I was speaking with Mr. Enright this
morning and he does have a little bit more experience
than I do in these matters. So he actually found that
the discounted cash flow disclosure was the top one.
I'll tell you about -- I'm going to defer to him and
lead off with that one. But I actually also like the
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analysis of precedent transactions. Let me talk with
respect to the discounted cash flow. We actually --
we organized our brief in such a way that we didn't
say we mastered complex facts, but we did --
THE COURT: I'm so glad you finally
said that. I would really hope people would start
saying that.
MS. MILLER: We try really hard not to
say that. And we tried to sort of organize it in a
way that you could clearly see what we got in addition
to what was there before. So if you look at our brief
on page 11, the disclosures, the new disclosures are
set forth starting on page nine. But on page 11,
under the subheading No. 3, this is the stuff that
relates to the discounted cash flow analysis by Morgan
Stanley. And the proxy had previously stated that
Morgan Stanley calculated net present value of
estimated free cash flows for 3.75 years and 4.75
years. So we added this language thereafter. "The
calculations were made on a forward-looking basis from
the conclusion of the first quarter of 2012, with the
terminal year immediately following the conclusions of
such periods."
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first part. It continues. The key piece is at the
end. So shareholders were informed that the start
date for the calculation of these values was
March 31st, 2012 and that the terminal periods would
end on December 31st, 2015 and 2016. And we got an
explanation of the importance of the discussion of
cash flows discounted using a rate of 9.4 percent, and
Morgan Stanley's review of present values using
discount rates of 8.4, and 10.4.
We got additional language about the
discount rate setting forth a range of $10.11 to
$15.08. And so the original range was $10.35 to
14.58, assuming a constant discount rate and applying
a range of terminal multiples. And so the
supplemental disclosure shows a range of $10.11 to
$15.08, and we believe this new range is based on the
sensitivity analysis of the 8.4 percent to the
10.4 percent based on a range of discount rates.
So that provides a broader range, more
information for the shareholders. And I would point
to the Pure Resources case cited in our brief, the In
Re BJ Services Company case regarding providing inputs
on the DCF analysis, a significant and useful tool
shareholders are materially better off because of the
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additional disclosures. That's a quote from the BJ
case which is in our brief.
But I also like, Your Honor, as I
said -- and I might even like this one more. There's
so many good ones, honestly. It's so hard to pick.
(Laughter.)
precedent transactions, what we got, Your Honor --
initially disclosed, of course -- was analysis of
precedent transactions that related to public
companies. What we got was an analysis that Morgan
Stanley had done and shared with the board relating to
private entities, and that had not been disclosed at
all. So this is a whole new precedent transaction
analysis involving private entities. And I would
suggest that in accordance with In re Cardiac
Sciences, In re Timberland and Pure Resources that
this is information that shareholders would be
interested in. Yet, there's more, Your Honor.
There's another one that I also like that I also
discussed with Mr. Enright this morning. We were
debating about how to present this one to you. This
is the one that relates to the Morgan Stanley fee.
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CHANCERY COURT REPORTERS
What we got on this one -- there was a bit of
ambiguity and essentially what we got is the
undisclosed minimum on the contingent fee, which shows
that Morgan Stanley was not incentivized to get the
right price in the transaction but was incentivized to
get the deal across the finish line. And the bank got
$2 million to get this across the finish line. So we
felt that that was also something that shareholders
might be interested in.
cases that support that concept. David P. Simonetti
Rollover IRA versus Margolis case. The
John Q. Hammons Hotels case and the DelMonte case.
There are additional disclosures. There's a piece
regarding the background of the merger, which is set
forth on page nine of our brief. Basically, we
obtained additional information on the precise number
of potential acquirers, which is 41, and more
importantly, the breakdown of that number into 12
financial sponsors and 29 potential strategic
partners, and also the information -- new
information -- that there were five confidentiality
and NDAs entered into, three with financial sponsors
and two with strategic partners.
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the merger, we also got additional information about
Mr. Fleischer, who actually is the sole member of the
special committee and he was deposed. The disclosure
that we got related to his -- the reasons that the
board had chosen him to be the sole member of the
committee, which is based on his experience with M&A
transactions and the fact that the board viewed it to
be more efficient to just have one guy at the helm of
those negotiations.
