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"paragraph_id": "para_14" }, { "text": "PVT. LTD., APOLLO TYRES B.V., and", "paragraph_id": "para_15" }, { "text": "APOLLO ACQUISITION CORP.,", "paragraph_id": "para_16" }, { "text": "Defendants.", "paragraph_id": "para_17" }, { "text": ")", "paragraph_id": "para_18" }, { "text": ")", "paragraph_id": "para_19" }, { "text": ")", "paragraph_id": "para_20" }, { "text": ")", "paragraph_id": "para_21" }, { "text": ")", "paragraph_id": "para_22" }, { "text": "MEMORANDUM OPINION", "paragraph_id": "para_23" }, { "text": "Date Submitted: July 9, 2014", "paragraph_id": "para_24" }, { "text": "Date Decided: October 31, 2014", "paragraph_id": "para_25" }, { "text": "Stephen C. Norman, Kevin R. Shannon, John A. Sensing, and Christopher N. Kelly,", "paragraph_id": "para_26" }, { "text": "of POTTER ANDERSON & CORROON LLP; OF COUNSEL: Robert S. Faxon,", "paragraph_id": "para_27" }, { "text": "Michael A. Platt, Louis A. Chaiten, Kyle T. Cutts, and Marjorie P. Duffy, of", "paragraph_id": "para_28" }, { "text": "JONES DAY, Attorneys for the Plaintiff.", "paragraph_id": "para_29" }, { "text": "Raymond J. DiCamillo, Susan M. Hannigan, and Christopher H. Lyons, of", "paragraph_id": "para_30" }, { "text": "RICHARDS LAYTON & FINGER, P.A.; OF COUNSEL: John L. Hardiman,", "paragraph_id": "para_31" }, { "text": "Robin D. Fessel, Adam R. Brebner, Laura K. Oswell, Oded Zaluski, Asel", "paragraph_id": "para_32" }, { "text": "Aliyasova, and Christen M. Martosella, of SULLIVAN & CROMWELL LLP,", "paragraph_id": "para_33" }, { "text": "Attorneys for the Defendants.", "paragraph_id": "para_34" }, { "text": "GLASSCOCK, Vice Chancellor", "paragraph_id": "para_35" }, { "text": "2", "paragraph_id": "para_36" }, { "text": "This matter involves the unraveling of the Agreement and Plan of Merger", "paragraph_id": "para_37", "court_paragraph": 2 }, { "text": "(the ―Merger Agreement‖) by which a large Indian tire manufacturer—Apollo", "paragraph_id": "para_38" }, { "text": "(Mauritius) Holdings Pvt. Ltd (―Apollo‖)—was to buy a large American tire", "paragraph_id": "para_39" }, { "text": "company—Cooper Tire & Rubber Company (―Cooper‖). Among other reasons,", "paragraph_id": "para_40" }, { "text": "acquisition of Cooper was attractive to Apollo because it would provide Apollo an", "paragraph_id": "para_41" }, { "text": "entrée into the Chinese market; a significant part of Cooper‘s business was its", "paragraph_id": "para_42" }, { "text": "majority ownership of an affiliate, a Chinese tire manufacturer, Chengshan Cooper", "paragraph_id": "para_43" }, { "text": "Tires (―CCT‖). Once the merger was announced, however, Cooper‘s ownership of", "paragraph_id": "para_44" }, { "text": "the affiliate emerged as a major obstacle to the deal‘s consummation. The", "paragraph_id": "para_45" }, { "text": "minority partner of CCT—known as Chairman Che—either vehemently opposed", "paragraph_id": "para_46" }, { "text": "the merger or saw it as an opportunity to extort value from the parties beyond what", "paragraph_id": "para_47" }, { "text": "his minority interest would justify. In either case, he used his position of authority", "paragraph_id": "para_48" }, { "text": "over the workers and their union to physically seize the CCT facility, prevent", "paragraph_id": "para_49" }, { "text": "production of Cooper products there, and deny access of the parties to the facility", "paragraph_id": "para_50" }, { "text": "and to CCT‘s financial records.", "paragraph_id": "para_51" }, { "text": "Consummation of the deal encountered another obstacle: Cooper faced", "paragraph_id": "para_52" }, { "text": "resistance from its own domestic union, the United Steelworkers (―USW‖), which", "paragraph_id": "para_53" }, { "text": "argued that the merger triggered a contractual right to renegotiation in several of its", "paragraph_id": "para_54" }, { "text": "collective bargaining agreements. An arbitrator agreed, and Cooper and Apollo", "paragraph_id": "para_55" }, { "text": "reluctantly entered into an agreement with the USW whereby the merger could not", "paragraph_id": "para_56" }, { "text": "3", "paragraph_id": "para_57" }, { "text": "close until a settlement was reached as to the collective bargaining agreements.", "paragraph_id": "para_58", "court_paragraph": 3 }, { "text": "Initially barred from the negotiating table by Apollo due to its historically poor", "paragraph_id": "para_59" }, { "text": "relations with its labor unions, Cooper became increasingly frustrated by Apollo‘s", "paragraph_id": "para_60" }, { "text": "lack of progress in negotiating with the USW. As the deadline loomed for Cooper", "paragraph_id": "para_61" }, { "text": "to report its third quarter financials—a condition to closing the merger, which", "paragraph_id": "para_62" }, { "text": "Cooper could not fulfill due to the disruption at CCT—Cooper began to suspect", "paragraph_id": "para_63" }, { "text": "that Apollo had grown cold to the merger and was failing to negotiate with the", "paragraph_id": "para_64" }, { "text": "USW in good faith in order to avoid consummating the transaction.", "paragraph_id": "para_65" }, { "text": "Once Cooper suspected bad faith, the Merger Agreement came a cropper.", "paragraph_id": "para_66" }, { "text": "Cooper sued, seeking specific performance or damages for breach of contract.", "paragraph_id": "para_67" }, { "text": "Apollo counterclaimed, requesting that I declare that Cooper had failed to meet all", "paragraph_id": "para_68" }, { "text": "conditions to closing, and was therefore not entitled to relief. The matter moved", "paragraph_id": "para_69" }, { "text": "on an expedited schedule to trial, where Cooper asked me to quickly consider the", "paragraph_id": "para_70" }, { "text": "specific performance issue in isolation, citing exigencies of its impending financial", "paragraph_id": "para_71" }, { "text": "reporting obligation. I complied with Cooper‘s request; in a November 8 bench", "paragraph_id": "para_72" }, { "text": "ruling, supplemented the next day by a letter opinion (together, the ―USW", "paragraph_id": "para_73" }, { "text": "Opinions‖), I found that the failure to reach an agreement with the USW prevented", "paragraph_id": "para_74" }, { "text": "the transaction from closing at that time, that this failure was not the result of a", "paragraph_id": "para_75" }, { "text": "contractual breach on Apollo‘s part, and thus that Cooper was not entitled to", "paragraph_id": "para_76" }, { "text": "specific performance. Because Cooper represented that appellate relief would be", "paragraph_id": "para_77" }, { "text": "4", "paragraph_id": "para_78" }, { "text": "meaningless if not given immediately, I certified an interlocutory appeal on the", "paragraph_id": "para_79", "court_paragraph": 4 }, { "text": "narrow grounds of my ruling on specific performance. While that appeal was", "paragraph_id": "para_80" }, { "text": "pending, however, Cooper dropped its request for specific performance, notifying", "paragraph_id": "para_81" }, { "text": "the Supreme Court that it instead intended to terminate the merger and sue for", "paragraph_id": "para_82" }, { "text": "damages under the reverse termination fee provisions of the Merger Agreement", "paragraph_id": "para_83" }, { "text": "(the ―Reverse Termination Fee‖). The Supreme Court dismissed the interlocutory", "paragraph_id": "para_84" }, { "text": "appeal as improvidently accepted, and shortly thereafter Apollo moved for an order", "paragraph_id": "para_85" }, { "text": "temporarily restraining Cooper from drawing on a letter of credit for the Reverse", "paragraph_id": "para_86" }, { "text": "Termination Fee and, in an effort to permanently prevent Cooper from seeking the", "paragraph_id": "para_87" }, { "text": "Reverse Termination Fee, a judicial declaration on its counterclaim that Cooper", "paragraph_id": "para_88" }, { "text": "had not satisfied all conditions to closing the merger as of the trial date. This", "paragraph_id": "para_89" }, { "text": "Memorandum Opinion addresses the latter issue, and the effect that the rather", "paragraph_id": "para_90" }, { "text": "bizarre events in China had on Cooper‘s ability to perform as called for in the", "paragraph_id": "para_91" }, { "text": "Merger Agreement. For reasons arising from the takeover at CCT, and", "paragraph_id": "para_92" }, { "text": "independent of the failure to reach an agreement with the USW, I find that Cooper", "paragraph_id": "para_93" }, { "text": "was unable to satisfy all conditions to closing.", "paragraph_id": "para_94" }, { "text": "I. SCOPE OF THIS OPINION", "paragraph_id": "para_95" }, { "text": "I first turn to the appropriate scope of this decision. Due to the convoluted", "paragraph_id": "para_96" }, { "text": "procedural posture of the case, the parties disagree as to what is left for me to", "paragraph_id": "para_97" }, { "text": "decide. This action is before me on Apollo‘s post-trial Motion for Entry of a", "paragraph_id": "para_98" }, { "text": "5", "paragraph_id": "para_99" }, { "text": "Declaratory Judgment on its counterclaim, in which Apollo has asked this Court to", "paragraph_id": "para_100", "court_paragraph": 5 }, { "text": "declare that ―the conditions to closing had not been satisfied prior to the trial of this", "paragraph_id": "para_101" }, { "text": "action, and Cooper [was], thus, not in a position to close the merger.‖1 Cooper", "paragraph_id": "para_102" }, { "text": "contends that addressing this Motion in full is inappropriate, given my USW", "paragraph_id": "para_103" }, { "text": "Opinions, in which I determined that Cooper was not entitled, as of that date, to", "paragraph_id": "para_104" }, { "text": "specific performance of the merger agreement, because closing was conditioned on", "paragraph_id": "para_105" }, { "text": "Apollo entering into an agreement with the USW and because Apollo had not (as", "paragraph_id": "para_106" }, { "text": "of that time) breached its obligation to use best efforts in reaching such a", "paragraph_id": "para_107" }, { "text": "resolution. Cooper suggests that ―[b]ecause the Court‘s decision as to the USW is", "paragraph_id": "para_108" }, { "text": "sufficient by itself to grant a declaratory judgment for Apollo, the Court should", "paragraph_id": "para_109" }, { "text": "refrain from reaching any other issue.‖2", "paragraph_id": "para_110" }, { "text": "I rejected that contention in a letter opinion on January 27, 2014,3 for", "paragraph_id": "para_111" }, { "text": "reasons that I repeat briefly here. In the USW Opinions, I addressed a request for", "paragraph_id": "para_112" }, { "text": "equitable relief on a rigorously expedited schedule so that, if appropriate, the", "paragraph_id": "para_113" }, { "text": "merger could close before Cooper was required to produce its third quarter", "paragraph_id": "para_114" }, { "text": "financials, a contractual requirement it knew it could not meet due to the lockout at", "paragraph_id": "para_115" }, { "text": "CCT. The precise issue before me now—whether Cooper had satisfied all", "paragraph_id": "para_116" }, { "text": "conditions to closing the merger—was not before me in the USW Opinions, in", "paragraph_id": "para_117" }, { "text": "1 Defs.‘ Mot. for Declaratory J. at 1.", "paragraph_id": "para_118" }, { "text": "2 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 12–13.", "paragraph_id": "para_119" }, { "text": "3 See Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., C.A. No. 8980-VCG", "paragraph_id": "para_120" }, { "text": "(Del. Ch. Jan. 27, 2014).", "paragraph_id": "para_121" }, { "text": "6", "paragraph_id": "para_122" }, { "text": "which I determined that Cooper was not entitled to specific performance as of the", "paragraph_id": "para_123", "court_paragraph": 6 }, { "text": "trial date, but also that the parties‘ obligations under the merger agreement", "paragraph_id": "para_124" }, { "text": "remained outstanding. At any rate, as an appeal of my USW Opinions appears", "paragraph_id": "para_125" }, { "text": "inevitable, I believe it appropriate to resolve the issues arising from the CCT", "paragraph_id": "para_126" }, { "text": "takeover presented at trial, in the interest of judicial efficiency; in doing so, I note", "paragraph_id": "para_127" }, { "text": "that these issues were presented in detail at a three-day expedited trial, have been", "paragraph_id": "para_128" }, { "text": "fully briefed, and may ultimately be dispositive if the case is remanded.", "paragraph_id": "para_129" }, { "text": "For its part, Apollo contends that, if I am to evaluate the conditions to", "paragraph_id": "para_130" }, { "text": "closing beyond the failure to reach an agreement with the USW, I should make that", "paragraph_id": "para_131" }, { "text": "determination as of November 14, 2013, the date Cooper was required to (and", "paragraph_id": "para_132" }, { "text": "failed to) file its third quarter financials. In contrast, Cooper suggests in briefing", "paragraph_id": "para_133" }, { "text": "that my holding should be limited to the period before October 10, 2013, arguing", "paragraph_id": "para_134" }, { "text": "that ―it would be inappropriate for Apollo now to obtain a declaration that covers", "paragraph_id": "para_135" }, { "text": "the period through the date of trial,‖ given that ―Apollo‘s counterclaim for a", "paragraph_id": "para_136" }, { "text": "declaratory judgment was commenced on October 10, and included allegations", "paragraph_id": "para_137" }, { "text": "only through that date;‖ ―Apollo never filed a supplemental pleading;‖ ―the parties", "paragraph_id": "para_138" }, { "text": "agreed to collect document discovery only through October 10;‖ and ―Apollo", "paragraph_id": "para_139" }, { "text": "successfully prevented Cooper from including at trial any post-October 10 claims", "paragraph_id": "para_140" }, { "text": "by Cooper relating to the tentative agreement with the USW.‖4 I find it appropriate", "paragraph_id": "para_141" }, { "text": "4 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 13.", "paragraph_id": "para_142" }, { "text": "7", "paragraph_id": "para_143" }, { "text": "that I determine this matter as of the date of trial. In its Motion, Apollo itself", "paragraph_id": "para_144", "court_paragraph": 7 }, { "text": "requested a determination ―prior to trial of this action.‖ Further, at oral argument", "paragraph_id": "para_145" }, { "text": "on the pending Motion, Cooper‘s counsel indicated that the facts relevant to my", "paragraph_id": "para_146" }, { "text": "analysis, at least with respect to the ongoing lockout at CCT and Cooper‘s inability", "paragraph_id": "para_147" }, { "text": "to produce financials, had not changed between October 10, 2013 and the date of", "paragraph_id": "para_148" }, { "text": "trial.5 Accordingly, I do not feel required to expand my decision as Apollo", "paragraph_id": "para_149" }, { "text": "requests or constrain my decision as Cooper requests. Rather, the appropriate", "paragraph_id": "para_150" }, { "text": "scope of the issue before me now is, setting aside the issues surrounding", "paragraph_id": "para_151" }, { "text": "negotiations with the USW, whether Cooper had satisfied the conditions to closing", "paragraph_id": "para_152" }, { "text": "the merger as of the trial date.", "paragraph_id": "para_153" }, { "text": "II. BACKGROUND", "paragraph_id": "para_154" }, { "text": "A. The Cooper-Apollo Merger", "paragraph_id": "para_155" }, { "text": "Cooper, a Delaware corporation, is the fourth largest tire manufacturer in", "paragraph_id": "para_156" }, { "text": "North America and the eleventh largest tire company in the world.6 Cooper", "paragraph_id": "para_157" }, { "text": "employs 13,000 people globally,7 and its revenues in 2012 were more than $4", "paragraph_id": "para_158" }, { "text": "billion.8", "paragraph_id": "para_159" }, { "text": "5 See, e.g., July 9, 2014 Oral Arg. Tr. 67:4–7 (explaining that, following the announcement of the", "paragraph_id": "para_160" }, { "text": "termination of the Merger Agreement, ―[t]he [CCT] labor union relinquished their control over", "paragraph_id": "para_161" }, { "text": "the facilities. The facilities went back to work producing all tires. Cooper‘s financials are now", "paragraph_id": "para_162" }, { "text": "current and have been for some time.‖); id. at 68:1–5 (―But there is no record of anything that", "paragraph_id": "para_163" }, { "text": "happened after the trial. . . . The only issues are those that stood at the time of trial.‖).", "paragraph_id": "para_164" }, { "text": "6 Defs.