In Re Paxson Communications Corp.

2001 WL 812028 (2001)

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Nature of the Case

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Facts

Pax is a Delaware corporation with its headquarters in West Palm Beach, Florida. Pax is a network television broadcasting company that owns and operates the largest group of broadcast television stations in the United States. Its Class A common stock trades on the American Stock Exchange. Pax’s capital structure also includes Class B common stock. The Class B stock, beneficially owned entirely by Pax Chairman Lowell Paxson, is identical to the Class A stock except that each Class B share possesses ten votes per share. Class A shares possess one vote per share. Through his ownership of 39.2% of the Pax Class A stock and 100% of the Pax Class B stock, Mr. Paxson controls approximately 75% of Pax’s voting power. Pax told the whole world by a press release on August 9, 1999, that it was a player in anticipation of the FCC loosening ownership restrictions affecting the broadcast industry. Almost immediately thereafter, Pax received an unsolicited offer from Fox to acquire Pax for approximately $20.00 per share. Pax made a counter-offer of $26.00 per share but failed to enter into a genuine negotiating process with Fox aimed at selling the Company. Pax common stock had traded between $6.00 and $17.4375 over the preceding twelve months. On September 15, 1999, Pax entered into the NBC Transactions. Pax agreed to: (i) sell 41,500 shares of newly created preferred stock in Pax to a wholly owned subsidiary of NBC convertible at any time into 31,896,032 shares of Pax Class A common stock for an initial conversion price of $13.01 per share; (ii) issue a warrant (A) to another wholly owned subsidiary of NBC to purchase up to 13,065,507 shares of Pax common stock at an exercise price of $12.60 per share; and, (iii) issue a warrant (B) to NBC the same NBC sub in (ii) to purchase another 18,966,620 shares of Pax common stock at an exercise price equal to the average closing prices of the Class A common stock for the 45 consecutive trading days before the warrant exercise date, subject to a minimum exercise price of $22.50 per share during the three years after September 15, 1999. Subject to certain conditions and limitations, Warrants A and B are exercisable for ten years from September 15, 1999. A wholly owned subsidiary of NBC also entered into the Call Agreement with Lowell Paxson, personally, and certain entities controlled by him. By the terms of the Call Agreement, the NBC subsidiary was granted the right to purchase all, but not less than all, of Mr. Paxson’s 8,311,639 shares of Pax’s Class B common stock at a price equal to the greater of (i) the average of the closing sale prices of the Class A common stock for the 45 consecutive trading days ending on the trading date immediately preceding the date of exercise of the Call Right; and (ii) $22.50 per share for any exercise of the Call Right within three years of September 15, 1999, or $20.00 per share if the Call Right is exercised thereafter. The third of the NBC transactions, the Stockholder Agreement, provided, among other things, for NBC to have representation on the Pax Board if permitted by applicable law. The Stockholder Agreement also requires NBC’s consent for Pax to take certain actions, including the adoption of a shareholder’s rights plan, amendments to Pax’s organizational documents, and issuances of stock or other securities. If NBC converts the newly created preferred shares, exercises both warrants, and purchases Lowell Paxson’s Class B shares, NBC would own approximately 49% of the equity in Pax and control almost 70% of its voting power. P filed its claims and Ds moved to dismiss.