We also got a disclosure which is also
a disclosure about the fairness opinion on the
relative trading performance. This is set forth at
page ten of our brief. What we got here is disclosure
of Morgan Stanley's analysis. Specifically we got the
peer companies that were used in the analysis which
include Amer Sports Corporation, Bauer, Callaway,
Jarden, Johnson, Mizuno and Shimano. And this is
actually an interesting additional disclosure, Your
Honor, because, if you look at these pieces for
purposes of the relative trading performance, all
seven of them had equity and aggregate values that
were far greater than Adams.
In fact, for example, Mizuno's over
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ten times the size based in Japan and not really
involved much in golf anymore. In fact, Shimano since
2005, hasn't even been producing golf supplies at all.
They focus on bicycle components. So, anyway, this
disclosure of the peer companies enabled shareholders
to have an opportunity to see what the companies are
and that they might be in distinct lines of business
from Adams.
couldn't fathom why it wasn't in there in the first
place and actually made me think that there had been
some sparse disclosure at the front end to leave some
low-hanging fruit for settlement purposes. How should
I take that into account into what I have to do today?
MS. MILLER: Well, it actually never
crossed my mind that that was low-hanging fruit and
held back so that it could be disclosed later. I just
thought, gee, it was great that we got this because it
is actually interesting information that I'd like to
know if I was a shareholder.
THE COURT: Absolutely. But it's
also -- I mean, we go through these evolutions in
disclosure with the banks fighting tooth and nail to
resist every single additional word as if their
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virtually at the relinq of the description of the
banker's section of the proxy statement, even on stuff
that should be completely noncontroversial. So
originally they didn't want any analysis -- any
descriptions of these underlying analyses in there.
Then my good predecessors, like Chancellor Strine,
pushed them to the point where they would put ranges
in. Then they got in the habit of putting in lists of
precedent transactions and precedent comparables and
that's now really the standard.
What I would like to see is the list
of precedent comparables and precedent transactions
and then the type of summary metrics that the board
gets. So what the low, what the high multiples were,
what the median was, so that you can figure out if --
where the transaction multiple falls and you don't
just have the low and the high. But that's something
that now is done in the better proxy statements. I
can't say, by any means, that it is the practice.
Because as I say, the resistance to what should be an
easy step in copying over from a summary page of the
board book something directly into the disclosure
section of the proxy statement has resulted in screams
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and howls, as if one were requiring the production of
reams of additional analysis and highly confidential
information.
Leaving that aside, though, it is, in
my sense of it, quite rare in the present day for a
banker not to include in the description of their
transactions at least the list of precedent companies
and for their comparable transactions analysis
comparable transaction. So that's when I saw that
this was something that you got. It, frankly, made me
worried that it was something that was at some level
planned to be something that could be given. When I
see something like that, I'm in a bind. On the one
hand, it's not your fault. You didn't draft the
original disclosure. On the other hand, why should I
give the defendants a release under these
circumstances where they seem to be setting themselves
up to try to get the release? Would it be better for
me simply to disapprove the settlement and let you all
take your attorneys' fee on the benefit-conferred
basis? That way you wouldn't be harmed. You didn't
create the problem. But the defendants then wouldn't
get the benefit of what one suspects, given some of
the things that were left out of this, was a plan to
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Your Honor, unless you guys would like to address it.
THE COURT: They'll have a chance. I
don't know if they'll have any comment. Usually they
don't have any comment.
MS. MILLER: It is funny because
clearly this is No. 1, and Mr. Enright and I had
numbers two and three.
Honestly, in negotiating the
supplemental disclosures with the defendants, this did
not jump out to us as a gimme. I can't say your
hypothesis is or is not correct. I'm not sure of the
public policy implications of your proposal, but
that's not for me to say.
THE COURT: Would you feel aggrieved
if I didn't approve the settlement but gave you your
fees on a benefit-conferred basis?
MS. MILLER: "Aggrieved" is a strong
word. But I wouldn't love it, Your Honor, even
though -- I just think the long-term implications are,
any time there's a minor oversight or small mess up or
something that people reasonably can disagree about,
whether or not it's necessary to be disclosed, creates
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another lawsuit and there's never closure. Obviously
the goal on all sides here today is to get some
closure, or one of the goals, I should say.