‘ Countercl. ¶ 11; Trial Tr. 13:5–7 (Armes).", "paragraph_id": "para_165" }, { "text": "7 Trial Tr. 13:20 (Armes).", "paragraph_id": "para_166" }, { "text": "8 Id. at 13:22.", "paragraph_id": "para_167" }, { "text": "8", "paragraph_id": "para_168" }, { "text": "Apollo is an Indian tire manufacturer founded in 1975 and organized under", "paragraph_id": "para_169", "court_paragraph": 8 }, { "text": "the laws of the Republic of Mauritius. In 2005, the business began to expand", "paragraph_id": "para_170" }, { "text": "globally, and by 2010, Apollo had grown into a $2 billion company.9 By 2013,", "paragraph_id": "para_171" }, { "text": "Apollo viewed an acquisition of Cooper‘s foothold in China—CCT, a joint venture", "paragraph_id": "para_172" }, { "text": "with Chengshan Group that accounted for roughly 20% of Cooper‘s business in", "paragraph_id": "para_173" }, { "text": "2012—as vital to its efforts at global expansion.10", "paragraph_id": "para_174" }, { "text": "According to the testimony elicited at the November 2013 trial, Cooper‘s", "paragraph_id": "para_175" }, { "text": "business plan in 2012 focused primarily on acquiring smaller companies; Cooper", "paragraph_id": "para_176" }, { "text": "did not originally plan to sell its business.11 Cooper and Apollo initially met in", "paragraph_id": "para_177" }, { "text": "2012 to discuss the possibility of a joint venture.12 A joint venture between the two", "paragraph_id": "para_178" }, { "text": "companies never materialized, and in January 2013, Apollo approached Cooper", "paragraph_id": "para_179" }, { "text": "about a potential acquisition. Over the next several months, Apollo made bids to", "paragraph_id": "para_180" }, { "text": "purchase Cooper for $22.75, $25 to $26, $33, $33.75, and finally $35 per share.13", "paragraph_id": "para_181" }, { "text": "During that negotiation period, Cooper entertained at least one other", "paragraph_id": "para_182" }, { "text": "potential bidder: Chengshan Group, Cooper‘s 35% Chinese joint venture partner", "paragraph_id": "para_183" }, { "text": "at CCT.14 The Chairman of Chengshan Group, Chairman Che, organized an", "paragraph_id": "para_184" }, { "text": "9 Id. at 545:17–546:17 (Kanwar).", "paragraph_id": "para_185" }, { "text": "10 Id. at 548:6–549:24; Pl.‘s Pre-Trial Br. at 9.", "paragraph_id": "para_186" }, { "text": "11 Trial Tr. at 16:1–4 (Armes).", "paragraph_id": "para_187" }, { "text": "12 Id. at 16:8–17. Cooper and Apollo had also previously discussed cooperation in certain other", "paragraph_id": "para_188" }, { "text": "projects, including one that would facilitate Cooper‘s expansion into the South African tire", "paragraph_id": "para_189" }, { "text": "market. Id. at 16:11–23.", "paragraph_id": "para_190" }, { "text": "13 Pl.‘s Pre-Trial Br. at 9.", "paragraph_id": "para_191" }, { "text": "14 Id.", "paragraph_id": "para_192" }, { "text": "9", "paragraph_id": "para_193" }, { "text": "investor group and orally proposed an offer of $38 per share, but he ultimately", "paragraph_id": "para_194", "court_paragraph": 9 }, { "text": "declined to make a formal offer.15 Although Cooper informed Chengshan Group,", "paragraph_id": "para_195" }, { "text": "as its joint venture partner, that Apollo had approached Cooper about an", "paragraph_id": "para_196" }, { "text": "acquisition, Apollo was never informed that Chengshan Group had expressed an", "paragraph_id": "para_197" }, { "text": "interest in acquiring Cooper.16", "paragraph_id": "para_198" }, { "text": "On June 12, 2013, Apollo and Cooper entered into the Merger Agreement,", "paragraph_id": "para_199" }, { "text": "whereby Apollo agreed to acquire all outstanding Cooper shares for $35 per share,", "paragraph_id": "para_200" }, { "text": "representing a 40% premium over trading prices and a total transaction value of", "paragraph_id": "para_201" }, { "text": "roughly $2.5 billion.17 On September 30, approximately 74% of Cooper‘s", "paragraph_id": "para_202" }, { "text": "outstanding shares voted in support of the merger.18 Had the deal closed, the", "paragraph_id": "para_203" }, { "text": "resulting entity would have been the seventh largest tire manufacturer in the", "paragraph_id": "para_204" }, { "text": "world.19", "paragraph_id": "para_205" }, { "text": "B. The CCT Strike", "paragraph_id": "para_206" }, { "text": "As noted above, Cooper and Apollo entered into the Merger Agreement on", "paragraph_id": "para_207" }, { "text": "June 12, 2013. After the transaction was announced, Apollo‘s stock price dropped", "paragraph_id": "para_208" }, { "text": "15 Trial Tr. 32:1–33:21 (Armes); see also JX 1 (―Prior to the signing of the merger agreement,", "paragraph_id": "para_209" }, { "text": "Chengshan Group Chairman Che Hongzhi was given the opportunity to bid for Cooper.", "paragraph_id": "para_210" }, { "text": "Chengshan Group was fully supported in the process. Chengshan Group was given access to", "paragraph_id": "para_211" }, { "text": "Cooper‘s data room, and Cooper CEO Roy Armes made multiple trips to Beijing to meet with", "paragraph_id": "para_212" }, { "text": "Che and his advisors. However, Chengshan Group ultimately did not make a formal bid.‖);", "paragraph_id": "para_213" }, { "text": "Armes Dep. Tr. 15:15–20.", "paragraph_id": "para_214" }, { "text": "16 Trial Tr. 91:3–19 (Armes); id. at 560:15–562:2 (Kanwar).", "paragraph_id": "para_215" }, { "text": "17 Compl. ¶ 2.", "paragraph_id": "para_216" }, { "text": "18 Id. ¶ 123.", "paragraph_id": "para_217" }, { "text": "19 Id. ¶ 2.", "paragraph_id": "para_218" }, { "text": "10", "paragraph_id": "para_219" }, { "text": "by 39%.20 Research analysts speculated that the acquisition was too highly", "paragraph_id": "para_220", "court_paragraph": 10 }, { "text": "leveraged and provided few synergies for Apollo.21 In addition, the labor union at", "paragraph_id": "para_221" }, { "text": "CCT, Cooper‘s Chinese joint venture, openly criticized the merger as too highly", "paragraph_id": "para_222" }, { "text": "leveraged,22 publishing a paid advertisement in the Wall Street Journal denouncing", "paragraph_id": "para_223" }, { "text": "the merger.23 On June 21, 2013, the CCT labor union went on strike.24 The union", "paragraph_id": "para_224" }, { "text": "returned to work on June 28, 2013, but resumed the strike again on or around July", "paragraph_id": "para_225" }, { "text": "12, 2013.25", "paragraph_id": "para_226" }, { "text": "On August 17, the CCT union again resumed work at the plant, but refused", "paragraph_id": "para_227" }, { "text": "to produce Cooper-branded tires.26 In addition, ―the union . . . physically barr[ed]", "paragraph_id": "para_228" }, { "text": "certain Cooper-appointed managers from accessing CCT‘s facility or from", "paragraph_id": "para_229" }, { "text": "obtaining certain of CCT‘s financial books and records, and . . . prevented CCT", "paragraph_id": "para_230" }, { "text": "from entering certain operating and financial data into CCT‘s computer systems.‖27", "paragraph_id": "para_231" }, { "text": "20 Id. ¶ 54.", "paragraph_id": "para_232" }, { "text": "21 Id. ¶ 55.", "paragraph_id": "para_233" }, { "text": "22 Id. ¶ 57.", "paragraph_id": "para_234" }, { "text": "23 JX 70.", "paragraph_id": "para_235" }, { "text": "24 Compl. ¶ 58.", "paragraph_id": "para_236" }, { "text": "25 Id. ¶¶ 58, 63.", "paragraph_id": "para_237" }, { "text": "26 Id. ¶ 67; see also Trial Tr. 51:16–20 (Armes) (―The financial data is not being uploaded like", "paragraph_id": "para_238" }, { "text": "we would normally do. The production does continue, but they are not producing Cooper-", "paragraph_id": "para_239" }, { "text": "branded products. And they‘re restricting the access of our people into the plant.‖).", "paragraph_id": "para_240" }, { "text": "27 Compl. ¶ 67; see also JX 584 at COOPER0073766 (―The union has prevented Cooper and", "paragraph_id": "para_241" }, { "text": "others from entering the factory to retrieve their property, and we have recently been told that", "paragraph_id": "para_242" }, { "text": "Cooper-affiliated management will be prohibited from entering their offices beginning on", "paragraph_id": "para_243" }, { "text": "August 12.‖); JX 252 at COOPER0037907 (―We have and will continue to supply you with", "paragraph_id": "para_244" }, { "text": "reasonable access to information. As a result of the announcement of the merger, however, the", "paragraph_id": "para_245" }, { "text": "union and our partner at CCT have taken actions to limit our access to the plant, including", "paragraph_id": "para_246" }, { "text": "limiting access to certain books and records. You know that already.‖); JX 620 at", "paragraph_id": "para_247" }, { "text": "APOLLO_00006337 (noting that Cooper‘s visibility into CCT was largely limited ―to what raw", "paragraph_id": "para_248" }, { "text": "11", "paragraph_id": "para_249" }, { "text": "The union‘s reaction to news of the merger was unprecedented,28 and in an effort", "paragraph_id": "para_250", "court_paragraph": 11 }, { "text": "to hold up production and force an end to the ―strike‖—in actuality, the physical", "paragraph_id": "para_251" }, { "text": "exclusion of Cooper from its subsidiary—Cooper management adopted a policy of", "paragraph_id": "para_252" }, { "text": "suspending payments to suppliers who continued to ship supplies during the", "paragraph_id": "para_253" }, { "text": "pendency of the strike.29 Cooper also floated ―potential plans . . . to change the", "paragraph_id": "para_254" }, { "text": "security firm at the CCT site‖—i.e., to physically replace security guards with their", "paragraph_id": "para_255" }, { "text": "own men—but Apollo rejected this idea due to ―concern[s] for personal safety of", "paragraph_id": "para_256" }, { "text": "the people at and near the plant.‖30", "paragraph_id": "para_257" }, { "text": "material inventory is entering the plant‖); JX 255 at GPC014773 (―[W]hile the suggestion that", "paragraph_id": "para_258" }, { "text": "[Apollo] show up at CCT to attempt access appeared perplexing, I want you to know that as soon", "paragraph_id": "para_259" }, { "text": "as you have enough access or control at CCT to allow us access we will have people on the next", "paragraph_id": "para_260" }, { "text": "available flights . . . .‖).", "paragraph_id": "para_261" }, { "text": "28 Cooper CEO Roy Armes testified at trial that during his tenure at Cooper, the CCT union had", "paragraph_id": "para_262" }, { "text": "never gone on strike and had never blocked management from CCT facilities. Trial Tr. 52:3–20.", "paragraph_id": "para_263" }, { "text": "29 Id. at 278:9–12 (Hughes). On September 25, 2013, the General Manager of Cooper‘s Asia", "paragraph_id": "para_264" }, { "text": "Operations, Allen Tsaur, sent an email to the President of Cooper‘s International Tire Division,", "paragraph_id": "para_265" }, { "text": "Hal Miller, which Mr. Miller subsequently forwarded to Cooper CEO Roy Armes and General", "paragraph_id": "para_266" }, { "text": "Counsel Steven Zamansky, summarizing the anticipated consequences of Cooper‘s plan to cut", "paragraph_id": "para_267" }, { "text": "off payment to CCT‘s suppliers as follows:", "paragraph_id": "para_268" }, { "text": " OE customers are likely to sue CCT for contract violation and lost time penalty.", "paragraph_id": "para_269" }, { "text": "Please note that CCT supplies to all top 5 truck companies in China.", "paragraph_id": "para_270" }, { "text": " The raw material payment of 40M RMB is not all for new purchase. Some are for", "paragraph_id": "para_271" }, { "text": "goods already received. Along with our suppliers, they are likely to sue CCT for", "paragraph_id": "para_272" }, { "text": "delinquency.", "paragraph_id": "para_273" }, { "text": " Many suppliers are in CCT Purchasing Department office everyday demanding", "paragraph_id": "para_274" }, { "text": "payment.", "paragraph_id": "para_275" }, { "text": " CCT is likely to lose in the lawsuits for contract violation and lost time penalty to", "paragraph_id": "para_276" }, { "text": "OE and delinquency for suppliers. The consequence can be very bad as not only", "paragraph_id": "para_277" }, { "text": "we need to pay [sic] but also ruin the creditability. CCT will need to buy on cash", "paragraph_id": "para_278" }, { "text": "in the future.", "paragraph_id": "para_279" }, { "text": "JX 445 at COOPER0033397.", "paragraph_id": "para_280" }, { "text": "30 JX 292.", "paragraph_id": "para_281" }, { "text": "12", "paragraph_id": "para_282" }, { "text": "Although the parties initially believed that the strike in China was instigated", "paragraph_id": "para_283", "court_paragraph": 12 }, { "text": "by CCT‘s labor union, Apollo contends that, upon hiring a private investigator to", "paragraph_id": "para_284" }, { "text": "interview employees at CCT, it uncovered that the true cause of the strike at CCT", "paragraph_id": "para_285" }, { "text": "was Chairman Che, who had instructed middle management to warn workers that", "paragraph_id": "para_286" }, { "text": "―anyone that does not take part in the protest will be fired.‖31 This news came as a", "paragraph_id": "para_287" }, { "text": "surprise to both Cooper and Apollo, who anticipated in diligence that Chairman", "paragraph_id": "para_288" }, { "text": "Che might disfavor the merger,32 but had met together with Chairman Che prior to", "paragraph_id": "para_289" }, { "text": "31 JX 357; see also JX 584 at COOPER0073766 (―A number of workers attempted to return to", "paragraph_id": "para_290" }, { "text": "work on August 5, but union representatives and security blocked the entrance to the factory and", "paragraph_id": "para_291" }, { "text": "prevented them from returning.‖); JX 76 (―It seems that the workers interviewed clearly know", "paragraph_id": "para_292" }, { "text": "the agenda behind the protest. According to them, it is Che Hongzhi that instigated the", "paragraph_id": "para_293" }, { "text": "protest.‖).", "paragraph_id": "para_294" }, { "text": "32 See Trial Tr. 19:16–20:7 (Armes) (―As we were talking about a lot of business things as I", "paragraph_id": "para_295" }, { "text": "indicated before, Chengshan or CCT came up because there was concern from Apollo about how", "paragraph_id": "para_296" }, { "text": "the Chairman Che would react to this acquisition. And as I recall, I mentioned to Apollo there", "paragraph_id": "para_297" }, { "text": "could be one of three things that he could do: One, he could go along with the acquisition and", "paragraph_id": "para_298" }, { "text": "really support it and transition it. Second, he could possibly offer up his shares. He has 35", "paragraph_id": "para_299" }, { "text": "percent in the joint venture. He could possibly be looking for selling those. And then, thirdly, he", "paragraph_id": "para_300" }, { "text": "could—he could disrupt it or try to undermine it. And as we talked back and forth, later on there", "paragraph_id": "para_301" }, { "text": "was a fourth one that came up that basically he may try to put his own bid together. We just", "paragraph_id": "para_302" }, { "text": "weren‘t sure.‖). But see id. at 87:13–88:4 (Armes) (―Q. Now, you testified on your direct that", "paragraph_id": "para_303" }, { "text": "you told Apollo that he would -- that Che might do something to undermine the situation. I think", "paragraph_id": "para_304" }, { "text": "that was your language. Correct me if I'm wrong. A. Mm-hmm. Q. You didn't tell him, though,", "paragraph_id": "para_305" }, { "text": "that that was a likely situation, though, did you? A. No. I didn't feel that it was a likely situation.", "paragraph_id": "para_306" }, { "text": "Q. If fact, you thought from all indications that he would support the transaction. A. Yes, all our", "paragraph_id": "para_307" }, { "text": "indications was that. Q. In fact, after the first problems surfaced at CCT, you told your board that", "paragraph_id": "para_308" }, { "text": "it was very unexpected to you, didn't you? A. Yes.‖); id. at 270:8–11 (Hughes) (―Q. And Apollo", "paragraph_id": "para_309" }, { "text": "was never told during the merger negotiations that it was likely that there would be disruption at", "paragraph_id": "para_310" }, { "text": "CCT, was it? A. Not in a discussion I was present at.‖); id. at 557:19–558:1 (Kanwar) (―Q. Is it", "paragraph_id": "para_311" }, { "text": "your perception that the chairman has taken over CCT? A. Yes. Q. In the premerger agreement", "paragraph_id": "para_312" }, { "text": "meetings with the folks at Cooper, did anybody suggest to you that anything like that was going", "paragraph_id": "para_313" }, { "text": "to happen? A. No.‖).", "paragraph_id": "para_314" }, { "text": "13", "paragraph_id": "para_315" }, { "text": "signing the Merger Agreement,33 and had understood that as the owner of a 35%", "paragraph_id": "para_316", "court_paragraph": 13 }, { "text": "interest, ―[f]rom a technical point of view, [Chengshan Group had] no veto or put", "paragraph_id": "para_317" }, { "text": "rights, so [Cooper did] not need their approval for the deal.