Cooke v. Oolie

2000 Del. Ch. LEXIS 89 (May 24, 2000)

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Nature of the Case

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Facts

Ds are directors of The Nostalgia Network, Inc. (TNN) Ds were also creditors of TNN. Ds operated TNN operated under extreme financial distress. The board consisted of Ds and two other directors. The board approved a number of transactions in an attempt to steer TNN through its troubled time. Because of the financial condition, the TNN directors granted themselves warrants as compensation for their service as directors, rather than commit company funds to pay director's fees. On December 14, 1988, Ds Salkind agreed to make an operating loan and a refinancing loan to TNN. The two independent directors negotiated the loans on behalf of TNN. Ds got $ 1.2 million in the form of a convertible note at 16 percent with interest payable upon maturity or conversion. If TNN repaid the loan or converted the notes within six months, the annual interest rate dropped to 12 percent. Ds also received 30,000 warrants with an exercise price of $1.25 for each $100,000 committed. The board unanimously approved these loan transactions. TNN still faced financial difficulties. The board unanimously approved another one-year loan from Ds up to an additional $ 1.7 million at 16 percent. TNN agreed to pay Oolie and Salkind 90,000 warrants exercisable at $2.00 per share for each $100,000 committed. The board eventually decided it would be a good idea to sell TNN. Three companies of the 59 solicited submitted formal written proposals by the time the directors met on December 6. Ds were in favor of the USA deal. Ps allege that Ds convinced the board to pursue the USA deal because it best protected Ds' interests as TNN creditors. The USA offer had a value to stockholders of about $2.10 per share. USA demanded that TNN's debt could not exceed $ 1,050,000. As of October 31, 1989, TNN had $ 4,893,059 of debt. The USA proposal required $2,550,000 in TNN debt to be converted to stock, leaving TNN with $2,343,059 in post-conversion debt, well above the $ 1,050,000 cap established as part of the USA proposal. The AMC deal represented about $1.89 per share. The TCI deal was equal to or less than $2.05 per share. All four directors agreed that the USA proposal offered the most value to TNN. The directors voted unanimously to pursue the USA deal. Ps allege that Ds’ favored the USA proposal because, unlike other offers, it included an agreement to repay immediately their outstanding loans. Ps sued, and Ds moved for summary judgment.