THE COURT: I don't want you to be
selling closure. I want you to be selling claims.
What you're supposed to be settling for is the value
of the claims you brought, not the closure benefit
that you happen to be able to provide because we grant
broad releases on a classwide basis.
So while I'm sympathetic that what you
in fact get to sell and what in fact defendants like
to buy is closure. When I'm evaluating a settlement,
what I have to weigh is the benefit you obtained
against the claims that you're giving up, not some
generic sense of we're just selling closure.
MS. MILLER: Let me put it another
way, Your Honor. As we were looking at this case and
reviewing our claims with our expert, as we moved
forward and filed our amended complaint and did the
discovery and took the contested depositions,
Mr. Enright and I were putting together our motion --
our brief on the PI motion -- and we put our heart and
soul into that brief and we didn't think we were going
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CHANCERY COURT REPORTERS
to win. Maybe we would have. Here, in front of you
today, maybe I should rethink that.
THE COURT: No. I'm not telling you
you should rethink that. Part of the other issue here
is, this was a well-shopped deal. So part of the
other problem you have is that you've got banker
disclosures in the context of a deal where there was
an extensive market process. When there's an
extensive market process, that is the validating fact
for the deal. A banker could come in and say that the
value of this company extends northward on a range
that a Texan would be comfortable on, to paraphrase
our good Chancellor Allen. If you can't get it in the
market, that's static and noise.
I think these types of things are much
more critical when somebody comes in with a single
bidder transaction or a nonshopped or limited shopped
deal where they're putting heavy reliance on the
wisdom and valuation arts of their investment banker
to help them conclude that they have gotten the best
transaction reasonably available.
did a broad market canvas. They got a market-clearing
price. My real estate agent can tell me my house is
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CHANCERY COURT REPORTERS
worth 600,000 bucks. If I can't sell it for that, it
doesn't matter what he tells me. So if he tells me,
Mr. Laster -- he doesn't call me Your Honor --
MS. MILLER: I apologize for him, Your
Honor.
(Laughter.)
my house right now. It's just a hypothetical. If he
comes in and tells me, "Look, I've looked at the type
of hedonic pricing calculations that are included in
the consumer price index. And if you consider the
type of mythical hedonic pricing value of your house,
your house is actually worth 600, $800,000." I don't
care. If my house has been on the market for 60 days
and 40 people have come through and looked at it and
the only offer I've gotten is $400,000, all the
analysis in the world doesn't invalidate that price.
Obviously absent some other concern. You all came in
here initially with some enhanced scrutiny claims as
well.
So I'm not telling you that this was
one that you should have taken the mat because of all
that. Honestly, that does undercut a little bit, I
think, the value of some of the disclosures because of
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digressed and taken up enough of your time on that
digression. What is your understanding of why the new
analysis wasn't in there in the first place, either?
MS. MILLER: Are you talking about the
new analysis?
private company comparable analysis.
THE COURT: They did this analysis.
MS. MILLER: Yes. Morgan Stanley did
this analysis. It was in the book. It was not
disclosed. I don't -- question mark over my head. I
can't answer the question. I don't know.
THE COURT: That's what I don't get
either.
MS. MILLER: I don't know the answer.
THE COURT: You do an analysis, you
derive the range. You don't give it to the board? I
look at that and I think, pull it back. Isn't your
issue because you're not in there in the disclosure
drafting phase?
this because these are two things that, again, I'm
somewhat flabbergasted that they weren't in the
original proxy statement.
today, I would submit to you that we got valuable
material, additional disclosures for the benefit of
the shareholders, that there's no evidence of
collusion here, that there's no reason, really, to
reject the settlement, there being no evidence to
support this concept that this was sort of a
gotcha-claim waiting to be thrown out there at us, as
opposed to our excellent lawyering, which I think was
really more the case.
There is one more -- still one more --
and it would be my mom's favorite. This would be the
disclosure relating to the interests of the directors
and officers in the merger. And this is set forth on
page 126 our brief, the bold stuff. We got this new
chart, and the entire second column in the chart is
new information, which could be gleaned by the
shareholders if they look at several pages and
footnotes and did the calculations themselves. But
that information is all new. And on the left side,
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not in this format. And with respect to, I believe
it's Miss -- hang on. Let me not say the wrong name
here.