‖34", "paragraph_id": "para_318" }, { "text": "Information that Chairman Che was behind the strike at CCT incited", "paragraph_id": "para_319" }, { "text": "Apollo‘s ―Project Charlie,‖ a codename Apollo used in reference to its efforts at", "paragraph_id": "para_320" }, { "text": "negotiations and relationship-building with Chairman Che.35 Although Cooper", "paragraph_id": "para_321" }, { "text": "representatives initially sought to resolve the conflict without Apollo‘s direct", "paragraph_id": "para_322" }, { "text": "involvement,36 on September 2, 2013, Apollo also sent a letter to Chairman Che", "paragraph_id": "para_323" }, { "text": "33 See id. at 459:7–12 (Zamansky) (―It was consistent that the meeting went well, that there was", "paragraph_id": "para_324" }, { "text": "some relationship building to do; but [Chairman Che] didn‘t raise any concerns other than saying", "paragraph_id": "para_325" }, { "text": "that we have some relationship building to do, but it went well and we‘re moving forward.‖).", "paragraph_id": "para_326" }, { "text": "34 JX 18; see also Trial Tr. 21:1–5 (Armes) (―Q. Did—before March 7th did Chairman Che ever", "paragraph_id": "para_327" }, { "text": "tell you that he would derail any deal that Cooper was a part of? A. There was no indication of", "paragraph_id": "para_328" }, { "text": "that at all.‖); JX 52 at 7 (identifying, in due diligence summary materials, change in control", "paragraph_id": "para_329" }, { "text": "provisions in the CCT joint venture agreement that could trigger Chengshan Group‘s right of", "paragraph_id": "para_330" }, { "text": "first refusal, but determining that ―these provisions are unlikely to be triggered by an indirect", "paragraph_id": "para_331" }, { "text": "change of control such as that associated with the Proposed Transaction‖); JX 584 at", "paragraph_id": "para_332" }, { "text": "COOPER0073765 (―Weeks prior to the signing of the merger deal with Apollo, Cooper asked", "paragraph_id": "para_333" }, { "text": "Che for his support of the deal and Che did nothing to indicate that there would be a strike if the", "paragraph_id": "para_334" }, { "text": "Apollo deal went forward.‖).", "paragraph_id": "para_335" }, { "text": "35 See, e.g., JX 75 (describing, in a summary of meetings with Chengshan Group, the reaction to", "paragraph_id": "para_336" }, { "text": "the merger at CCT as ―very strong and somewhat irrational,‖ and noting that ―[t]his challenge", "paragraph_id": "para_337" }, { "text": "will take a ‗creative‘ solution to resolve the union‘s concerns in this situation‖); JX 584 at", "paragraph_id": "para_338" }, { "text": "COOPER0073766 (―It is unclear why Chairman Che would want to dissolve a company that is", "paragraph_id": "para_339" }, { "text": "profitable, employs a sizeable work force, and brings prosperity to the local community, by first", "paragraph_id": "para_340" }, { "text": "advocating a strike and then using the strike as grounds for dissolving the company.‖); JX 76 (―It", "paragraph_id": "para_341" }, { "text": "seems that the workers interviewed clearly know the agenda behind the protest. According to", "paragraph_id": "para_342" }, { "text": "them, it is Che Hongzhi that instigated the protest. . . . The workers interviewed said they", "paragraph_id": "para_343" }, { "text": "personally have no concerns over the acquisition.‖); JX 153 at GPC01602 (providing an", "paragraph_id": "para_344" }, { "text": "overview of ―Project Charlie,‖ and indicating the unusual position that Chengshan Group held a", "paragraph_id": "para_345" }, { "text": "―35% minority stake in unlisted subsidiary, with limited rights (however effective management", "paragraph_id": "para_346" }, { "text": "control)‖).", "paragraph_id": "para_347" }, { "text": "36 See generally JX 86 (summarizing a July 10, 2013 meeting between Cooper representatives", "paragraph_id": "para_348" }, { "text": "and Chairman Che).", "paragraph_id": "para_349" }, { "text": "14", "paragraph_id": "para_350" }, { "text": "indicating that, despite disruptions at CCT, Apollo still planned to consummate the", "paragraph_id": "para_351", "court_paragraph": 14 }, { "text": "merger with Cooper, and explaining that, ―[a]s I am sure you are aware, the", "paragraph_id": "para_352" }, { "text": "opposition will not prevent the merger from going ahead as planned, for legal and", "paragraph_id": "para_353" }, { "text": "commercial reasons.‖37 Apollo likewise indicated by letter to the Mayor of", "paragraph_id": "para_354" }, { "text": "Rongcheng, China, that both Cooper and Apollo ―are legally committed, under", "paragraph_id": "para_355" }, { "text": "United States and international laws, to proceed with the merger.‖38", "paragraph_id": "para_356" }, { "text": "However, despite Apollo‘s assurances that it stood behind the merger,", "paragraph_id": "para_357" }, { "text": "Cooper contends that the strike at CCT ―soured Apollo on the Merger,‖39 and that", "paragraph_id": "para_358" }, { "text": "Apollo subsequently ―began to look for some other pretext for seeking to escape", "paragraph_id": "para_359" }, { "text": "what it now perceive[d] as a bad deal, either by delaying the closing long enough", "paragraph_id": "para_360" }, { "text": "so that the risk relating to CCT shift[ed] to Cooper, or by obtaining leverage to", "paragraph_id": "para_361" }, { "text": "renegotiate the Merger consideration downward.‖40", "paragraph_id": "para_362" }, { "text": "C. The USW Strike", "paragraph_id": "para_363" }, { "text": "In addition to the strike at CCT, Cooper‘s domestic union, the USW, reacted", "paragraph_id": "para_364" }, { "text": "to the merger announcement by filing grievances against Cooper, claiming that the", "paragraph_id": "para_365" }, { "text": "proposed merger violated Cooper‘s collective bargaining agreements governing its", "paragraph_id": "para_366" }, { "text": "Findlay, Ohio and Texarkana, Arkansas plants; the USW argued that those", "paragraph_id": "para_367" }, { "text": "agreements prevented Cooper from selling its plants prior to a renegotiation of the", "paragraph_id": "para_368" }, { "text": "37 JX 4.", "paragraph_id": "para_369" }, { "text": "38 JX 151 at APOLLO_00005514.", "paragraph_id": "para_370" }, { "text": "39 Compl. ¶ 69.", "paragraph_id": "para_371" }, { "text": "40 Id. ¶ 71.", "paragraph_id": "para_372" }, { "text": "15", "paragraph_id": "para_373" }, { "text": "collective bargaining agreements between a buyer and the union.41 During the", "paragraph_id": "para_374", "court_paragraph": 15 }, { "text": "diligence and negotiation process, Cooper and Apollo anticipated what response", "paragraph_id": "para_375" }, { "text": "the merger announcement would likely generate, including the likelihood that the", "paragraph_id": "para_376" }, { "text": "USW would invoke the renegotiation provisions.42 However, Cooper‘s", "paragraph_id": "para_377" }, { "text": "management believed—and indicated to Apollo—that the odds of Cooper", "paragraph_id": "para_378" }, { "text": "receiving a favorable outcome at arbitration were quite high.43 As a result, with", "paragraph_id": "para_379" }, { "text": "Apollo‘s approval, Cooper submitted the USW‘s grievances to binding arbitration,", "paragraph_id": "para_380" }, { "text": "with proceedings held on August 28 and 29, 2013.44 To the surprise of Cooper and", "paragraph_id": "para_381" }, { "text": "Apollo, the arbitrator issued a decision in favor of the USW, determining that the", "paragraph_id": "para_382" }, { "text": "merger could not close prior to a successful negotiation between Apollo and the", "paragraph_id": "para_383" }, { "text": "USW. Rather than permitting the arbitrator‘s ruling to become a court order", "paragraph_id": "para_384" }, { "text": "enjoining the transaction, on September 25, Apollo, Cooper, and the USW entered", "paragraph_id": "para_385" }, { "text": "into an agreement providing that the merger ―shall not close unless an agreement", "paragraph_id": "para_386" }, { "text": "has been entered into in satisfaction of the Opinion and Award issued by [the", "paragraph_id": "para_387" }, { "text": "arbitrator] on terms acceptable to [the USW].‖45", "paragraph_id": "para_388" }, { "text": "41 Id. ¶ 72.", "paragraph_id": "para_389" }, { "text": "42 Id. ¶ 73.", "paragraph_id": "para_390" }, { "text": "43 Cooper‘s General Counsel Steve Zamansky relayed to Apollo that outside counsel put the", "paragraph_id": "para_391" }, { "text": "likelihood of success in the range of 60%–95%, though he expressed his disagreement that the", "paragraph_id": "para_392" }, { "text": "odds were as high as 95%. Trial Tr. 534:9–535:22 (Zamansky). Cooper‘s CEO Roy Armes", "paragraph_id": "para_393" }, { "text": "indicated that he communicated to Apollo a success rate in the range of 80%–85%. Id. at", "paragraph_id": "para_394" }, { "text": "105:24–106:2 (Armes).", "paragraph_id": "para_395" }, { "text": "44 Compl. ¶ 76.", "paragraph_id": "para_396" }, { "text": "45 Defs.‘ Answer and Countercl. Ex. A; JX 248.", "paragraph_id": "para_397" }, { "text": "16", "paragraph_id": "para_398" }, { "text": "On September 7, 2013, immediately after the arbitration decision was issued,", "paragraph_id": "para_399", "court_paragraph": 16 }, { "text": "representatives from Cooper and Apollo met in New York to develop a negotiating", "paragraph_id": "para_400" }, { "text": "strategy. On September 19 and 20, Apollo met with USW representatives in", "paragraph_id": "para_401" }, { "text": "Nashville, Tennessee. On September 23, Apollo requested supplemental", "paragraph_id": "para_402" }, { "text": "information from Cooper in order to learn more about the concessions Cooper had", "paragraph_id": "para_403" }, { "text": "encouraged Apollo to make with the USW.46 Apollo‘s Vice Chairman and", "paragraph_id": "para_404" }, { "text": "Cooper‘s CEO spoke on September 27, and Apollo again met with the USW on", "paragraph_id": "para_405" }, { "text": "September 25 and 26, and on October 1 and 2, in Pittsburgh, Pennsylvania.", "paragraph_id": "para_406" }, { "text": "Throughout these meetings, Apollo prevented Cooper from participating because,", "paragraph_id": "para_407" }, { "text": "according to Apollo, Cooper had historically maintained strained relationships with", "paragraph_id": "para_408" }, { "text": "its labor unions and Apollo wished to rebuild relationships with Cooper‘s unions.47", "paragraph_id": "para_409" }, { "text": "At the same time, Apollo requested that Cooper agree to a price reduction, as", "paragraph_id": "para_410" }, { "text": "concessions to the USW would be costly. Cooper rejected Apollo‘s request for a", "paragraph_id": "para_411" }, { "text": "price adjustment, and in an effort to speed up negotiations between Apollo and the", "paragraph_id": "para_412" }, { "text": "USW, in November 2013, Cooper independently negotiated a conditional", "paragraph_id": "para_413" }, { "text": "agreement with the USW, which guaranteed the union certain benefits in the event", "paragraph_id": "para_414" }, { "text": "the merger did not close.", "paragraph_id": "para_415" }, { "text": "46 JX 242.", "paragraph_id": "para_416" }, { "text": "47 Defs.‘ Countercl. ¶ 34. On the other hand, Cooper has pointed out that Apollo lost significant", "paragraph_id": "para_417" }, { "text": "negotiating leverage by refusing to permit Cooper to negotiate with the USW, since Cooper was", "paragraph_id": "para_418" }, { "text": "ultimately able to work out a deal with the USW that included contingent terms in the event that", "paragraph_id": "para_419" }, { "text": "the merger did not close, while such a strategy was not available without Cooper‘s presence. See", "paragraph_id": "para_420" }, { "text": "Trial Tr. 386:21–392:20 (Weiner).", "paragraph_id": "para_421" }, { "text": "17", "paragraph_id": "para_422" }, { "text": "The merger, by its terms, had to close no later than December 31, 2013.48", "paragraph_id": "para_423", "court_paragraph": 17 }, { "text": "Notwithstanding that ―Outside Date,‖ Cooper needed to close the transaction by", "paragraph_id": "para_424" }, { "text": "mid-November 2013 because it would otherwise be required to provide its third", "paragraph_id": "para_425" }, { "text": "quarter financial information as a condition to financing, which it could not do in", "paragraph_id": "para_426" }, { "text": "light of its exclusion from the CCT facility and documents therein.49", "paragraph_id": "para_427" }, { "text": "D. Procedural History", "paragraph_id": "para_428" }, { "text": "Cooper filed its Complaint in this action on October 4, 2013, seeking (1) a", "paragraph_id": "para_429" }, { "text": "positive injunction requiring Apollo to (a) use its reasonable best efforts to resolve", "paragraph_id": "para_430" }, { "text": "any disagreements with the USW by permitting Cooper to negotiate in Apollo‘s", "paragraph_id": "para_431" }, { "text": "stead, and subsequently approving a commercially reasonable agreement", "paragraph_id": "para_432" }, { "text": "negotiated by Cooper, and (b) consummate the Merger; (2) a declaration that, apart", "paragraph_id": "para_433" }, { "text": "from Apollo‘s obligation to use best efforts to reach an agreement with the USW,", "paragraph_id": "para_434" }, { "text": "all conditions to closing had been satisfied; and, in the alternative, (3) unspecified", "paragraph_id": "para_435" }, { "text": "money damages to compensate Cooper for losses it incurred due to Apollo‘s", "paragraph_id": "para_436" }, { "text": "alleged breach of the Merger Agreement. In response, Apollo brought a", "paragraph_id": "para_437" }, { "text": "counterclaim seeking a declaration that conditions precedent to closing had not", "paragraph_id": "para_438" }, { "text": "been satisfied. The matter was expedited because Cooper, as described above,", "paragraph_id": "para_439" }, { "text": "knew it would not be able to satisfy a contractual condition after mid-November.", "paragraph_id": "para_440" }, { "text": "48 JX 65 (―Merger Agreement‖) § 8.1(b)(i).", "paragraph_id": "para_441" }, { "text": "49 Compl. ¶¶ 42, 67, 128.", "paragraph_id": "para_442" }, { "text": "18", "paragraph_id": "para_443" }, { "text": "I held a three-day trial from November 5–7, 2013, in which the parties", "paragraph_id": "para_444", "court_paragraph": 18 }, { "text": "presented evidence on whether Apollo was in material breach of the Merger", "paragraph_id": "para_445" }, { "text": "Agreement by failing to use its reasonable best efforts to negotiate with the USW,", "paragraph_id": "para_446" }, { "text": "and whether all conditions precedent to closing had otherwise been satisfied. At", "paragraph_id": "para_447" }, { "text": "that time, Cooper sought specific performance of the Merger Agreement, and", "paragraph_id": "para_448" }, { "text": "represented that, because it was vanishingly unlikely due to the strike at CCT that", "paragraph_id": "para_449" }, { "text": "Cooper would be able to deliver third quarter financials to Apollo‘s financing", "paragraph_id": "para_450" }, { "text": "sources by November 14, 2013, as required by the Merger Agreement, any", "paragraph_id": "para_451" }, { "text": "injunctive relief, to be meaningful, would have to be granted by that date. As a", "paragraph_id": "para_452" }, { "text": "result, on November 8, I delivered a bench decision, supplemented on November 9", "paragraph_id": "para_453" }, { "text": "by a letter opinion, on a single dispositive issue—whether Cooper was entitled to", "paragraph_id": "para_454" }, { "text": "injunctive relief, and ultimately specific performance of the Merger Agreement,", "paragraph_id": "para_455" }, { "text": "because Apollo had materially breached the Agreement by failing to use its", "paragraph_id": "para_456" }, { "text": "reasonable best efforts to negotiate a resolution with the USW. In those USW", "paragraph_id": "para_457" }, { "text": "Opinions, I found that Apollo was not in breach and that Cooper was not entitled to", "paragraph_id": "para_458" }, { "text": "the relief it sought.50", "paragraph_id": "para_459" }, { "text": "At Cooper‘s request, I then certified an interlocutory appeal, with the", "paragraph_id": "para_460" }, { "text": "understanding that Monday, November 11 was a holiday, and that Cooper would", "paragraph_id": "para_461" }, { "text": "50 See Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., C.A. No. 8980-VCG,", "paragraph_id": "para_462" }, { "text": "at 998:24–1012:9 (Del. Ch. Nov. 8, 2013) (TRANSCRIPT); Cooper Tire & Rubber Co. v. Apollo", "paragraph_id": "para_463" }, { "text": "(Mauritius) Holdings Pvt. Ltd., C.A. No. 8980-VCG (Del. Ch. Nov. 9, 2013).", "paragraph_id": "para_464" }, { "text": "19", "paragraph_id": "para_465" }, { "text": "be denied meaningful access to an appeal if it could not receive a decision on its", "paragraph_id": "para_466", "court_paragraph": 19 }, { "text": "appeal by November 14, while specific performance of the Merger Agreement—", "paragraph_id": "para_467" }, { "text": "that is, while delivery of Cooper‘s current financial information—was still", "paragraph_id": "para_468" }, { "text": "possible. Instead, after I certified the interlocutory appeal, Cooper represented in", "paragraph_id": "para_469" }, { "text": "its application to the Supreme Court that it sought recovery of the Reverse", "paragraph_id": "para_470" }, { "text": "Termination Fee under the Merger Agreement rather than injunctive relief, and", "paragraph_id": "para_471" }, { "text": "therefore the timeline under which this Court had accommodated the parties was", "paragraph_id": "para_472" }, { "text": "no longer applicable. The Supreme Court dismissed Cooper‘s appeal on December", "paragraph_id": "para_473" }, { "text": "16, 2013 as ―improvidently accepted.