978-1285770178 Case Printout Case CPC-06-08 Part 1

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In re Topps Co. Shareholders Litigation

In re The TOPPS COMPANY SHAREHOLDERS LITIGATION

The Tornante Company LLC, Tornante-MDP Joe Holding LLC, and

The Upper Deck Company and Northwood Investors LLC, Plaintiffs,

The Topps Company, Inc., Arthur T. Shorin, Jack H. Nusbaum, Allan A.

Tarlow, Madison Dearborn Partners LLC, Madison Dearborn Capital

Tornante-MDP Joe Acquisition Corp., Defendants.

Submitted: June 11, 2007.

Decided: June 14, 2007.

counted, and defeat a near certainty for the management nominees,

nominees.

STRINE, Vice Chancellor.

The Topps Company, Inc. is familiar to all sports-loving Americans. Topps

7% of Topps’s equity. Shorin’s son-in–law, Scott Silverstein, is his second-

926 A.2d 58

Shorin understood Eisner to be proposing a going private transaction.

Once the insurgents were seated, an “Ad Hoc Committee” was formed of

two insurgent directors and two “Incumbent Directors” to evaluate Topps’s

strategic direction. Almost immediately, the insurgent directors and the

incumbent directors began to split on substantive and, it is fair to say,

again begin an auction process, having already failed once in trying to

auction its Confectionary Business.

From the time the insurgents were seated, Eisner was on the scene,

expressing an interest in making a bid. Two other financial buyers also

made a pass. But Topps’s public message was that it was not for sale.

The Ad Hoc Committee split 2-2 over whether to negotiate with Eisner.

Although offered the opportunity to participate in the negotiation process,

the apparent leader of the Dissidents refused, favoring a public auction.

One of the Incumbent Directors who was an independent director took up

the negotiating oar, and reached agreement with Eisner on a merger at

dissenting. Because of the dysfunctional relations on the Ad Hoc

Committee, that Committee was displaced from dealing with the Go Shop

process by an Executive Committee comprised entirely of Incumbent

Directors.

Shortly before the Merger Agreement was approved, Topps’s chief

responding to Upper Deck’s overture. Shortly after the Merger was

approved, Topps’s investment banker began the Go Shop process,

contacting more than 100 potential strategic and financial bidders,

including Upper Deck, who was the only serious bidder to emerge.

Suffice it to say that Upper Deck did not move with the clarity and

proprietary concerns about turning over sensitive information to its main

competitor and a seller happy to have a bid from an industry rival go away,

even if that bid promised the Topps’s stockholders better value.

By the end of the Go Shop period, Upper Deck had expressed a

willingness to pay $10.75 per share in a friendly merger, subject to its

After the end of the Go Shop period, Upper Deck made another unsolicited

overture, expressing a willingness to buy Topps for $10.75 without a

financing contingency and with a strong come hell or high water promise to

deal with manageable (indeed, mostly cosmetic) antitrust issues. The bid,

however, limited Topps to a remedy for failing to close limited to a reverse

that price or step aside.

In fact, Topps went public with a disclosure about Upper Deck’s bid, but in

a form that did not accurately represent that expression of interest and

disparaged Upper Deck’s seriousness. Topps did that knowing that it had

required Upper Deck to agree to a contractual standstill (the “Standstill

occur within a couple of weeks.

A group of “Stockholder Plaintiffs” and Upper Deck (collectively, the

“moving parties”) have moved for a preliminary injunction. They contend

that the upcoming Merger vote will be tainted by Topps’s failure to disclose

material facts about the process that led to the Merger Agreement and

v. MacAndrews & Forbes Holdings, Inc.FN1 prevent the board from

denying the stockholders the chance to make a mature, uncoerced

decision for themselves.

FN1. 506 A.2d 173 (Del.1986).

In this decision, I conclude that a preliminary injunction against the

coercive tender offer on conditions as favorable or more favorable than

those it has offered to the Topps board.

The moving parties have established a reasonable probability of success

that the Topps board is breaching its fiduciary duties by misusing the

Standstill in order to prevent Upper Deck from communicating with the

make an informed decision and to avail themselves of a higher-priced offer

that they might find more attractive.

II. A Reader’s Roadmap To The Opinion

The briefs of the Stockholder Plaintiffs and Upper Deck FN2 advance

arguments so numerous that it is realistically impossible for the court to

Investors LLC. Northwood is the acquisition vehicle Upper Deck is using.

Although the defendants question Upper Deck’s standing, Northwood is a

Topps stockholder and entitled under Revlon and its progeny to press

fiduciary duty claims. E.g., In re Gaylord Container Corp. S’holders Litig.,

747 A.2d 71, 77-78 & n. 8 (Del.Ch.1999) (explaining that a bidder who

compliance with their Revlon duties. The standards of review relevant to

such claims are familiar and need not be dilated on at length.

[1] Link to KeyCite Notes[2] Link to KeyCite Notes When directors of a

Delaware corporation seek approval for a merger, they have a duty to

provide the stockholders with the material facts relevant to making an

FN3. E.g., Arnold v. Society for Savings Bancorp., Inc., 650 A.2d 1270,

1277 (Del.1994).

FN4. E.g., Emerald Partners v. Berlin, 726 A.2d 1215, 1223

(Del.Supr.1999) (“When stockholder action is requested, directors are

required to provide shareholders with all information that is material to the

vote”) (citing TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96

S.Ct. 2126, 48 L.Ed.2d 757 (1976)).