$50,000 number there in the left column, that was
information that had to be calculated. The other
numbers were previously set forth as that number.
THE COURT: 50,000 a share number?
MS. MILLER: Yes.
understanding as to what the ordinary vesting schedule
would have been for the restricted stock?
MS. MILLER: There were different
dates over a period of several years, a bunch of
different ones for the different people over -- I
think all of it was by 2015, but I'm not actually
positive standing here at this moment.
THE COURT: Because that's the
incremental value. I mean, the value of acceleration
lies in the elimination of a contingency risk as to
whether, in fact, you are going to get your
restrictive stock or your options. That's what gives
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differential interest.
obviously, if they're paid out at the same merger
price, everything's aligned. Where the benefit comes
in is through the time value of the accelerated
vesting and the elimination of the risk that you would
lose the accelerated vesting. So I look at this and I
say, "Okay. 800,000, 810,000 is the face amount."
Really, it's something much less than that because
these folks would have gotten the shares eventually.
And I have to try to think about what the value of the
acceleration and payout today is relative to how they
would have gotten them over time. I hear you that it
was helpful to get the face number.
Why did you choose the starting point
that you did for the class definition?
MS. MILLER: When we discussed and
negotiated the settlement with the defendants, there
were allegations in some of the complaints that went
back to that time period in November, and so they
wanted to insure that that landscape was covered. But
I'm actually not aware that there are any other
lawsuits that -- I mean, in the Adams disclosures,
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think they were trying to lump something in there or
anything like that. It was simply the matter of dates
being referenced and allegations in the complaints.
THE COURT: Okay.
MS. MILLER: I think I already talked
about the notice. I was ready to move on to the
notice, if you don't have any other questions.
I know one thing that Your Honor does
have some concern with is the lack of the impressive
quality of no objections. So I will add to that that,
in addition to the failure of any class members to
object, we actually received some calls from class
members with some questions about the deal. And a
couple people actually said, "Oh, this seems like a
good deal." So there wasn't total apathy is what I'm
saying, Your Honor. There was some calls that we got,
about eight or nine calls we got. Plus we got some
calls from the brokers.
folks who aren't rationally apathetic.
(Laughter.)
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through that.
on that was about the class definition and you
answered it.
settlement were completed. The agreed fee cap is
362,500. We think we could have readily pressed for
more in this case given the quality of the
disclosures. We thought it was important to reach an
agreement so you wouldn't have to have us all in here
having a big debate about it.
THE COURT: That's fun. That's when
I'm actually the most informed. They're fun in the
sense that this is not fun. This is not fun because I
don't have the competing briefs. I have to just think
about this without the benefit of Mr. Ralston and
Mr. Scaggs and their co-counsels' wisdom as to, why,
perhaps, these aren't worth what they're worth. So
what is more fun for me -- I don't mean that in any
prurient sense -- what is better and easier for me is
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CHANCERY COURT REPORTERS
when I get the conflicting debate of the two sets of
well-armed adversaries, with you telling me why your
disclosures are worth so much and your friends
countering and saying, "Well, no. Actually they
aren't." Here, I have to essentially gestalt it by
saying, how much do I think this benefit is worth?
What would I have hired you for to do this work?
If I hired you to do this, why
wouldn't I have expected you to spend 10, 20 hours
reviewing the proxy statement, marking it up, and then
I'd pay you an hourly rate for that time?
MS. MILLER: Well, Your Honor, several
responses to that. Our hours in this case, we broke
it down to preimposed MOU. 532 preMOU and post is
214. That might sound like a really big number to
you. But, Your Honor, that is a low number. I mean,
we were efficient in this case.
THE COURT: A more realistic number.
MS. MILLER: Yeah. A real number as
opposed to a pie-in-the-sky figure. It doesn't take
2000 hours to get to where we are today.
THE COURT: A goofy,
are-these-people-lying to me number.
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citizens.
(Laughter).
while in these cases since clients like mine have
walked in off the street and offered to pay me my $675
hourly rate to spend 20 or 30 hours on the prospectus,
which I can assure you against these guys -- these
guys are before you all the time. That was not going
to get me a result for Mr. Charbonneau.