‖51", "paragraph_id": "para_474" }, { "text": "That same day, in an effort to prevent Cooper from pursuing the Reverse", "paragraph_id": "para_475" }, { "text": "Termination Fee it now sought, Apollo moved for a temporary restraining order", "paragraph_id": "para_476" }, { "text": "preventing Cooper from drawing on the letter of credit for the Reverse Termination", "paragraph_id": "para_477" }, { "text": "Fee, and a judicial declaration that Cooper had not satisfied all conditions to", "paragraph_id": "para_478" }, { "text": "closing prior to trial. On January 24, 2014, the parties submitted written argument", "paragraph_id": "para_479" }, { "text": "regarding how this case should move forward. Despite Cooper‘s request that I", "paragraph_id": "para_480" }, { "text": "convert my November 8 bench ruling into a final judgment on Apollo‘s", "paragraph_id": "para_481" }, { "text": "counterclaim, I determined on January 27, 2014 that Apollo‘s Motion for Entry of", "paragraph_id": "para_482" }, { "text": "51 Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., C.A No. 624, 2013 (Del.", "paragraph_id": "para_483" }, { "text": "Dec. 16, 2013) (ORDER).", "paragraph_id": "para_484" }, { "text": "20", "paragraph_id": "para_485" }, { "text": "a Declaratory Judgment should be resolved before a final judgment is entered.52 I", "paragraph_id": "para_486", "court_paragraph": 20 }, { "text": "heard oral argument on that Motion on July 9, 2014.", "paragraph_id": "para_487" }, { "text": "E. Conditions to Closing", "paragraph_id": "para_488" }, { "text": "Apollo argues, and requests a judicial declaration stating, that ―the", "paragraph_id": "para_489" }, { "text": "conditions to closing had not been satisfied prior to the trial of this action, and", "paragraph_id": "para_490" }, { "text": "Cooper [was], thus, not in a position to close the merger.‖53 Specifically, Apollo", "paragraph_id": "para_491" }, { "text": "contends that: (1) the 20-day Marketing Period has not taken place;54 and (2)", "paragraph_id": "para_492" }, { "text": "certain of Apollo‘s Section 7.2 conditions to closing have not been satisfied,", "paragraph_id": "para_493" }, { "text": "including that (a) a Material Adverse Effect has taken place; (b) Cooper has not", "paragraph_id": "para_494" }, { "text": "satisfied all of its covenants and agreements under Article V of the Merger", "paragraph_id": "para_495" }, { "text": "52 See Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., C.A. No. 8980-VCG", "paragraph_id": "para_496" }, { "text": "(Del. Ch. Jan. 27, 2014).", "paragraph_id": "para_497" }, { "text": "53 Defs.‘ Mot. for Declaratory J. at 1. It is clear that in the present action Apollo seeks a", "paragraph_id": "para_498" }, { "text": "declaratory judgment that would effectively prevent Cooper from pursuing the Reverse", "paragraph_id": "para_499" }, { "text": "Termination Fee under the Merger Agreement. See Defs.‘ Br. in Support of Mot. for TRO and", "paragraph_id": "para_500" }, { "text": "Declaratory J. at 12 (―Cooper informed the Supreme Court by letter . . . that, instead of seeking", "paragraph_id": "para_501" }, { "text": "to prevent the termination of the Merger Agreement, Cooper was now ‗consider[ing]‘", "paragraph_id": "para_502" }, { "text": "terminating the Merger Agreement itself ‗to protect [its] rights under the letter of credit securing", "paragraph_id": "para_503" }, { "text": "the reverse termination fee.‘ A few hours after Cooper‘s revelation, the Supreme Court", "paragraph_id": "para_504" }, { "text": "dismissed the interlocutory appeal as improvidently granted. Apollo now brings the present", "paragraph_id": "para_505" }, { "text": "motion to prevent Cooper from continuing with its scheme to obtain a termination fee to which it", "paragraph_id": "para_506" }, { "text": "is not entitled.‖ (alterations in original) (citations omitted)). While my declaration as to whether", "paragraph_id": "para_507" }, { "text": "Cooper satisfied all conditions to closing prior to trial will likely be dispositive of Cooper‘s", "paragraph_id": "para_508" }, { "text": "ability to recover the Reverse Termination Fee, see Merger Agreement §§ 8.2(c), 8.1(g), my", "paragraph_id": "para_509" }, { "text": "ruling here is necessarily limited to consideration of the conditions to closing, and not whether", "paragraph_id": "para_510" }, { "text": "Cooper is entitled to the Reverse Termination Fee.", "paragraph_id": "para_511" }, { "text": "54 Apollo contends that the occurrence of the Marketing Period, although not an Article VII", "paragraph_id": "para_512" }, { "text": "condition to closing, is necessary for the merger to close according to Section 1.2. Thus, I list it", "paragraph_id": "para_513" }, { "text": "among the ―conditions to closing‖ that Apollo seeks to have evaluated in its Motion for Entry of", "paragraph_id": "para_514" }, { "text": "Declaratory Judgment. However, as detailed below, my decision does not rely on this issue, and", "paragraph_id": "para_515" }, { "text": "thus I do not find it necessary to determine whether the Marketing Period must occur as a", "paragraph_id": "para_516" }, { "text": "condition to closing or merely as a condition to Cooper‘s entitlement to the Reverse Termination", "paragraph_id": "para_517" }, { "text": "Fee under Section 8.1(g).", "paragraph_id": "para_518" }, { "text": "21", "paragraph_id": "para_519" }, { "text": "Agreement; and (c) Cooper was in breach of certain of its representations and", "paragraph_id": "para_520", "court_paragraph": 21 }, { "text": "warranties under Article VI of the Merger Agreement. In order for Apollo to", "paragraph_id": "para_521" }, { "text": "prevail on its Motion, only one of these contentions must be true. Consequently, in", "paragraph_id": "para_522" }, { "text": "my subsequent analysis on the issues, I primarily discuss Cooper‘s breach of its", "paragraph_id": "para_523" }, { "text": "obligation to operate its, and its subsidiaries‘, business in the ordinary course", "paragraph_id": "para_524" }, { "text": "during the pendency of the merger—a covenant under Article V. My finding on", "paragraph_id": "para_525" }, { "text": "that issue is sufficient to resolve the issues remaining before me. For the sake of", "paragraph_id": "para_526" }, { "text": "completeness, however, all of Apollo‘s contentions are set out in full below,", "paragraph_id": "para_527" }, { "text": "together with the contractual provisions sufficient to understand them.", "paragraph_id": "para_528" }, { "text": "1. Marketing Period", "paragraph_id": "para_529" }, { "text": "Although not contingent on financing, the Merger Agreement provides for", "paragraph_id": "para_530" }, { "text": "the occurrence of a 20-day Marketing Period, during which Apollo‘s financing", "paragraph_id": "para_531" }, { "text": "banks can market the debt by which Apollo hoped to finance the merger. Apollo", "paragraph_id": "para_532" }, { "text": "planned to finance the transaction with a combination of equity and a debt offering", "paragraph_id": "para_533" }, { "text": "underwritten by Morgan Stanley, Deutsche Bank, Goldman Sachs, and Standard", "paragraph_id": "para_534" }, { "text": "Chartered Bank; in the event that a debt offering was unsuccessful, the financing", "paragraph_id": "para_535" }, { "text": "banks would extend a temporary bridge loan until the debt could be sold. The", "paragraph_id": "para_536" }, { "text": "Merger Agreement therefore provides that:", "paragraph_id": "para_537" }, { "text": "The closing of the Merger (the ―Closing‖) shall take place at 10:00 am", "paragraph_id": "para_538" }, { "text": "on the fourth Business Day after the satisfaction or waiver of all of the", "paragraph_id": "para_539" }, { "text": "conditions (other than any condition that by its nature cannot be", "paragraph_id": "para_540" }, { "text": "satisfied until the Closing, but subject to satisfaction of any such", "paragraph_id": "para_541" }, { "text": "22", "paragraph_id": "para_542" }, { "text": "condition) set forth in ARTICLE VII (the ―Closing Date‖) . . .", "paragraph_id": "para_543", "court_paragraph": 22 }, { "text": "provided that if the Marketing Period has not ended at the time of the", "paragraph_id": "para_544" }, { "text": "satisfaction or waiver of the conditions set forth in ARTICLE VII . . .", "paragraph_id": "para_545" }, { "text": "then, subject to the satisfaction or waiver of the conditions set forth in", "paragraph_id": "para_546" }, { "text": "ARTICLE VII at such time, the Closing shall occur instead on the", "paragraph_id": "para_547" }, { "text": "earlier of (a) any Business Day during the Marketing Period as may be", "paragraph_id": "para_548" }, { "text": "specified by [Apollo] on no less than three (3) Business Days‘ prior", "paragraph_id": "para_549" }, { "text": "written notice to [Cooper] and (b) three (3) Business Days after the", "paragraph_id": "para_550" }, { "text": "final day of the Marketing Period.55", "paragraph_id": "para_551" }, { "text": "―Marketing Period‖ is defined in Section 10.2 as ―the first period of 20 consecutive", "paragraph_id": "para_552" }, { "text": "Business Days after the date of this Agreement throughout which [Apollo] shall", "paragraph_id": "para_553" }, { "text": "have the Required Information [Cooper] is required to provide pursuant to Section", "paragraph_id": "para_554" }, { "text": "6.11 and such Required Information is Compliant;‖ however, ―the Marketing", "paragraph_id": "para_555" }, { "text": "Period shall not commence and shall be deemed not to have commenced (i) prior", "paragraph_id": "para_556" }, { "text": "to the mailing of the Proxy Statement.‖56 Section 6.11(e)(i) defines ―Required", "paragraph_id": "para_557" }, { "text": "Information‖ as:", "paragraph_id": "para_558" }, { "text": "(A) [F]inancial statements, financial data and other pertinent", "paragraph_id": "para_559" }, { "text": "information regarding [Cooper] and its Subsidiaries of the type", "paragraph_id": "para_560" }, { "text": "required by SEC Regulation S-X and SEC Regulation S-K under the", "paragraph_id": "para_561" }, { "text": "Securities Act (excluding pro forma financial statements, pro forma", "paragraph_id": "para_562" }, { "text": "adjustments and information relating specifically to the Financing", "paragraph_id": "para_563" }, { "text": "(other than historical information relating to [Cooper] and its", "paragraph_id": "para_564" }, { "text": "Subsidiaries and forward looking information regarding [Cooper] and", "paragraph_id": "para_565" }, { "text": "its Subsidiaries otherwise required by applicable Law)) and (B)", "paragraph_id": "para_566" }, { "text": "information relating to [Cooper] and its Subsidiaries (including", "paragraph_id": "para_567" }, { "text": "information to be used in the preparation of one or more information", "paragraph_id": "para_568" }, { "text": "packages (including customary confidential information, memoranda,", "paragraph_id": "para_569" }, { "text": "offering circulars or prospectuses) regarding the business, operations", "paragraph_id": "para_570" }, { "text": "and business plan or budget of [Cooper] and its Subsidiaries)", "paragraph_id": "para_571" }, { "text": "55 Merger Agreement § 1.2 (typeface altered from original).", "paragraph_id": "para_572" }, { "text": "56 Id. § 10.2 (―Marketing Period‖).", "paragraph_id": "para_573" }, { "text": "23", "paragraph_id": "para_574" }, { "text": "customary for the placement, arrangement and/or syndication of loans", "paragraph_id": "para_575", "court_paragraph": 23 }, { "text": "as contemplated by the Financing Documents, to the extent reasonably", "paragraph_id": "para_576" }, { "text": "requested by [Apollo] to assist in preparation of customary offering or", "paragraph_id": "para_577" }, { "text": "information documents or rating agency or lender or investor", "paragraph_id": "para_578" }, { "text": "presentations relating to such placement, arrangement and/or", "paragraph_id": "para_579" }, { "text": "syndication of loans; provided, that any memoranda or prospectuses", "paragraph_id": "para_580" }, { "text": "need not be issued by [Cooper] or any of its Affiliates . . . .57", "paragraph_id": "para_581" }, { "text": "Further, under the terms of the Merger Agreement, Required Information is", "paragraph_id": "para_582" }, { "text": "―Compliant‖ if:", "paragraph_id": "para_583" }, { "text": "(a) [S]uch Required Information does not contain any untrue", "paragraph_id": "para_584" }, { "text": "statement of a material fact or omit to state any material fact, in each", "paragraph_id": "para_585" }, { "text": "case with respect to [Cooper] and its Subsidiaries, necessary in order", "paragraph_id": "para_586" }, { "text": "to make the statements contained in such Required Information, in the", "paragraph_id": "para_587" }, { "text": "context in which they are made, not misleading;", "paragraph_id": "para_588" }, { "text": "(b) [S]uch Required Information is, and remains throughout the", "paragraph_id": "para_589" }, { "text": "Marketing Period, compliant in all material respects with all", "paragraph_id": "para_590" }, { "text": "applicable requirements of Regulation S-K and Regulation S-X under", "paragraph_id": "para_591" }, { "text": "the Securities Act (excluding information required by Rule 3-09, Rule", "paragraph_id": "para_592" }, { "text": "3-10 or Rule 3-16 or Regulation S-X or Compensation Disclosure and", "paragraph_id": "para_593" }, { "text": "Analysis required by Regulation S-K Item 402(b));", "paragraph_id": "para_594" }, { "text": "(c) [Cooper‘s] auditors have not withdrawn any audit opinion with", "paragraph_id": "para_595" }, { "text": "respect to any financial statements contained in the Required", "paragraph_id": "para_596" }, { "text": "Information;", "paragraph_id": "para_597" }, { "text": "(d) [Cooper‘s] auditors have delivered drafts of customary comfort", "paragraph_id": "para_598" }, { "text": "letters, including customary negative assurance comfort with respect", "paragraph_id": "para_599" }, { "text": "to periods following the end of the latest fiscal year or fiscal quarter", "paragraph_id": "para_600" }, { "text": "for which historical financial statements are included in the Required", "paragraph_id": "para_601" }, { "text": "Information, and such auditors have confirmed they are prepared to", "paragraph_id": "para_602" }, { "text": "issue any such comfort letter upon any pricing date occurring during", "paragraph_id": "para_603" }, { "text": "the Marketing Period; and", "paragraph_id": "para_604" }, { "text": "57 Id. § 6.11(e)(i).", "paragraph_id": "para_605" }, { "text": "24", "paragraph_id": "para_606" }, { "text": "(e) [T]he financial statements in such Required Information are, and", "paragraph_id": "para_607", "court_paragraph": 24 }, { "text": "remain throughout the Marketing Period, sufficiently current to permit", "paragraph_id": "para_608" }, { "text": "a registration statement on Form S-1 using such financial statements", "paragraph_id": "para_609" }, { "text": "to be declared effective by the SEC on or before the last day of the", "paragraph_id": "para_610" }, { "text": "Marketing Period.58", "paragraph_id": "para_611" }, { "text": "If at any point within that 20-day Marketing Period the Required Information is no", "paragraph_id": "para_612" }, { "text": "longer Compliant, ―a new 20 Business Day period shall commence upon [Apollo]", "paragraph_id": "para_613" }, { "text": "and its Financing Sources receiving updated Required Information that would be", "paragraph_id": "para_614" }, { "text": "Compliant.