[3] Link to KeyCite Notes[4] Link to KeyCite Notes[5] Link to KeyCite

Notes The so-called Revlon standard is equally familiar. When directors

propose to sell a company for cash or engage in a change of control

process against one bidder and toward another not in a reasoned effort to

maximize advantage for the stockholders, but to tilt the process toward the

bidder more likely to continue current management, they commit a breach

of fiduciary duty.FN8

FN6. E.g., Revlon, 506 A.2d at 184 n. 16; accord Paramount

proposes to pay, the post-signing shopping process permitted by the

Merger Agreement, and the deal protection measures. Second, I will set

forth the key terms of the Standstill Agreement signed by Upper Deck,

explaining in the course of that what Upper Deck is, the negotiations

leading to the Standstill Agreement, and some key points regarding the

disclosed before the Merger vote. Finally, I set forth those areas where the

Proxy Statement advances a position about factual issues about which

there is a good faith basis for dispute.

The reason for this last category’s inclusion largely relates to the Standstill

Agreement. The Incumbent Directors who comprise the majority of the

Stockholder Plaintiffs and Upper Deck. Many of those arguments will have

been presaged by the previous discussion, but will be drawn together in, I

hope, a more coherent fashion.

III. Factual Background

A. The Eisner Merger Agreement

purchase price of about $385 million. The Merger Agreement is not

conditioned on Eisner’s ability to finance the transaction, and contains a

representation that Eisner has the ability to obtain such financing.FN9 But

the only remedy against Eisner if he breaches his duties and fails to

consummate the Merger is his responsibility to pay a $12 million reverse

The “Go Shop” provision in the Merger Agreement works like this. For a

period of forty days after the execution of the Merger Agreement, Topps

was authorized to solicit alternative bids and to freely discuss a potential

transaction with any buyer that might come along. Upon the expiration of

the “Go Shop Period,” Topps was required to cease all talks with any

Period.

The Merger Agreement defined a Superior Proposal as a proposal to

acquire at least 60% of Topps that would provide more value to Topps

stockholders than the Eisner Merger. The method in which the 60%

measure was to be calculated, however, is not precisely defined in the

the Merger Agreement in order to accept a Superior Proposal, subject only

to Eisner’s right to match any other offer to acquire Topps.

The Eisner Merger Agreement contains a two-tier termination fee

provision. If Topps terminated the Eisner Merger Agreement in order to

accept a Superior Proposal during the Go Shop Period, Eisner was entitled

The Eisner Merger Agreement is subject to a number of closing conditions,

such as consent to the transaction by regulatory authorities and the parties

to certain of Topps’s material contracts, such as its licenses with Major

League Baseball and other sports leagues.

In connection with the Eisner Merger Agreement, Shorin and Eisner

B. The Standstill Agreement Signed By Upper Deck

Upper Deck is currently the only company other than Topps to hold a

license from Major League Baseball to sell baseball cards featuring the

League’s players. As such, Upper Deck is now Topps’s primary, and only,

competitor in the American baseball card industry. When Upper Deck

certain information concerning the business, financial condition,

operations, prospects, assets, and liabilities of Topps solely for the

purpose of allowing Upper Deck to evaluate a possible transaction

between Topps and itself; (2) Upper Deck agreed not to disclose the fact

that such information was being provided to it or that it had entered into the

When Upper Deck received the draft Standstill Agreement, it attempted to

make revisions before executing it. In particular, Upper Deck sought to

eliminate the provision in the Standstill Agreement that prevented it from

making a tender offer for Topps and sought to insert a provision into the

Standstill Agreement requiring Topps to furnish to Upper Deck the same

contained the same material terms that were included in the initial draft

that was provided to it.

C. The Sale Process and Subsequent Negotiations As Explained In The

Proxy Statement

1. The Proxy Contests And The Unsuccessful Auction For The

Pokemon boost was short lived, however, and in recent years, Topps’s

earnings per share have fallen from sixty cents a share in 2002 to less

than a dime a share in 2006.

In 2004, Topps began a strategic review of its domestic operations in an

attempt to reverse the downward trend. Topps concluded that its

owned some of Topps’s common stock, announced its intention to

nominate its own slate of three director candidates and to solicit proxies for

their election at the meeting. Pembridge withdrew its proxy solicitation,

however, after receiving assurances that Topps would intensify its efforts

in considering strategic alternatives for the company. Topps and

Businesses, and a supposed belief (says the Proxy Statement) that there

was no logical buyer for the entire company, the Topps board decided to

commence a sale process, in the form of an auction, for its Confectionary

Business only. It hoped to realize $300 million from the sale and hired

Lehman Brothers as its financial advisor. The auction did not go well,

alternatives. Upper Deck, through its financial advisor, CIBC World

Markets Corp., contacted Lehman Brothers around this time frame to

inquire whether Topps might consider a sale of its Entertainment Business

to Upper Deck. The Proxy Statement makes a vague reference to this

overture. Undisclosed in the Proxy Statement, though, was that Shorin had

publicly stated that if its nominees were elected, they would aggressively

seek to sell the company in a going private transaction. One of the

directors Pembridge sought to replace was Topps’s chairman and CEO

Arthur Shorin. Going into July 28, the date of the annual meeting, Shorin

and his fellow nominees were facing certain defeat. A face-saving deal

meeting, those four members were elected to the Topps board.FN10

FN10. The Stockholder Plaintiffs contend that the Proxy Statement does

not fairly convey the electoral pickle Shorin was in during July 2006. They

say the Proxy Statement should have indicated that the votes were

essentially counted, that the insurgents were going to win, and Shorin’s

slate, including Shorin himself, was going down to defeat. Not only that,

the Stockholder Plaintiffs suggest that the Proxy Statement does not fairly

indicate that Eisner had approached Shorin and Silverstein and offered to