If you break down our fee after taking
out our $23,346 of expenses, it's just $455 an hour,
which is a reasonable number, I submit to you, given
the quality of lawyering that we have in our group. I
know you're quite familiar with all of the firms I'm
working with today in this case.
I did want to apologize for a typo in
the brief. There is a reference to an expense figure.
The first time it appears it says 20,000. It was
supposed to be a three instead of a zero. But it's
right elsewhere in the brief and correct in the
affidavit.
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the people in their firm's resume -- I forget which
one it is -- has me as Travis J. Laster instead of
J. Travis Laster.
firm, Your Honor. I submit it's not. We'll be
checking immediately.
MS. MILLER: My partner, Lou Kahn,
negotiated with defendants over a series of days. We
obviously thought that we got great disclosures. We
were thinking, you know, higher. Obviously, if this
was contested under Sauer-Danfoss, we thought we could
really go for five and up. We wanted some closure.
I'm sure the defendants had their motivations. We
didn't want to have a fight, which you probably would
have enjoyed far more than we would have enjoyed.
Frankly, we thought it was a bit low. After several
days of discussions, we came to that figure. We
thought that it was something that was acceptable and
reasonable and fair and that we should not come in on
a contested fee application to seek a bit more than
that, even though we think that perhaps we earned it.
THE COURT: All right. Thank you.
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what should I do about this question I raised about
some of this information not being in there in the
first place? Should I be worried about that at all?
MR. SCAGGS: I guess, first, Your
Honor, I'd like to introduce Carrie Huff from Haynes
and Boone.
coming up. Sorry we don't have better weather.
MS. HUFF: It was raining down in
Texas, too.
conversation several years ago, Your Honor, with me at
the podium. I could say the following about it, which
is, from the Court's perspective, looking at these,
saying now why wouldn't that be there, I would
respectfully suggest there could be a creep of some
paranoia there about the ability or the plans of very
sophisticated parties --
undertake this type of gamesmanship. That's certainly
understandable, in light of the Delaware law
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overall transaction where the other claims are clearly
weak, then I think the paucity concerns about that
fade somewhat. It's not like you're releasing
something. It's pretty clear that should in any real
estate might be pursued. If you put those aside, I
would just tell Your Honor that, despite the fact that
within our community your transcript rulings and
everything that's said at conferences are closely
studied. Believe it or not, it just doesn't make it
out there always.
about my lack of any influence beyond the small
community in which we work. My kids are actually
sometimes amazed when we run into folks like you in
town and you'll come up and say, "Oh, Your Honor, it's
good to see you." I tell them, "In this one small
micro community people actually know who I am. When
you move out beyond this relatively extremely narrow
community of deal-makers and Delaware lawyers, no one
else cares who your dad is."
MR. SCAGGS: I had heard the
Chancellor comment, Your Honor, about having corporate
law groupies. And he said, "If you're going to have
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groupies, those are not the ones -- they'd be the last
on the list of all groupies on earth."
(Laughter.)
MR. SCAGGS: Your Honor, on this
policy question, I know it's a concern. When the
cases come in, these things -- and mistakes happen.
And I think it would be -- of course, sent a real
shock wave to take that step. I understand Your
Honor's concern. And of course, I think Your Honor
would quickly recognize the kind of reverberations
that it would send around the community to not have
one of these, unless there was clear evidence that
that happened.
days of practice, lots of things happen and mistakes
and things get overlooked. That's why these folks
here to my left come in and look at these things.
I will say one other thing. As far as
looking at the dynamics and the motivations in the
litigation, one thing that does help is what I think
the greater scrutiny the Court has begun to provide on
motions to expedite in a disclosure situation because
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CHANCERY COURT REPORTERS
then we can tell a client, "Look, we believe in these
disclosures. Let's see if we can't shut this down
early on at a reasonable cost. And if you can do
that, then that's an incentive that would have run the
other way." I'll just point that out. And that's
happened more recently. And that's, of course, what
we tell people, Your Honor, is you make these the best
you can. If somebody comes in, we try to defeat these
guys. We do our best at the motion-to-expedite stage.