‖59", "paragraph_id": "para_615" }, { "text": "Cooper notified Apollo on September 3, 2013 that Cooper believed the 20-", "paragraph_id": "para_616" }, { "text": "day Marketing Period anticipated in Section 1.2 of the Merger Agreement had", "paragraph_id": "para_617" }, { "text": "begun, as, according to Cooper, all Required Information had been delivered and", "paragraph_id": "para_618" }, { "text": "was Compliant since August 30.60 On August 30, Cooper had provided Apollo", "paragraph_id": "para_619" }, { "text": "with (1) a draft offering memorandum incorporating Cooper‘s most recent 10-K", "paragraph_id": "para_620" }, { "text": "and 10-Q; (2) an updated business plan; (3) historical information regarding", "paragraph_id": "para_621" }, { "text": "Cooper‘s financials for the prior three years; and (4) a draft comfort letter from", "paragraph_id": "para_622" }, { "text": "Ernst & Young. With respect to the updated business plan, Cooper CFO Brad", "paragraph_id": "para_623" }, { "text": "Hughes acknowledged in two separate emails that the operating profit projection in", "paragraph_id": "para_624" }, { "text": "that plan was ―very fluid . . . given the lack of clarity about what is going on at", "paragraph_id": "para_625" }, { "text": "58 Id. § 10.2 (―Compliant‖).", "paragraph_id": "para_626" }, { "text": "59 Id. (―Marketing Period‖).", "paragraph_id": "para_627" }, { "text": "60 JX 161.", "paragraph_id": "para_628" }, { "text": "25", "paragraph_id": "para_629" }, { "text": "CCT,‖61 and that information related to CCT‘s business was only ―directional at", "paragraph_id": "para_630", "court_paragraph": 25 }, { "text": "this point.‖62 Nevertheless, Cooper claims that the business plans it provided on", "paragraph_id": "para_631" }, { "text": "August 30 were Compliant, as defined in Section 10.2 of the Merger Agreement.", "paragraph_id": "para_632" }, { "text": "By contrast, Apollo contends that any Required Information provided by", "paragraph_id": "para_633" }, { "text": "Cooper prior to September 3 was not Compliant, as Cooper failed to (1) deliver", "paragraph_id": "para_634" }, { "text": "accurate business plans relating to CCT, or (2) deliver a final, as opposed to draft,", "paragraph_id": "para_635" }, { "text": "―customary comfort letter‖ providing ―customary negative assurance comfort.‖63", "paragraph_id": "para_636" }, { "text": "In fact, on September 5, Apollo responded to Cooper‘s notification that the", "paragraph_id": "para_637" }, { "text": "Marketing Period had begun, taking the position that ―[w]e do not believe that the", "paragraph_id": "para_638" }, { "text": "Company has completed the delivery of Required Information that is Compliant,‖64", "paragraph_id": "para_639" }, { "text": "and noting that Apollo was continuing to work with Cooper representatives to", "paragraph_id": "para_640" }, { "text": "obtain Required Information, including a revised business plan that addressed", "paragraph_id": "para_641" }, { "text": "developments at CCT, to ―be finalized shortly after the Company‘s financial", "paragraph_id": "para_642" }, { "text": "information for August is available.‖65", "paragraph_id": "para_643" }, { "text": "61 JX 399.", "paragraph_id": "para_644" }, { "text": "62 JX 199. As of September 15, 2013, Cooper could provide only estimated financials for the", "paragraph_id": "para_645" }, { "text": "month of August. JX 219.", "paragraph_id": "para_646" }, { "text": "63 See Defs.‘ Pre-Trial Br. at 26–27, 45–47. Notably, the parties do not argue that, during the 20-", "paragraph_id": "para_647" }, { "text": "day period in which Cooper alleges the Marketing Period occurred, the Required Information", "paragraph_id": "para_648" }, { "text": "was insufficient under federal securities laws.", "paragraph_id": "para_649" }, { "text": "64 JX 186.", "paragraph_id": "para_650" }, { "text": "65 Id.", "paragraph_id": "para_651" }, { "text": "26", "paragraph_id": "para_652" }, { "text": "2. Material Adverse Effect", "paragraph_id": "para_653", "court_paragraph": 26 }, { "text": "Section 7.2(c) of the Merger Agreement conditions Apollo‘s obligation to", "paragraph_id": "para_654" }, { "text": "close the transaction on the non-occurrence of a Material Adverse Effect. Section", "paragraph_id": "para_655" }, { "text": "10.2 defines ―Material Adverse Effect‖ as:", "paragraph_id": "para_656" }, { "text": "any fact, circumstance, event, change, effect or occurrence that (i) has", "paragraph_id": "para_657" }, { "text": "had or would reasonably be expected to have a material adverse effect", "paragraph_id": "para_658" }, { "text": "on the business, results of operations or financial condition of", "paragraph_id": "para_659" }, { "text": "[Cooper], its Subsidiaries and Joint Ventures, taken as a whole . . . or", "paragraph_id": "para_660" }, { "text": "(ii) that would reasonably be expected to prevent or materially delay", "paragraph_id": "para_661" }, { "text": "or impair the ability of [Cooper] to perform its obligations under this", "paragraph_id": "para_662" }, { "text": "Agreement or to consummate the Transactions.66", "paragraph_id": "para_663" }, { "text": "Further, subsection (i) to that definition carves out several circumstances that do", "paragraph_id": "para_664" }, { "text": "not constitute Material Adverse Effects, including those attributable to", "paragraph_id": "para_665" }, { "text": "(F) the execution and delivery of this Agreement or the public", "paragraph_id": "para_666" }, { "text": "announcement or pendency of the Merger or any of the other", "paragraph_id": "para_667" }, { "text": "Transactions or the Financing, including the impact thereof on the", "paragraph_id": "para_668" }, { "text": "relationships, contractual or otherwise, of the Company or any of its", "paragraph_id": "para_669" }, { "text": "Subsidiaries with employees, labor unions, customers, suppliers or", "paragraph_id": "para_670" }, { "text": "partners, and any litigation arising from allegations of any breach of", "paragraph_id": "para_671" }, { "text": "fiduciary duty or violation of Law relating to this Agreement or the", "paragraph_id": "para_672" }, { "text": "transactions contemplated by this Agreement, or compliance by the", "paragraph_id": "para_673" }, { "text": "Company with the terms of this Agreement . . . .67", "paragraph_id": "para_674" }, { "text": "Apollo argues that an event falling under the carveout of subsection (i)(F) is not", "paragraph_id": "para_675" }, { "text": "foreclosed from constituting a Material Adverse Effect under subsection (ii),", "paragraph_id": "para_676" }, { "text": "however. Specifically, Apollo argues that the lockout at CCT was not", "paragraph_id": "para_677" }, { "text": "contemplated by the parties, prevented Cooper from satisfying its obligations under", "paragraph_id": "para_678" }, { "text": "66 Merger Agreement § 10.2 (―Material Adverse Effect‖).", "paragraph_id": "para_679" }, { "text": "67 Id. § 10.2 (―Material Adverse Effect,‖ (i)(F)).", "paragraph_id": "para_680" }, { "text": "27", "paragraph_id": "para_681" }, { "text": "the Merger Agreement, and therefore constituted a Material Adverse Effect under", "paragraph_id": "para_682", "court_paragraph": 27 }, { "text": "subsection (ii).", "paragraph_id": "para_683" }, { "text": "Despite that contention, James Dougherty, Cooper‘s corporate counsel at", "paragraph_id": "para_684" }, { "text": "Jones Day, testified at trial that Cooper communicated from the outset that its goals", "paragraph_id": "para_685" }, { "text": "in negotiating the Merger Agreement were to secure maximum deal and financing", "paragraph_id": "para_686" }, { "text": "certainty, and for the deal to close as quickly as possible.68 According to", "paragraph_id": "para_687" }, { "text": "Dougherty, Cooper believed it was wholly allocating to Apollo the risk that", "paragraph_id": "para_688" }, { "text": "tensions between Cooper and its subsidiaries and joint venture partners would", "paragraph_id": "para_689" }, { "text": "arise.69 Cooper therefore contends that the definition of Material Adverse Effect", "paragraph_id": "para_690" }, { "text": "evidences the parties‘ intent to prevent Apollo from avoiding its obligation to close", "paragraph_id": "para_691" }, { "text": "for any reason attributable to the merger announcement‘s impact on Cooper‘s", "paragraph_id": "para_692" }, { "text": "relationships with its subsidiaries or joint venture partners.", "paragraph_id": "para_693" }, { "text": "3. Covenants and Agreements as Conditions to Closing", "paragraph_id": "para_694" }, { "text": "In addition, as outlined in Section 7.2(b) of the Merger Agreement, Apollo‘s", "paragraph_id": "para_695" }, { "text": "obligation to close the transaction is conditioned on the satisfaction of several", "paragraph_id": "para_696" }, { "text": "covenants and agreements. That Section provides:", "paragraph_id": "para_697" }, { "text": "The obligation of [Apollo] to effect the Merger is further subject to", "paragraph_id": "para_698" }, { "text": "the satisfaction, or waiver by [Apollo], at or prior to the Effective", "paragraph_id": "para_699" }, { "text": "Time of the following conditions:", "paragraph_id": "para_700" }, { "text": ". . . .", "paragraph_id": "para_701" }, { "text": "68 Trial Tr. 143:18–144:14 (Dougherty).", "paragraph_id": "para_702" }, { "text": "69 Id. at 147:3–153:3.", "paragraph_id": "para_703" }, { "text": "28", "paragraph_id": "para_704" }, { "text": "(b) [Cooper] shall have in all material respects performed or complied", "paragraph_id": "para_705", "court_paragraph": 28 }, { "text": "with the covenants and agreements contained in this Agreement to be", "paragraph_id": "para_706" }, { "text": "performed or complied with by it prior to or on the Closing Date.70", "paragraph_id": "para_707" }, { "text": "Article V sets out the covenants to which the parties agreed, including Section", "paragraph_id": "para_708" }, { "text": "5.1(a), which states:", "paragraph_id": "para_709" }, { "text": "From the date of this Agreement and until the Effective Time or the", "paragraph_id": "para_710" }, { "text": "earlier termination of this Agreement in accordance with its terms,", "paragraph_id": "para_711" }, { "text": "except as (w) otherwise expressly contemplated by this Agreement . . .", "paragraph_id": "para_712" }, { "text": "[Cooper] shall, and shall cause each of its Subsidiaries to, conduct its", "paragraph_id": "para_713" }, { "text": "business in the ordinary course of business consistent with past", "paragraph_id": "para_714" }, { "text": "practice and in compliance in all material respects with all material", "paragraph_id": "para_715" }, { "text": "applicable Laws, and shall, and shall cause each of its Subsidiaries to,", "paragraph_id": "para_716" }, { "text": "use its commercially reasonable efforts to preserve intact its present", "paragraph_id": "para_717" }, { "text": "business organization, keep available the services of its directors,", "paragraph_id": "para_718" }, { "text": "officers and employees and maintain existing relations and goodwill", "paragraph_id": "para_719" }, { "text": "with customers, distributors, lenders, partners, suppliers and others", "paragraph_id": "para_720" }, { "text": "having material business associations with it or its Subsidiaries.71", "paragraph_id": "para_721" }, { "text": "Apollo argues that the takeover at CCT amounted to a breach of Cooper‘s covenant", "paragraph_id": "para_722" }, { "text": "to maintain its interim operations under Section 5.1(a).", "paragraph_id": "para_723" }, { "text": "Apollo further argues that Cooper has breached Sections 6.11 and 6.5, and", "paragraph_id": "para_724" }, { "text": "therefore has failed to satisfy conditions to closing under Section 7.2(b). Section", "paragraph_id": "para_725" }, { "text": "6.11(e) requires that, ―[p]rior to the Closing Date, [Cooper] shall use reasonable", "paragraph_id": "para_726" }, { "text": "best efforts to provide and to cause its Subsidiaries and Representatives, including", "paragraph_id": "para_727" }, { "text": "legal, finance and accounting, to provide, to [Apollo], at [Apollo‘s] sole expense,", "paragraph_id": "para_728" }, { "text": "70 Merger Agreement § 7.2.", "paragraph_id": "para_729" }, { "text": "71 Id. § 5.1(a).", "paragraph_id": "para_730" }, { "text": "29", "paragraph_id": "para_731" }, { "text": "all cooperation reasonably requested by [Apollo] that is customary in connection", "paragraph_id": "para_732", "court_paragraph": 29 }, { "text": "with the arrangement of the Financing.‖72 Section 6.5 states:", "paragraph_id": "para_733" }, { "text": "Subject to the Confidentiality Agreement and applicable Law relating", "paragraph_id": "para_734" }, { "text": "to the sharing of information, [Cooper] agrees to provide, and shall", "paragraph_id": "para_735" }, { "text": "cause its Subsidiaries to provide, [Apollo] and its Representatives,", "paragraph_id": "para_736" }, { "text": "from time to time prior to the earlier of the Effective Time or the", "paragraph_id": "para_737" }, { "text": "termination of this Agreement, reasonable access during normal", "paragraph_id": "para_738" }, { "text": "business hours to (i) [Cooper‘s] and its Subsidiaries‘ respective", "paragraph_id": "para_739" }, { "text": "properties, books, Contracts, commitments, personnel and records and", "paragraph_id": "para_740" }, { "text": "(ii) such other information as [Apollo] shall reasonably request with", "paragraph_id": "para_741" }, { "text": "respect to [Cooper] and its Subsidiaries and their respective", "paragraph_id": "para_742" }, { "text": "businesses, financial condition and operations, in each case, to the", "paragraph_id": "para_743" }, { "text": "extent related to consummation of the Transactions or the ownership", "paragraph_id": "para_744" }, { "text": "or operation of the respective businesses of [Cooper] and its", "paragraph_id": "para_745" }, { "text": "Subsidiaries from and after Closing . . . .73", "paragraph_id": "para_746" }, { "text": "4. Representations and Warranties as Conditions to Closing", "paragraph_id": "para_747" }, { "text": "Finally, Section 7.2(a) provides that Apollo‘s obligation to close is subject to", "paragraph_id": "para_748" }, { "text": "the accuracy of certain representations and warranties. Section 7.2(a) states:", "paragraph_id": "para_749" }, { "text": "The representations and warranties of [Cooper] set forth herein shall", "paragraph_id": "para_750" }, { "text": "be true and correct in all respects (without giving effect to any", "paragraph_id": "para_751" }, { "text": "materiality or ―Material Adverse Effect‖ qualifications contained", "paragraph_id": "para_752" }, { "text": "therein) both when made and at and as of the Closing Date, as if made", "paragraph_id": "para_753" }, { "text": "at and as of such time (except to the extent expressly made as of an", "paragraph_id": "para_754" }, { "text": "earlier date, in which case as of such earlier date), except where the", "paragraph_id": "para_755" }, { "text": "failure of such representations and warranties to be so true and correct", "paragraph_id": "para_756" }, { "text": "would not reasonably be expected to have or result in, individually or", "paragraph_id": "para_757" }, { "text": "in the aggregate, a Material Adverse Effect . . . .74", "paragraph_id": "para_758" }, { "text": "72 Id. § 6.11(e).", "paragraph_id": "para_759" }, { "text": "73 Id. § 6.5.", "paragraph_id": "para_760" }, { "text": "74 Id. § 7.2(a).", "paragraph_id": "para_761" }, { "text": "30", "paragraph_id": "para_762" }, { "text": "Apollo points to four representations and warranties that Cooper has purportedly", "paragraph_id": "para_763", "court_paragraph": 30 }, { "text": "breached. First, Section 3.5(d) represents that Cooper ―maintains internal control", "paragraph_id": "para_764" }, { "text": "over financial reporting,‖ and that ―[s]uch internal control over financial reporting", "paragraph_id": "para_765" }, { "text": "is effective in providing reasonable assurance regarding the reliability of financial", "paragraph_id": "para_766" }, { "text": "reporting and the preparation of financial statements for external purposes in", "paragraph_id": "para_767" }, { "text": "accordance with GAAP.‖75 Second, Section 3.6 represents that ―[s]ince December", "paragraph_id": "para_768" }, { "text": "31, 2012, except as otherwise required or contemplated by this Agreement,", "paragraph_id": "para_769" }, { "text": "[Cooper], its Subsidiaries and, to the Knowledge of [Cooper], its Joint Ventures", "paragraph_id": "para_770" }, { "text": "have conducted their respective businesses only in the ordinary course of business", "paragraph_id": "para_771" }, { "text": "consistent with past practice in all material respects.