Then you're not in the condoner of how much will I pay
to litigate this versus how much can I pay to provide
additional disclosure. Certainly, Your Honor, I would
know of no such facts and tell the Court right now
that any of that type of behavior happened in this
case.
it helps Your Honor.
else?
MR. RALSTON: I don't have anything to
add, other than to assure the Court I'm not aware of
any facts that would be along the lines of what you're
suggesting.
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Today's hearing is so that I can consider the proposed
class action settlement in In re Adams Golf
Shareholder Litigation, C.A. No. 7354. I note, for
the benefit of everyone who captions these cases, that
with the 2010 amendments to the DGCL, there are no
longer any stray references in the DGCL that use the
term "shareholder." The DGCL uniformly uses the term
"stockholder." Shareholder is a model act concept,
although it did slip in in Section 203 for a few
years. And certainly our decisions are not always
scrupulous in observing the distinction.
Nevertheless, I will humor myself, if no one else, by
thinking of this privately as In re Adams Golf
Stockholder Litigation.
Adams Golf, Inc. by Taylor Made Golf Company, a
subsidiary of the adidas Group that was announced on
March 19, 2012 through a reverse triangular merger.
Adams Golf merged into a merger sub, remained a
surviving company and became a wholly-owned subsidiary
of Taylor Made. The outstanding stock of Adams Golf
was converted into the right to receive $10.80 per
share in cash for an approximate transaction value of
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description in the notice, and the adequacy of
delivery, approval of the settlement and review of the
attorneys' fee award.
expansive date of the class definition. The class
starts the holding period at November 1, 2011,
although the transaction was not announced until
March 19, 2012. It wasn't really clear to me why
there was that disconnect. But given counsel's
explanation this morning, I'm comfortable defining the
class, as set forth in the stipulation, covering a
period from November 1, 2011 through and including
June 1, 2012, the date of the merger closing.
In terms of the requirements of
Rule 23, numerosity is easily met. Two weeks before
the deal's announcement there's approximately
7.9 million shares of Adams Golf common stock
outstanding. The shares were listed on NASDAQ. It's
reasonable to assume that the Adams Golf shares were
held by owners across the United States.
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alleged common injuries arising out of the defendants'
actions in approving the merger, including breaches of
fiduciary duty in agreeing to a transaction that
wasn't the best transaction reasonably available,
alleged aiding and abetting and an inadequate
disclosure. Those injuries affected all stockholders
in their capacity as owners of the property rights
that were affected by those wrongs, and therefore all
of the questions were common to the class.
In terms of typicality, the plaintiff
was a stockholder and affected the same way as the
rest of the holders of shares representing the
property rights injured by the defendants' conduct.
The last issue is adequacy of the
class representative. The requisite Rule 23(e)
affidavits have been filed. Based on the plaintiffs'
affidavits, there's no evidence of a divergence of
interests. The counsel who litigated this matter are
known to this Court and qualified.
I had some question coming into this
as to the sufficiency of some of the disclosures.
Having discussed it with counsel this morning, I'm
reassured that the action was vigorously prosecuted,
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that the settlement in fact was negotiated, that the
plaintiffs were ready to go forward, if necessary, and
that this was not a case that was simply filed and
harvested.
certification is appropriate under Rule 23(b)(1)
because prosecution of separate actions by the
individual class members would risk inconsistent
results, and adjudication with respect to one
stockholder would effectively be dispositive of all
stockholders interests.
applicable to the class and the plaintiffs sought
injunctive relief and they obtained through the
settlement the equivalent of injunctive relief.
Finally, as I noted, the Rule 23(e)
requirements have been satisfied by the filing of the
affidavits.
of a nonopt-out class pursuant to rule 23(b)(1) and
(b)(2) of the rules of the Court of Chancery.
In terms of adequacy of notice, I find
that the notice was sufficient. I originally did not
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of the events of the case that really read like
somebody had simply transcribed the docket entries.
What I think stockholders actually are
interested in is why you sued, what you thought you
were going to get, and what you thought the bad guys
did wrong, and then what you in fact found out and
what you got in return. I honestly don't know if the
stockholders really are terribly interested for
notice of settlement purposes in whether or not I
consolidated the multiple class actions on such and
such a date. They're far more interested in
understanding and having a description that
"Originally we thought the bad guys were bad because
we thought they did X, Y and Z. We got in there and
found that the bad guys weren't bad as to X and Y, but
we still thought they were bad as to Z. We settled
and got you items one, two, and three because that
addresses the claim that we still had, which I'm
labeling Z." That's the type of thing that I think a
stockholder would actually be interested in.
Then a stockholder could call you up
and say, "Why didn't you get more?" Or as counsel
suggested this morning, "Wow, you did a great job.
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stockholders are calling up eagerly to ask you why the
multiple complaints were consolidated on a particular
date, even those who are irrationally non-apathetic
and terribly interested in the conduct of
representative litigation.
did a better job. According to the affidavit of
mailing that was filed on August 13, 2012 -- and the
affidavit is one of Gayle James, an employee of
Compushare Shareowners Services LLC, the transfer and
exchange agent for Adams Golf -- approximately 387
copies of the notice were mailed to record holders.
As counsel represented this morning, additional copies
were requested by banks and brokers to provide to
beneficial holders.
settlement. My task is to determine whether the give
of the settlement consideration is adequate in return
for what the plaintiffs and the class otherwise stood
to get if they had proceeded to litigate on the merits
and in light of the strengths of the claim. My job
isn't to hypothetically try the case but rather to
consider the nature of the claim, the possible
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then to determine in my own judgment whether the
settlement is reasonable. In saying that, I'm
paraphrasing the Philadelphia Stock Exchange case from
our Supreme Court.
breaches of fiduciary duty by agreeing to a
transaction that allegedly wasn't the best transaction
reasonably available when evaluated under enhanced
scrutiny. The primary alleged breaches of fiduciary
duty in that regard concerned claims that the
transaction was locked up with preclusive or at least
unreasonable deal protection devices, including a
significant stockholder voting agreement, a
nonsolicitation provision, a four-day match right, and
a termination fee equal to 4 percent of transaction
value. There's also aiding and abetting claims, and
inadequate disclosures.
the claims. Most importantly there was a substantial
pre-deal auction process. I can't stress that enough.
The existence of that process significantly undercuts
the plaintiffs' claims, both as to the deal protection
devices because it is understandable that at the
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greater deal protection devices in return for
extracting the type of high bid that comes out of a
full shopping process than one would if one were
simply agreeing in a single bidder strategy. It also
undercuts the disclosure claims, particularly those
related to the banker's analysis. I discussed this
some with counsel. What is critical is that the
market tested the transaction. If the market has
tested the transaction, the opinion of a banker that
perhaps the price could have been lower or could have
been higher is really, in my view, secondary. The
banker could say that this company was worth $15 a
share. But after a thorough shopping process, the
clearing bid was $10.80 per share. Whatever the
banker did to get to that value of $15 a share becomes
far less interesting when one has had a company on the
market and has shown that there simply isn't that type
of price out there. Given this -- although the
disclosures are not ones that I am overly stunned by,
and I will talk about that more in terms of the fee --
I have no problem approving this settlement under the
theory that obtaining supplemental disclosures was
adequate consideration for the relatively week claims
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that were asserted and for the likelihood of success
that those claims had in light of the sale process and
the defenses. On that, to Mr. Scagg's point, I do
think that if some of this information that was
settled for had been in there at the outset, this is
one where one could legitimately have defeated a
motion to expedite because there was a real shopping
process. There really weren't any colorable
allegations of steering or skimming, or anything like
that. This is one where, again, if more of this
information had been in there, particularly in terms
of banker's analysis, this probably could have been
shut down. Instead there were strange omissions from
the banker's analysis which not only do I think
provide adequate consideration for the settlement but
also provide adequate consideration for fees. That is
the subject to which I now turn.
Delaware's policy on attorneys' fees
is to ensure that, even without a favorable
adjudication, counsel be compensated for the
beneficial results produced, provided the action's
meritorious and has a causal connection to the
conferred benefit. That is our Supreme Court speaking
in Allied Artists Pictures Corporation versus Baron.
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In setting fee awards, I am required to make an
independent determination of reasonableness. That's
required because of this Court's role in overseeing
class litigation and to ensure that there hasn't been
any concern about a surreptitious buyout, be it
explicit or be it pragmatic, as a result of repeat
players being involved in the process and all knowing
their roles.