‖76 Third, Section 3.13", "paragraph_id": "para_772" }, { "text": "represents that:", "paragraph_id": "para_773" }, { "text": "[Cooper] or any of its Subsidiaries [are not] the subject of any", "paragraph_id": "para_774" }, { "text": "material Action that asserts that [Cooper] or any of its Subsidiaries", "paragraph_id": "para_775" }, { "text": "has committed an unfair labor practice or that seeks to compel it to", "paragraph_id": "para_776" }, { "text": "bargain with any labor union or labor organization, nor is there", "paragraph_id": "para_777" }, { "text": "pending or, to the Knowledge of [Cooper], threatened, nor has there", "paragraph_id": "para_778" }, { "text": "been for the past five years, any labor strike or lock-out or any", "paragraph_id": "para_779" }, { "text": "material dispute, walk-out, work stoppage or slow-down involving", "paragraph_id": "para_780" }, { "text": "[Cooper] or any of its Subsidiaries.77", "paragraph_id": "para_781" }, { "text": "Finally, Section 3.14(b) represents that, ―[e]xcept as would not reasonably be", "paragraph_id": "para_782" }, { "text": "expected to have, individually or in the aggregate, a Material Adverse Effect,", "paragraph_id": "para_783" }, { "text": "[Cooper] or one of its Subsidiaries has exclusive possession of each Owned Real", "paragraph_id": "para_784" }, { "text": "75 Id. § 3.5(d).", "paragraph_id": "para_785" }, { "text": "76 Id. § 3.6.", "paragraph_id": "para_786" }, { "text": "77 Id. § 3.13.", "paragraph_id": "para_787" }, { "text": "31", "paragraph_id": "para_788" }, { "text": "Property and Leased Real Property.‖78 Apollo contends that the lockout at CCT,", "paragraph_id": "para_789", "court_paragraph": 31 }, { "text": "and the resulting inability of Cooper‘s management to obtain CCT financial", "paragraph_id": "para_790" }, { "text": "records, have caused Cooper to breach each of these representations.", "paragraph_id": "para_791" }, { "text": "III. ANALYSIS", "paragraph_id": "para_792" }, { "text": "A. The Issues Presented", "paragraph_id": "para_793" }, { "text": "In the analysis below, I find that, due to the CCT strike and physical", "paragraph_id": "para_794" }, { "text": "takeover of the CCT facility, apparently orchestrated by Chairman Che, and due to", "paragraph_id": "para_795" }, { "text": "Cooper‘s reaction to that takeover, which involved an effort to cut off supply from", "paragraph_id": "para_796" }, { "text": "third-party contractors to CCT, Cooper failed to comply with Section 5.1(a) of the", "paragraph_id": "para_797" }, { "text": "Merger Agreement, which required Cooper to ―cause each of its subsidiaries to", "paragraph_id": "para_798" }, { "text": "conduct its business in the ordinary course of business.‖ Compliance with Section", "paragraph_id": "para_799" }, { "text": "5.1(a) had a cascade effect on other contractual provisions, including those", "paragraph_id": "para_800" }, { "text": "involving Material Adverse Effects and the Marketing Period. For purposes of this", "paragraph_id": "para_801" }, { "text": "Memorandum Opinion, however, because Cooper‘s failure to comply with Section", "paragraph_id": "para_802" }, { "text": "5.1(a) is sufficient to grant the declaratory judgment Apollo seeks here, I confine", "paragraph_id": "para_803" }, { "text": "my analysis to that issue only.", "paragraph_id": "para_804" }, { "text": "As described above, pursuant to Section 7.2(b) of the Merger Agreement,", "paragraph_id": "para_805" }, { "text": "Apollo‘s obligation to close was conditioned on Cooper‘s fulfillment of certain", "paragraph_id": "para_806" }, { "text": "78 Id. § 3.14(b).", "paragraph_id": "para_807" }, { "text": "32", "paragraph_id": "para_808" }, { "text": "covenants and agreements contained in Article V of the Merger Agreement.", "paragraph_id": "para_809", "court_paragraph": 32 }, { "text": "Section 5.1(a) sets out one such covenant:", "paragraph_id": "para_810" }, { "text": "From the date of this Agreement and until the Effective Time or the", "paragraph_id": "para_811" }, { "text": "earlier termination of this Agreement in accordance with its terms,", "paragraph_id": "para_812" }, { "text": "except as (w) otherwise expressly contemplated by this Agreement . . .", "paragraph_id": "para_813" }, { "text": "[Cooper] shall, and shall cause each of its Subsidiaries to, conduct its", "paragraph_id": "para_814" }, { "text": "business in the ordinary course of business consistent with past", "paragraph_id": "para_815" }, { "text": "practice and in compliance in all material respects with all material", "paragraph_id": "para_816" }, { "text": "applicable Laws, and shall, and shall cause each of its Subsidiaries to,", "paragraph_id": "para_817" }, { "text": "use its commercially reasonable efforts to preserve intact its present", "paragraph_id": "para_818" }, { "text": "business organization, keep available the services of its directors,", "paragraph_id": "para_819" }, { "text": "officers and employees and maintain existing relations and goodwill", "paragraph_id": "para_820" }, { "text": "with customers, distributors, lenders, partners, suppliers and others", "paragraph_id": "para_821" }, { "text": "having material business associations with it or its Subsidiaries.79", "paragraph_id": "para_822" }, { "text": "Apollo contends that Cooper has failed to cause CCT to ―conduct its business in", "paragraph_id": "para_823" }, { "text": "the ordinary course of business consistent with past practice,‖ or to ―use its", "paragraph_id": "para_824" }, { "text": "commercially reasonable efforts to preserve intact its present business", "paragraph_id": "para_825" }, { "text": "organization, keep available the services of its directors, officers and employees", "paragraph_id": "para_826" }, { "text": "and maintain existing relations and goodwill with customers, distributors, lenders,", "paragraph_id": "para_827" }, { "text": "partners, suppliers and others having material business associations with it or its", "paragraph_id": "para_828" }, { "text": "Subsidiaries.‖ I address those contentions below.", "paragraph_id": "para_829" }, { "text": "B. Apollo Did Not Acquiesce in Any Breach of the Merger Agreement", "paragraph_id": "para_830" }, { "text": "Preliminarily, Cooper contends that Apollo should be estopped from", "paragraph_id": "para_831" }, { "text": "challenging Cooper‘s failure to fulfill any covenants as a result of the lockout at", "paragraph_id": "para_832" }, { "text": "CCT because Apollo participated in, or acquiesced to, attempts to resolve the", "paragraph_id": "para_833" }, { "text": "79 Id. § 5.1(a).", "paragraph_id": "para_834" }, { "text": "33", "paragraph_id": "para_835" }, { "text": "disruption, and in the process represented that it was bound to close the transaction", "paragraph_id": "para_836", "court_paragraph": 33 }, { "text": "by the Merger Agreement. Among other things, Cooper suggests that the", "paragraph_id": "para_837" }, { "text": "following factors demonstrate Apollo‘s ―participat[ion] in the situation about", "paragraph_id": "para_838" }, { "text": "which it now complains‖80: (i) Apollo‘s statements to Chairman Che and the", "paragraph_id": "para_839" }, { "text": "Mayor of Rongcheng indicating that it was required by the Merger Agreement to", "paragraph_id": "para_840" }, { "text": "close the transaction; (ii) Apollo‘s rejection of Cooper‘s proposal to ―replac[e] the", "paragraph_id": "para_841" }, { "text": "CCT security personnel [physically] blocking Cooper‘s representatives from the", "paragraph_id": "para_842" }, { "text": "CCT facility;‖81 (iii) communications that, according to Cooper, indicate that", "paragraph_id": "para_843" }, { "text": "Apollo ―took responsibility for negotiating a resolution with Che;‖82 and (iv)", "paragraph_id": "para_844" }, { "text": "Apollo‘s attempts throughout ―Project Charlie‖ to negotiate a buyout of Che‘s 35%", "paragraph_id": "para_845" }, { "text": "interest in CCT, which, according to Cooper, ―provided [Che] an incentive to hold", "paragraph_id": "para_846" }, { "text": "out for more—i.e., to continue the disruptions until Apollo increased its offer to", "paragraph_id": "para_847" }, { "text": "one that [Che] found acceptable.‖83 Cooper contends that, ―[u]nder such", "paragraph_id": "para_848" }, { "text": "circumstances, it would be unfair and inequitable to allow Apollo to claim that", "paragraph_id": "para_849" }, { "text": "Cooper somehow violated its covenants by failing to resolve the CCT", "paragraph_id": "para_850" }, { "text": "disruptions.‖84", "paragraph_id": "para_851" }, { "text": "80 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 28.", "paragraph_id": "para_852" }, { "text": "81 Id. at 30.", "paragraph_id": "para_853" }, { "text": "82 Id. at 29.", "paragraph_id": "para_854" }, { "text": "83 Id. at 30–31.", "paragraph_id": "para_855" }, { "text": "84 Id. at 31 (emphasis omitted).", "paragraph_id": "para_856" }, { "text": "34", "paragraph_id": "para_857" }, { "text": "Acquiescence in another party‘s conduct, under certain circumstances, may", "paragraph_id": "para_858", "court_paragraph": 34 }, { "text": "give rise to estoppel.85 In Delaware, as a general rule, ―one who participates or", "paragraph_id": "para_859" }, { "text": "acquiesces in another‘s conduct has no standing in equity to complain against it.‖86", "paragraph_id": "para_860" }, { "text": "As our Supreme Court recently explained, a claimant acquiesces in an act where", "paragraph_id": "para_861" }, { "text": "he:", "paragraph_id": "para_862" }, { "text": "has full knowledge of his rights and the material facts and (1) remains", "paragraph_id": "para_863" }, { "text": "inactive for a considerable time; or (2) freely does what amounts to", "paragraph_id": "para_864" }, { "text": "recognition of the complained of act; or (3) acts in a manner", "paragraph_id": "para_865" }, { "text": "inconsistent with the subsequent repudiation, which leads the other", "paragraph_id": "para_866" }, { "text": "party to believe the act has been approved.87", "paragraph_id": "para_867" }, { "text": "For the reasons explained below, I find that, despite statements indicating that the", "paragraph_id": "para_868" }, { "text": "transaction would close, and its cooperation with Cooper in attempting to resolve", "paragraph_id": "para_869" }, { "text": "the lockout at CCT, Apollo did not participate or acquiesce in any breach of the", "paragraph_id": "para_870" }, { "text": "terms of the Merger Agreement arising from the lockout, and is therefore not", "paragraph_id": "para_871" }, { "text": "estopped from alleging such a breach.", "paragraph_id": "para_872" }, { "text": "Although Cooper seeks to prevent Apollo from challenging any breach", "paragraph_id": "para_873" }, { "text": "caused by Chairman Che‘s seizure of CCT, Cooper does not, and cannot, contend", "paragraph_id": "para_874" }, { "text": "85 Council of S. Bethany v. Sandpiper Dev. Corp., Inc., 1986 WL 13707, at *4 (Del. Ch. Dec. 8,", "paragraph_id": "para_875" }, { "text": "1986).", "paragraph_id": "para_876" }, { "text": "86 Id.; see also Gottlieb v. McKee, 107 A.2d 240, 244 (Del. Ch. 1954) (―The rule is a general one", "paragraph_id": "para_877" }, { "text": "that he who participates in or acquiesces in an action has no standing in a court of equity to", "paragraph_id": "para_878" }, { "text": "complain against it. Equity will not hear a complainant stultify himself by complaining against", "paragraph_id": "para_879" }, { "text": "acts in which he participated or of which he has demonstrated his approval by sharing in their", "paragraph_id": "para_880" }, { "text": "benefits.‖); Trounstine v. Remington Rand, 194 A. 95, 99 (Del. 1937).", "paragraph_id": "para_881" }, { "text": "87 Klaassen v. Allegro Dev. Corp., 2014 WL 996375, at *8 (Del. Mar. 14, 2014) (quoting Cantor", "paragraph_id": "para_882" }, { "text": "Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 582 (Del. Ch. 1998), and The NTC Group, Inc. v. West", "paragraph_id": "para_883" }, { "text": "Point–Pepperell, Inc., 1990 WL 143842, at *5 (Del. Ch. Oct. 17, 1990)).", "paragraph_id": "para_884" }, { "text": "35", "paragraph_id": "para_885" }, { "text": "that Apollo incited, supported, or actively furthered the lockout at CCT. The", "paragraph_id": "para_886", "court_paragraph": 35 }, { "text": "evidence on which Cooper now relies does not demonstrate that Apollo actively", "paragraph_id": "para_887" }, { "text": "impeded, directed, or even approved of Cooper‘s attempts to resolve the situation", "paragraph_id": "para_888" }, { "text": "at CCT such that Apollo must now be prohibited in equity or law from challenging", "paragraph_id": "para_889" }, { "text": "Cooper‘s fulfillment of its covenants. For example, Apollo‘s attempts to buy out", "paragraph_id": "para_890" }, { "text": "Chairman Che‘s interest in CCT, and its rejection of Cooper‘s proposal to send in", "paragraph_id": "para_891" }, { "text": "its own security personnel ―to attempt to regain control by force,‖88 do not", "paragraph_id": "para_892" }, { "text": "demonstrate participation in the lockout; instead, those acts demonstrate simply", "paragraph_id": "para_893" }, { "text": "that Apollo took reasonable steps in attempting to resolve the CCT lockout while", "paragraph_id": "para_894" }, { "text": "preserving safe conditions for workers at CCT. In addition, while Apollo‘s", "paragraph_id": "para_895" }, { "text": "involvement may in fact have ―changed the facts on the ground,‖89 there is no", "paragraph_id": "para_896" }, { "text": "evidence that Apollo‘s involvement with Chairman Che—as the soon-to-be", "paragraph_id": "para_897" }, { "text": "acquirer of 65% of this joint venture—impeded Cooper‘s ability to direct its", "paragraph_id": "para_898" }, { "text": "subsidiary or stalled resolution of the lockout.", "paragraph_id": "para_899" }, { "text": "In further support of its acquiescence defense, Cooper relies on Apollo‘s", "paragraph_id": "para_900" }, { "text": "representations to Chairman Che and the Mayor of Rongcheng that the parties", "paragraph_id": "para_901" }, { "text": "were legally required to close the transaction, as well as Apollo‘s other interactions", "paragraph_id": "para_902" }, { "text": "with Chairman Che throughout its pursuit of ―Project Charlie.‖ The problem with", "paragraph_id": "para_903" }, { "text": "Cooper‘s theory, however, is that Cooper cannot demonstrate that it reasonably", "paragraph_id": "para_904" }, { "text": "88 Defs.‘ Br. in Support of Mot. for TRO and Declaratory J. at 36 n.24.", "paragraph_id": "para_905" }, { "text": "89 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 30 n.10.", "paragraph_id": "para_906" }, { "text": "36", "paragraph_id": "para_907" }, { "text": "understood, based on Apollo‘s attempts to build a relationship with—or develop an", "paragraph_id": "para_908", "court_paragraph": 36 }, { "text": "exit strategy for—Chairman Che, that Apollo consented to any breach on Cooper‘s", "paragraph_id": "para_909" }, { "text": "part resulting from the lockout at CCT. Instead, the evidence presented at trial", "paragraph_id": "para_910" }, { "text": "indicated a good faith effort on Apollo‘s part to resolve the lockout caused by", "paragraph_id": "para_911" }, { "text": "Chairman Che, not because Apollo accepted any breach caused by the lockout, but", "paragraph_id": "para_912" }, { "text": "because Apollo believed it could close the deal if the lockout at CCT was resolved.", "paragraph_id": "para_913" }, { "text": "That Apollo acted to resolve the dispute with Chairman Che in order to facilitate", "paragraph_id": "para_914" }, { "text": "closing cannot prevent it from seeking to vindicate its rights under the Merger", "paragraph_id": "para_915" }, { "text": "Agreement when those efforts failed.90", "paragraph_id": "para_916" }, { "text": "For the reasons explained above, I find that Apollo is not estopped from", "paragraph_id": "para_917" }, { "text": "challenging Cooper‘s failure to meet its obligations under the Merger Agreement.", "paragraph_id": "para_918" }, { "text": "C. Cooper Breached Section 5.1(a) of the Merger Agreement", "paragraph_id": "para_919" }, { "text": "1. The Seizure of CCT", "paragraph_id": "para_920" }, { "text": "Pursuant to Section 5.1(a) of the Merger Agreement, Cooper must fulfill two", "paragraph_id": "para_921" }, { "text": "separate obligations. First, Cooper ―shall, and shall cause each of its Subsidiaries", "paragraph_id": "para_922" }, { "text": "to, conduct its business in the ordinary course of business consistent with past", "paragraph_id": "para_923" }, { "text": "90 I note that it is clear from the record evidence that Apollo‘s representations to Chairman Che", "paragraph_id": "para_924" }, { "text": "and the Mayor of Rongcheng indicating that the merger was required to close regardless of the", "paragraph_id": "para_925" }, { "text": "lockout at CCT was a negotiating tactic intended to strengthen both Apollo‘s and Cooper‘s", "paragraph_id": "para_926" }, { "text": "negotiating position with Chairman Che, and Cooper undoubtedly understood those statements", "paragraph_id": "para_927" }, { "text": "as such. Indeed, it is easy to envision what Cooper would have argued had Apollo said the", "paragraph_id": "para_928" }, { "text": "opposite—that the lockout could and would impede the transaction. Had Apollo taken such a", "paragraph_id": "para_929" }, { "text": "position, Cooper undoubtedly would have argued that Apollo contributed to the lockout or", "paragraph_id": "para_930" }, { "text": "caused it to continue, and Chairman Che likely would have been even less amenable to", "paragraph_id": "para_931" }, { "text": "negotiating a deal with Apollo.", "paragraph_id": "para_932" }, { "text": "37", "paragraph_id": "para_933" }, { "text": "practice and in compliance in all material respects with all material applicable", "paragraph_id": "para_934", "court_paragraph": 37 }, { "text": "Laws.