The Sugarland factors govern this
Court's award of fees. They call on me to take into
account the amount of time and effort applied to the
case by counsel, the relative complexities of the
litigation, the standing and ability of counsel, the
contingent nature of the litigation, the stage at
which the litigation ended, and whether the plaintiff
can rightly claim credit for all benefits. Because
deal litigation is quite common, we have developed in
this court a number of precedents that inform the
analysis of these factors for purposes of a disclosure
only settlement.
that the plaintiffs obtained were Type B and really
simply additional verbiage and not material and not
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there were at least three disclosures that had some
compensable value. I think that the additional and
private company analysis and a value that was
generated by that analysis was certainly compensable
and material. I, frankly, don't understand why there
was an analysis that was presented to the board,
considered by the board, included in the book and
somehow not summarized in the disclosure materials.
In terms of information that is of
more questionable materiality, particularly given the
shopping process but certainly helpful and compensable
for settlement purposes, I think that the list of
companies that were reviewed by Morgan Stanley in
terms of its comparable company analysis falls into
that category. Again, it is exceedingly rare, I would
think, although I cannot claim to have done any type
of statistical analysis and I'm relying on my own
anecdotal experience, to see a proxy statement that
doesn't list the precedent companies that ultimately
were provided in a supplemental disclosure. I really
don't get it. As I've said, I actually would like to
see the list of the companies and then something that
fleshes out the range and gives some sense of where
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the transaction multiple falls within the range. So
you'd have not only the two ends of the range but also
some indication, like median. If there's enough
comparables, you might even expect a 25 percent or
75 percent indication as to what those quartile
numbers were. Something so that a stockholder or the
Court can look at it and figure out whether the
multiple was at the low end, at the high end, how far
it was from the mean, et cetera. That's the type of
thing you routinely see in board books. Boards aren't
just presented with a naked high and low number and
then a list of comparable companies. They certainly
aren't just presented with a naked high and low
number. One can imagine that eyebrows would be raised
among directors to the point where surgery might be
required if all that they were provided with were high
and low multiples and not even a list of the
underlying precedent comparables. So I think that was
certainly compensable.
was -- in terms of the values generated by the full
sensitivity analysis and the discount rate -- was also
helpful. I'm not prepared to say under the
circumstances whether it was itself material, in the
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application. I certainly think it's compensable. A
stockholder reading this description and being
provided with point values using a discount rate of
9.4 percent but then also being told that actually the
numbers were run on 8.4 percent to 10.4 percent would
logically wonder and want to know and be interested,
from a partial disclosure perspective, in what in fact
that broader range produced.
disclosures. I think that discussion is sufficient in
terms of my fee award. If I were viewing this in the
abstract based on litigated presentations by counsel,
I could see trying to figure out whether these were
Class B type disclosures, Class A type disclosures,
where they fell in terms of adding things up. I am
not offended by the range that counsel negotiated. I
do think that it comes in somewhere in the middle of
the possible ranges of where an award might turn out.
Consequently, I will award the amount requested.
That's my ruling. Do you have a form
of order?
filled in on this. It's the same as what was
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order of today's hearing. So it's just the very last
page that has a blank.
THE COURT: That's the important
blank, though; right?
(Laughter.)
could be candid that you worked for money. We all
work for money. There's nothing wrong with working
for money. This is America, after all. We just don't
want all of our interests in working for money to
distract us from the people that we should be serving.
And I'm not suggesting that that happened here.
Three-sixty-two-five. Yes?
THE COURT: All right. I have signed
the order. I'm handing it to the clerk so it can be
entered on LexisNexis.
of the issues I've raised with presentations that have
been made to me earlier in making sure the information
I would like to see was in there. Thank you very
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50
Reporter of the Chancery Court, State of Delaware, do
hereby certify that the foregoing pages numbered 3
through 49 contain a true and correct transcription of
the proceedings as stenographically reported by me at
the hearing in the above cause before the Vice
Chancellor of the State of Delaware, on the date
therein indicated.
my hand at Wilmington, this 25th day of October, 2012.
/s/Diane G. McGrellis Official Court Reporter of the Chancery Court
State of Delaware Certification Number: 108-PS Expiration: Permanent
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