‖91 Second, Cooper:", "paragraph_id": "para_935" }, { "text": "shall, and shall cause each of its Subsidiaries to, use its commercially", "paragraph_id": "para_936" }, { "text": "reasonable efforts to preserve intact its present business organization,", "paragraph_id": "para_937" }, { "text": "keep available the services of its directors, officers and employees and", "paragraph_id": "para_938" }, { "text": "maintain existing relations and goodwill with customers, distributors,", "paragraph_id": "para_939" }, { "text": "lenders, partners, suppliers and others having material business", "paragraph_id": "para_940" }, { "text": "associations with it or its Subsidiaries.92", "paragraph_id": "para_941" }, { "text": "Notably, the second clause of Section 5.1(a) contemplates the use of", "paragraph_id": "para_942" }, { "text": "―commercially reasonable efforts‖ by Cooper and its subsidiaries, while the first", "paragraph_id": "para_943" }, { "text": "clause imposes an unconditional obligation.", "paragraph_id": "para_944" }, { "text": "The parties dispute whether the first or second clause of Section 5.1(a)", "paragraph_id": "para_945" }, { "text": "applies, and, as a result, whether Cooper‘s obligation to conduct the business of", "paragraph_id": "para_946" }, { "text": "CCT was governed by a ―commercially reasonable efforts‖ standard. Apollo", "paragraph_id": "para_947" }, { "text": "argues that under the first clause of Section 5.1(a), Cooper has an unqualified", "paragraph_id": "para_948" }, { "text": "obligation to cause CCT to operate its business in the ordinary course, consistent", "paragraph_id": "para_949" }, { "text": "with past practice, and that Cooper was unable to satisfy this obligation due to the", "paragraph_id": "para_950" }, { "text": "lockout at CCT. According to Apollo, such a reading ―makes sense because a", "paragraph_id": "para_951" }, { "text": "company can reasonably be tasked with an absolute requirement to take its own", "paragraph_id": "para_952" }, { "text": "actions, and to cause its subsidiaries to do so, ‗in the ordinary course.‘‖93", "paragraph_id": "para_953" }, { "text": "Conversely, Apollo notes that the commercially reasonable efforts standard", "paragraph_id": "para_954" }, { "text": "91 Merger Agreement § 5.1(a).", "paragraph_id": "para_955" }, { "text": "92 Id.", "paragraph_id": "para_956" }, { "text": "93 Defs.‘ Br. in Supp. of Mot. for Declaratory J. at 26.", "paragraph_id": "para_957" }, { "text": "38", "paragraph_id": "para_958" }, { "text": "appearing in the second clause of Section 5.1(a) makes business sense in a", "paragraph_id": "para_959", "court_paragraph": 38 }, { "text": "situation not applicable here, as ―with respect to its relationship with third-parties,", "paragraph_id": "para_960" }, { "text": "all that [Cooper] can do is employ commercially reasonable efforts to ensure that", "paragraph_id": "para_961" }, { "text": "others maintain their ‗material business associations with it or its Subsidiaries.‘‖94", "paragraph_id": "para_962" }, { "text": "Apollo emphasizes that its reading of Section 5.1(a) is also consistent with Section", "paragraph_id": "para_963" }, { "text": "6.8, which provides that, ―[w]henever this Agreement requires a Subsidiary of", "paragraph_id": "para_964" }, { "text": "[Cooper] to take any action, such requirement shall be deemed to include an", "paragraph_id": "para_965" }, { "text": "undertaking on the part of [Cooper] to cause such Subsidiary to take such action.‖95", "paragraph_id": "para_966" }, { "text": "By contrast, Cooper argues that the language of Section 5.1(a) distinguishes", "paragraph_id": "para_967" }, { "text": "between ―those aspects of Cooper‘s and CCT‘s business that are fully within their", "paragraph_id": "para_968" }, { "text": "control, and those aspects that involve third parties,‖ such as CCT‘s employees or", "paragraph_id": "para_969" }, { "text": "partners.96 According to Cooper, Section 5.1(a) imposes an obligation on Cooper", "paragraph_id": "para_970" }, { "text": "to operate its subsidiaries‘ businesses only in relation to those ―things that are", "paragraph_id": "para_971" }, { "text": "completely within the control of Cooper or CCT,‖ while a commercially", "paragraph_id": "para_972" }, { "text": "reasonable efforts standard applies ―[w]here third parties, such as Cooper‘s or", "paragraph_id": "para_973" }, { "text": "CCT‘s employees and partners[,] are involved.‖97 Cooper argues that, because", "paragraph_id": "para_974" }, { "text": "―the disruptions at CCT relate entirely to Cooper‘s ability to maintain existing", "paragraph_id": "para_975" }, { "text": "relations with its joint venture partner and CCT‘s ability to keep available the", "paragraph_id": "para_976" }, { "text": "94 Id.", "paragraph_id": "para_977" }, { "text": "95 Merger Agreement § 6.8.", "paragraph_id": "para_978" }, { "text": "96 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 31.", "paragraph_id": "para_979" }, { "text": "97 Id.", "paragraph_id": "para_980" }, { "text": "39", "paragraph_id": "para_981" }, { "text": "services of employees and labor unions,‖98 Section 5.1(a) only obligates Cooper to", "paragraph_id": "para_982", "court_paragraph": 39 }, { "text": "use commercially reasonable efforts to maintain CCT‘s business. According to", "paragraph_id": "para_983" }, { "text": "Cooper, its efforts satisfied that standard.", "paragraph_id": "para_984" }, { "text": "Even accepting Cooper‘s reading of Section 5.1(a), I find that events at CCT", "paragraph_id": "para_985" }, { "text": "cannot be fairly characterized as bearing solely on ―Cooper‘s ability to maintain", "paragraph_id": "para_986" }, { "text": "existing relations with its joint venture partner and CCT‘s ability to keep available", "paragraph_id": "para_987" }, { "text": "the services of employees and labor unions.‖99 Although Cooper characterizes", "paragraph_id": "para_988" }, { "text": "events at CCT as a labor strike, trial testimony and evidence in the record make", "paragraph_id": "para_989" }, { "text": "clear that the disruptions at CCT were far more complicated. The events at CCT", "paragraph_id": "para_990" }, { "text": "do not represent a traditional dispute between labor and capital. CCT employees", "paragraph_id": "para_991" }, { "text": "were not attempting to secure better working conditions or other concessions from", "paragraph_id": "para_992" }, { "text": "their employer, nor were they actively contesting the details of the deal. Instead,", "paragraph_id": "para_993" }, { "text": "CCT employees were told by certain members of management acting under the", "paragraph_id": "para_994" }, { "text": "direction of Chairman Che that they would lose their jobs if they did not strike; that", "paragraph_id": "para_995" }, { "text": "order, in all likelihood, was given not primarily as a result of a disagreement about", "paragraph_id": "para_996" }, { "text": "the Cooper-Apollo deal terms as they affected employees, but for reasons personal", "paragraph_id": "para_997" }, { "text": "to Chairman Che himself. In other words, what appeared to be a labor strike was", "paragraph_id": "para_998" }, { "text": "98 Id. at 32.", "paragraph_id": "para_999" }, { "text": "99 Id. Because I find this portion of the Merger Agreement unambiguous, I do not consider", "paragraph_id": "para_1000" }, { "text": "parole evidence in my analysis. See Lillis v. AT&T Corp., 2007 WL 2110587, at *16 (Del. Ch.", "paragraph_id": "para_1001" }, { "text": "July 20, 2007) (―The court will consider extrinsic evidence to interpret the agreement only if", "paragraph_id": "para_1002" }, { "text": "there is an ambiguity in the contract. If the instrument is clear and unambiguous on its face,", "paragraph_id": "para_1003" }, { "text": "parole evidence may not be used ‗to interpret it or search for the parties‘ intent.‘‖ (footnotes", "paragraph_id": "para_1004" }, { "text": "omitted)).", "paragraph_id": "para_1005" }, { "text": "40", "paragraph_id": "para_1006" }, { "text": "in fact a mechanism used by Chairman Che to advance his efforts to physically", "paragraph_id": "para_1007", "court_paragraph": 40 }, { "text": "seize the joint venture—a seizure he was legally not entitled to make as he retained", "paragraph_id": "para_1008" }, { "text": "only a minority voting interest.", "paragraph_id": "para_1009" }, { "text": "Moreover, the events at CCT were not, as Cooper avers, centered on", "paragraph_id": "para_1010" }, { "text": "Cooper‘s ―ability to maintain existing relations with its joint venture partner,‖", "paragraph_id": "para_1011" }, { "text": "Chairman Che; rather, the events at CCT were precipitated by Che‘s physical", "paragraph_id": "para_1012" }, { "text": "takeover of the facilities. As a result of Chairman Che‘s instigation, Cooper‘s", "paragraph_id": "para_1013" }, { "text": "largest subsidiary—which Cooper had undertaken in the Merger Agreement to", "paragraph_id": "para_1014" }, { "text": "cause to operate in the ordinary course consistent with past practice—stopped", "paragraph_id": "para_1015" }, { "text": "producing Cooper-branded tires or generating financial statements, and physically", "paragraph_id": "para_1016" }, { "text": "prevented Cooper employees from accessing records and facilities. These aspects", "paragraph_id": "para_1017" }, { "text": "of the disruption do not implicate Cooper‘s ability to ―keep available the services", "paragraph_id": "para_1018" }, { "text": "of its . . . employees‖ or ―maintain existing relations and goodwill with customers .", "paragraph_id": "para_1019" }, { "text": ". . partners, [or] suppliers,‖ as Cooper contends, but Cooper‘s ability to cause its", "paragraph_id": "para_1020" }, { "text": "subsidiary—an entity Cooper legally controlled with its 65% ownership interest—", "paragraph_id": "para_1021" }, { "text": "to operate in the ordinary course of business.100 This Court has previously", "paragraph_id": "para_1022" }, { "text": "interpreted the contractual term ―ordinary course‖ to mean ―[t]he normal and", "paragraph_id": "para_1023" }, { "text": "ordinary routine of conducting business.‖101 As noted above, CCT halted", "paragraph_id": "para_1024" }, { "text": "100 Merger Agreement § 5.1(a).", "paragraph_id": "para_1025" }, { "text": "101 Ivize of Milwaukee, LLC v. Complex Litig. Support, LLC, 2009 WL 1111179, at *9 (Del. Ch.", "paragraph_id": "para_1026" }, { "text": "Apr. 27, 2009).", "paragraph_id": "para_1027" }, { "text": "41", "paragraph_id": "para_1028" }, { "text": "production of Cooper-branded tires,102 restricted ―certain Cooper employees . . .", "paragraph_id": "para_1029", "court_paragraph": 41 }, { "text": "from entering parts of CCT,‖ and ―limited [Cooper‘s] access to the financials [of", "paragraph_id": "para_1030" }, { "text": "CCT].‖103 Cooper, moreover, had only ―limited information about to whom [CCT]", "paragraph_id": "para_1031" }, { "text": "products [were] being sold.‖104", "paragraph_id": "para_1032" }, { "text": "In fact, Cooper‘s own actions, while perhaps a reasonable reaction to the extra-", "paragraph_id": "para_1033" }, { "text": "legal seizure of CCT, evinces a conscious effort to disrupt the operations of the", "paragraph_id": "para_1034" }, { "text": "facility. Cooper itself suspended payments to suppliers who continued to ship", "paragraph_id": "para_1035" }, { "text": "materials to CCT. As Cooper CFO Brad Hughes testified, ―What we did is we said", "paragraph_id": "para_1036" }, { "text": "to suppliers that if they had not shipped material that had been—that we would pay", "paragraph_id": "para_1037" }, { "text": "for what had been received. We would not pay for shipments that were following a", "paragraph_id": "para_1038" }, { "text": "particular point in time.‖105 In an internal email dated September 25, 2013 from", "paragraph_id": "para_1039" }, { "text": "Cooper‘s Senior Vice President and General Manager of Asia Operations, Allen", "paragraph_id": "para_1040" }, { "text": "Tsaur, to the President of Cooper‘s International Tire Division, Hal Miller, which", "paragraph_id": "para_1041" }, { "text": "Mr. Miller subsequently forwarded to Cooper CEO Roy Armes and General", "paragraph_id": "para_1042" }, { "text": "Counsel Steve Zamansky, Mr. Tsaur summarized what he anticipated to be the", "paragraph_id": "para_1043" }, { "text": "likely consequences of Cooper‘s plan to cut off payment to CCT‘s suppliers:", "paragraph_id": "para_1044" }, { "text": " OE customers are likely to sue CCT for contract violation and lost", "paragraph_id": "para_1045" }, { "text": "time penalty. Please note that CCT supplies to all top 5 truck", "paragraph_id": "para_1046" }, { "text": "102 Trial Tr. 270:15–17 (Hughes).", "paragraph_id": "para_1047" }, { "text": "103 Id. at 343:1–8 (Hughes); see also id. at 84:6–85:19 (Armes) (testifying as to Cooper‘s limited", "paragraph_id": "para_1048" }, { "text": "access to CCT financials and restricted access to the CCT facilities).", "paragraph_id": "para_1049" }, { "text": "104 Id. at 273:8–9 (Hughes).", "paragraph_id": "para_1050" }, { "text": "105 Id. at 341:23–342:3 (Hughes).", "paragraph_id": "para_1051" }, { "text": "42", "paragraph_id": "para_1052" }, { "text": "companies in China", "paragraph_id": "para_1053", "court_paragraph": 42 }, { "text": " The raw material payment of 40M RMB is not all for new purchase.", "paragraph_id": "para_1054" }, { "text": "Some are for goods already received. Along with our suppliers, they", "paragraph_id": "para_1055" }, { "text": "are likely to sue CCT for delinquency.", "paragraph_id": "para_1056" }, { "text": " Many suppliers are in CCT Purchasing Department office everyday", "paragraph_id": "para_1057" }, { "text": "demanding payment.", "paragraph_id": "para_1058" }, { "text": " CCT is likely to lose in the lawsuits for contract violation and lost", "paragraph_id": "para_1059" }, { "text": "time penalty to OE and delinquency for suppliers. The consequence", "paragraph_id": "para_1060" }, { "text": "can be very bad as not only we need to pay [sic] but also ruin the", "paragraph_id": "para_1061" }, { "text": "creditability. CCT will need to buy on cash in the future.106", "paragraph_id": "para_1062" }, { "text": "Reflecting on the plan to ―put pressure on Che,‖ Mr. Tsaur concluded: ―What this", "paragraph_id": "para_1063" }, { "text": "means is that we officially shut down CCT given the low possibilities of Che‘s", "paragraph_id": "para_1064" }, { "text": "willingness to enter financial data. Of course, the issues will go away if Che", "paragraph_id": "para_1065" }, { "text": "agrees to enter data for whatever reason. That is currently our only hope to avoid", "paragraph_id": "para_1066" }, { "text": "the showdown.‖107 These elements of the CCT lockout illustrate Cooper‘s failure", "paragraph_id": "para_1067" }, { "text": "to cause CCT—its largest subsidiary—to conduct business in the ordinary course,", "paragraph_id": "para_1068" }, { "text": "and demonstrate just the opposite.", "paragraph_id": "para_1069" }, { "text": "2. The ―Material Adverse Effect‖ Exclusions Do Not Trump Cooper‘s", "paragraph_id": "para_1070" }, { "text": "Obligations Under Section 5.1(a)", "paragraph_id": "para_1071" }, { "text": "Cooper asserts that the phrase ―except as . . . otherwise expressly", "paragraph_id": "para_1072" }, { "text": "contemplated by [the Merger] Agreement‖ in Section 5.1(a) ―naturally", "paragraph_id": "para_1073" }, { "text": "incorporates the expressly-contemplated exclusions from events constituting [a", "paragraph_id": "para_1074" }, { "text": "106 JX 445 at COOPER0033397.", "paragraph_id": "para_1075" }, { "text": "107 Id.", "paragraph_id": "para_1076" }, { "text": "43", "paragraph_id": "para_1077" }, { "text": "Material Adverse Effect].‖108 Cooper argues that, because ―the parties expressly", "paragraph_id": "para_1078", "court_paragraph": 43 }, { "text": "agreed that disruptions at CCT caused by the merger would not permit Apollo to", "paragraph_id": "para_1079" }, { "text": "abandon the deal,‖ it would be illogical if ―the very same event that the parties‘", "paragraph_id": "para_1080" }, { "text": "intended would not prevent a closing as [a Material Adverse Effect] would prevent", "paragraph_id": "para_1081" }, { "text": "a closing by reason of a breach of Section 5.1(a).‖109 Citing to this Court‘s", "paragraph_id": "para_1082" }, { "text": "decision in In re IBP, Inc. Shareholders Litigation, Cooper argues that ―[s]uch an", "paragraph_id": "para_1083" }, { "text": "interpretation, which requires Section[] 5.1(a) . . . to be read in isolation, and not in", "paragraph_id": "para_1084" }, { "text": "connection with the [Material Adverse Effect] exclusions, is not only wrong but", "paragraph_id": "para_1085" }, { "text": "‗would be unreal to men of business and practical affairs.‘‖110", "paragraph_id": "para_1086" }, { "text": "Section 7.2(c) provides, as a condition to closing, that ―[e]xcept for any", "paragraph_id": "para_1087" }, { "text": "event, state of facts or circumstances disclosed in the Company Disclosure Letter,", "paragraph_id": "para_1088" }, { "text": "since December 31, 2012, there shall not have occurred any event, state of facts or", "paragraph_id": "para_1089" }, { "text": "circumstances which, individually or in the aggregate, would reasonably be", "paragraph_id": "para_1090" }, { "text": "expected to have a Material Adverse Effect.‖111 The Merger Agreement defines", "paragraph_id": "para_1091" }, { "text": "―Material Adverse Effect‖ by laying out two general categories—subsections (i)", "paragraph_id": "para_1092" }, { "text": "108 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 22.", "paragraph_id": "para_1093" }, { "text": "109 Id. at 20, 22 (emphasis omitted).", "paragraph_id": "para_1094" }, { "text": "110 Id. at 21 (citing In re IBP, Inc. S’holders Litig., 789 A.2d 14, 57 (Del. Ch. 2001)); see also id.", "paragraph_id": "para_1095" }, { "text": "at 21–22 (―If Cooper and Apollo specifically agreed that a negative reaction to the merger by", "paragraph_id": "para_1096" }, { "text": "Cooper‘s labor unions or joint venture partners would not prevent a closing under the [Material", "paragraph_id": "para_1097" }, { "text": "Adverse Effect] clause, it is implausible to think that the Merger Agreement would construe", "paragraph_id": "para_1098" }, { "text": "those very same circumstances as preventing a closing due to alleged non-compliance with", "paragraph_id": "para_1099" }, { "text": "Section 5.1(a) . . . . As in IBP, this Court should not accept such a bizarre and implausible", "paragraph_id": "para_1100" }, { "text": "construction of the Merger Agreement.‖).", "paragraph_id": "para_1101" }, { "text": "111 Merger Agreement § 7.2(c).", "paragraph_id": "para_1102" }, { "text": "44", "paragraph_id": "para_1103" }, { "text": "and (ii)—and a series of specific carve-outs to subsection (i)—subsections (i)(A)–", "paragraph_id": "para_1104", "court_paragraph": 44 }, { "text": "(J):", "paragraph_id": "para_1105" }, { "text": "―Material Adverse Effect‖ means any fact, circumstance, event,", "paragraph_id": "para_1106" }, { "text": "change, effect or occurrence that (i) has had or would reasonably be", "paragraph_id": "para_1107" }, { "text": "expected to have a material adverse effect on the business, results of", "paragraph_id": "para_1108" }, { "text": "operations or financial condition of the Company, its Subsidiaries and", "paragraph_id": "para_1109" }, { "text": "Joint Ventures, taken as a whole, but will not include facts", "paragraph_id": "para_1110" }, { "text": "circumstances, events, changes, effects, or occurrences to the extent", "paragraph_id": "para_1111" }, { "text": "attributable to . . . (F) the execution and delivery of this Agreement or", "paragraph_id": "para_1112" }, { "text": "the public announcement or pendency of the Merger or any of the", "paragraph_id": "para_1113" }, { "text": "other Transactions or the Financing, including the impact thereof on", "paragraph_id": "para_1114" }, { "text": "the relationships, contractual or otherwise, of the Company or any of", "paragraph_id": "para_1115" }, { "text": "its Subsidiaries with employees, labor unions, customers, suppliers or", "paragraph_id": "para_1116" }, { "text": "partners, and any litigation arising from allegations of any breach of", "paragraph_id": "para_1117" }, { "text": "fiduciary duty or violation of Law relating to this Agreement or the", "paragraph_id": "para_1118" }, { "text": "transactions contemplated by this Agreement or compliance by the", "paragraph_id": "para_1119" }, { "text": "Company with the terms of this Agreement . . . ; or (ii) that would", "paragraph_id": "para_1120" }, { "text": "reasonably be expected to prevent or materially delay or impair the", "paragraph_id": "para_1121" }, { "text": "ability of [Cooper] to perform its obligations under this Agreement or", "paragraph_id": "para_1122" }, { "text": "to consummate the Transactions.112", "paragraph_id": "para_1123" }, { "text": "As noted above, Cooper argues that ―[i]f Cooper and Apollo specifically agreed", "paragraph_id": "para_1124" }, { "text": "that a negative reaction to the merger by Cooper‘s labor unions or joint venture", "paragraph_id": "para_1125" }, { "text": "partners would not prevent a closing under the [Material Adverse Effect] clause, it", "paragraph_id": "para_1126" }, { "text": "is implausible to think that the Merger Agreement would construe those very same", "paragraph_id": "para_1127" }, { "text": "circumstances as preventing a closing due to alleged non-compliance with Section", "paragraph_id": "para_1128" }, { "text": "5.1(a).‖113", "paragraph_id": "para_1129" }, { "text": "112 Id. § 10.2 (―Material Adverse Effect‖) (typeface altered from original).", "paragraph_id": "para_1130" }, { "text": "113 Pl.‘s Br. in Opp‘n to Defs.‘ Mot. for Declaratory J. at 22.", "paragraph_id": "para_1131" }, { "text": "45", "paragraph_id": "para_1132" }, { "text": "In IBP, then-Vice Chancellor Strine, in evaluating a plaintiff-seller‘s request", "paragraph_id": "para_1133", "court_paragraph": 45 }, { "text": "for specific performance of a merger agreement, addressed the defendant-buyer‘s", "paragraph_id": "para_1134" }, { "text": "defense that the seller had breached certain representations made in the merger", "paragraph_id": "para_1135" }, { "text": "agreement when it restated its financial information due to the discovery of", "paragraph_id": "para_1136" }, { "text": "improper accounting practices.114 The relevant provision of the agreement in that", "paragraph_id": "para_1137" }, { "text": "case represented that, ―[e]xcept as set forth in Schedule 5.11 [or the Warranted", "paragraph_id": "para_1138" }, { "text": "Financials], there are no liabilities of the Company or any Subsidiary of any kind", "paragraph_id": "para_1139" }, { "text": "whether accrued, contingent, absolute, determinable or otherwise.‖115 Schedule", "paragraph_id": "para_1140" }, { "text": "5.11 expressly disclosed that the seller may be subject to further liabilities", "paragraph_id": "para_1141" }, { "text": "associated with improper accounting practices, and the buyer acknowledged that", "paragraph_id": "para_1142" }, { "text": "the seller‘s restatement of its financials did not breach Schedule 5.11; nevertheless,", "paragraph_id": "para_1143" }, { "text": "the buyer argued that the same facts expressly carved out of Schedule 5.11—the", "paragraph_id": "para_1144" }, { "text": "incurrence of liabilities due to the restatement of financial information—breached", "paragraph_id": "para_1145" }, { "text": "representations made in the ―Warranted Financials.‖ The Court rejected that", "paragraph_id": "para_1146" }, { "text": "argument, explaining that at trial, the buyer‘s CFO could not articulate why the", "paragraph_id": "para_1147" }, { "text": "parties would have agreed to such a scheme, while the buyer‘s general counsel", "paragraph_id": "para_1148" }, { "text": "―admitted that it made no economic difference whether the Warranted Financials", "paragraph_id": "para_1149" }, { "text": "were restated to record the liabilities or whether those liabilities were recorded in a", "paragraph_id": "para_1150" }, { "text": "114 In re IBP, 789 A.2d at 51–52.", "paragraph_id": "para_1151" }, { "text": "115 Id. at 56.", "paragraph_id": "para_1152" }, { "text": "46", "paragraph_id": "para_1153" }, { "text": "filing for a later period.‖116 Considering the provisions together with additional", "paragraph_id": "para_1154", "court_paragraph": 46 }, { "text": "extrinsic evidence, then-Vice Chancellor Strine concluded that ―the record reveals", "paragraph_id": "para_1155" }, { "text": "that this sort of hair-splitting has no rational commercial purpose,‖ and that the", "paragraph_id": "para_1156" }, { "text": "buyer‘s construction of the merger agreement did not reflect the parties‘ intent at", "paragraph_id": "para_1157" }, { "text": "the time of drafting.117", "paragraph_id": "para_1158" }, { "text": "Here, by contrast, a rational business purpose is evident in the parties‘", "paragraph_id": "para_1159" }, { "text": "drafting of the definition of Material Adverse Effect in Section 10.2. Subsection", "paragraph_id": "para_1160" }, { "text": "(i) states that any event that ―has had or would reasonably be expected to have a", "paragraph_id": "para_1161" }, { "text": "material adverse effect on the business, result of operations or financial condition", "paragraph_id": "para_1162" }, { "text": "of [Cooper], its Subsidiaries and Joint Ventures,‖ will constitute a Material", "paragraph_id": "para_1163" }, { "text": "Adverse Effect, provided that the event does not fall under certain enumerated", "paragraph_id": "para_1164" }, { "text": "exceptions. Subsection (ii) further provides that an event ―that would reasonably", "paragraph_id": "para_1165" }, { "text": "be expected to prevent or materially delay or impair the ability of [Cooper] to", "paragraph_id": "para_1166" }, { "text": "perform its obligations under this Agreement or to consummate the Transaction‖", "paragraph_id": "para_1167" }, { "text": "will nevertheless also constitute a Material Adverse Effect.", "paragraph_id": "para_1168" }, { "text": "If subsection (i) were properly to be considered in isolation, Cooper might", "paragraph_id": "para_1169" }, { "text": "be correct that the lockout at CCT falls under the exclusion enumerated in", "paragraph_id": "para_1170" }, { "text": "subsection (i)(F), which exempts from the definition of Material Adverse Effect", "paragraph_id": "para_1171" }, { "text": "the impact of the pendency of the merger on the relationships of Cooper and its", "paragraph_id": "para_1172" }, { "text": "116 Id. at 57.", "paragraph_id": "para_1173" }, { "text": "117 Id.", "paragraph_id": "para_1174" }, { "text": "47", "paragraph_id": "para_1175" }, { "text": "subsidiaries or partners. However, it is axiomatic that contractual provisions must", "paragraph_id": "para_1176", "court_paragraph": 47 }, { "text": "be read to make sense of the whole.118 While Cooper understands subsection (i) to", "paragraph_id": "para_1177" }, { "text": "shift the risk of certain events, including the lockout at CCT, wholly onto Apollo,", "paragraph_id": "para_1178" }, { "text": "the parties made clear under subsection (ii) that Apollo would bear the risk of such", "paragraph_id": "para_1179" }, { "text": "an event only so long as that event would not ―reasonably be expected to prevent", "paragraph_id": "para_1180" }, { "text": "or materially delay or impair the ability of [Cooper] to perform its obligations", "paragraph_id": "para_1181" }, { "text": "under [the Merger Agreement].‖ In other words, the logical operation of the", "paragraph_id": "para_1182" }, { "text": "definition of Material Adverse Effect shifts the risk of any carved-out event onto", "paragraph_id": "para_1183" }, { "text": "Apollo, unless that event prevents Cooper from complying with its obligations", "paragraph_id": "para_1184" }, { "text": "under the Merger Agreement; the parties agreed not to excuse Cooper for any such", "paragraph_id": "para_1185" }, { "text": "breach.", "paragraph_id": "para_1186" }, { "text": "Evaluating the language of the Material Adverse Effect definition in Section", "paragraph_id": "para_1187" }, { "text": "10.2 in the context of the entire transaction bolsters this reading. As noted above,", "paragraph_id": "para_1188" }, { "text": "Apollo intended to finance the transaction in part with a debt offering to be", "paragraph_id": "para_1189" }, { "text": "underwritten by Morgan Stanley, Deutsche Bank, Goldman Sachs, and Standard", "paragraph_id": "para_1190" }, { "text": "Chartered Bank. In order to facilitate that debt offering, the parties negotiated a", "paragraph_id": "para_1191" }, { "text": "20-day Marketing Period, which by the terms of the Merger Agreement was", "paragraph_id": "para_1192" }, { "text": "118 See, e.g., Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010)", "paragraph_id": "para_1193" }, { "text": "(stating the principle that ―[the court] will read a contract as a whole and we will give each", "paragraph_id": "para_1194" }, { "text": "provision and term effect,‖ and ruling in favor of the plaintiff because, ―[a]lthough isolated terms", "paragraph_id": "para_1195" }, { "text": "and provisions of the contract support [the defendant‘s] contractual interpretation, the contract as", "paragraph_id": "para_1196" }, { "text": "a whole . . . supports [the plaintiff‘s] interpretation‖).", "paragraph_id": "para_1197" }, { "text": "48", "paragraph_id": "para_1198" }, { "text": "required to take place for the merger to close and could not begin until Cooper", "paragraph_id": "para_1199", "court_paragraph": 48 }, { "text": "delivered all Required Information necessary to market the debt. That the parties", "paragraph_id": "para_1200" }, { "text": "negotiated a provision in the definition of Material Adverse Effect that protected", "paragraph_id": "para_1201" }, { "text": "Apollo‘s contractual right to require Cooper to comply with its obligations, when", "paragraph_id": "para_1202" }, { "text": "those obligations would impact Apollo‘s ability, among other things, to obtain", "paragraph_id": "para_1203" }, { "text": "financing, is not commercially unreasonable. Unlike the irrational contractual", "paragraph_id": "para_1204" }, { "text": "interpretation propounded by the buyer in IBP, Apollo has convincingly articulated", "paragraph_id": "para_1205" }, { "text": "why the parties intended, under subsection (i), to exclude as a Material Adverse", "paragraph_id": "para_1206" }, { "text": "Effect an event such as the labor disruption at a subsidiary but, under subsection", "paragraph_id": "para_1207" }, { "text": "(ii), to nevertheless require Cooper to comply with its obligations if such an event", "paragraph_id": "para_1208" }, { "text": "occurred.", "paragraph_id": "para_1209" }, { "text": "Having determined that the carveout under subsection (i)(F) does not", "paragraph_id": "para_1210" }, { "text": "prevent Apollo from enforcing Cooper‘s obligations under the Merger Agreement,", "paragraph_id": "para_1211" }, { "text": "I conclude that Cooper breached its obligations under Section 5.1(a), thereby", "paragraph_id": "para_1212" }, { "text": "relieving Apollo of its obligations to close pursuant to Section 7.2(b). Having", "paragraph_id": "para_1213" }, { "text": "found that Cooper had not satisfied the condition in Section 7.2(b), I do not find it", "paragraph_id": "para_1214" }, { "text": "necessary to consider the other conditions that Apollo alleges Cooper failed to", "paragraph_id": "para_1215" }, { "text": "meet, and Apollo is entitled to a declaratory judgment that the conditions to closing", "paragraph_id": "para_1216" }, { "text": "remained unsatisfied as of the trial date.", "paragraph_id": "para_1217" }, { "text": "49", "paragraph_id": "para_1218" }, { "text": "IV. CONCLUSION", "paragraph_id": "para_1219", "court_paragraph": 49 }, { "text": "In addition to the USW strike addressed in the USW Opinions, the seizure of", "paragraph_id": "para_1220" }, { "text": "Cooper‘s CCT facility, by the workers at the direction of the minority partner in", "paragraph_id": "para_1221" }, { "text": "that venture, emerged as a barrier to the consummation of the Apollo-Cooper", "paragraph_id": "para_1222" }, { "text": "merger. The seizure was unanticipated, and neither party caused it to occur;", "paragraph_id": "para_1223" }, { "text": "nonetheless, it prevented Cooper from complying with its contractual obligations", "paragraph_id": "para_1224" }, { "text": "necessary to close the merger. For the reasons described above, and for the", "paragraph_id": "para_1225" }, { "text": "reasons addressed in the USW Opinions, the Defendants‘ Motion for Entry of a", "paragraph_id": "para_1226" }, { "text": "Declaratory Judgment is GRANTED. 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