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DISTRICT COLIRT, DENVER COUNTY COLORADO Coud Address: 1437 Bdnnock Strcet Denver, CO PhoneNumber: 720-865-8301 Plaintifi EDWARD SEBBSTA. C. Individually OnBehalfofAll aod Others SimilarlySitualed COURT USEONLY Defendants: NCHARD E. SCHADEN, RTCHARD SCHADEN, F. FREDERICK SCHADEN, MARK H. L. BROMBERG, ERIC J. LAWRENCE, JOHNJ. TODD, BRAD A. CRIFFIN,andTHE CORPORATION QUIZNO'S Delendant Quizno'sCorpomtion The Theodore Altmao MichaelR. Hepworth Piper Rudnick Marbuy& Wolfc 1251 Avenue oftheAnericas NewYo*, NewYo* 10020-1104 (2r2)83s-6000 (212) 83s-6001 [email protected] [email protected] R. Michael Daigle TheQuizno'sCorporation 14l5Larimer St. Denver, 80202 CO (720) 359-3300 (720) 3s9-339s mdaigle quiznos.com at (#31798) Michael Daiele R.
PttE35 HoY21
Case 0l-CV-6281 No. Divisior/Courtroom:
Attomeyfor: Name: Address: Phone No.: Fax: E-Mail: Namer Addressi PhoneNo,: FaxNo.: E-Mail: Atty.Reg. #
rd)
ON THE QUIZNO'SCORPORATTON'S MEMORANDUM LAW IN OPPOSITION PLAINTTFF'S MOTION FOR TO ORDER RESTRAINING A TEMPORARY
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TABLE OF CONTENTS
FACTS
I.
PLAINTIFFCANNOTSHOWA DANGEROF IRREPARA.BLE HARM BECAUSE HIS ALLEGEDINJURYCAN BE FULLY COMPENSATED WITH MONEYDAMAGES PII,INTIFF CANNOTSHOWA REASONABLE PROBABILITYOF SUCCBSS THE MERITSBECAUSE ON THE PROXYSTATEMENT PROPERLY DISCLOSES MATERIAL THE AND BECAUSE FACTS. THBINDEPENDENT SPECIA,L COMMITTEE ACTEDPROPERLY......,..,,,,....,,..,8 Conharyto thooomplaint, ProxyStatgment the properlydiscloses the "FCI offef' for alleged howtheSpecial Cort|mittee analyzed it $10.63, anddiscussedwithFCl,andwhyit wasnota lilrtr offerat all ........-..-........,,9 it
R
N.
Conharyto thecomplaint, ProxySlatement the accurately describes "putoption'thal asked asa condition the FCI for of making offer,andexplains thatcondilion ar why could bemet................l2 not Conharyto thecomplaint, hoxy Statement the accutately desoribcs Special the as and Corninittee independnt ascond[cting its workwithqualified linanoial legal and ,......,.,,.........,,..................,13 advisors Contrary thecomplaint, evidence to the shows the Special that properiy Committee 17 the approved merger fair ....-....................................... as
c.
D,
III.
PI-A-INTIFF CANNOTSHOWTHAT THEREIS NO PLAIN AND r8 ADEQUATE REMEDY LAW AT .................................,-..... ?LAINTIFF CANNOTSHOWTHAT THE TROWILL NOT DISSERVE PUBLTC THE rNTEREST....,...... ........................ 18
tv.
PLAINTIFFCANNOTSHOWTHAT THE BALANCEOF EQUITIES FAVORS THETRO.. ..........,.-.,.....,...19
vt.
PLAINTIFFCANNOTSHOWTHAT THE TRO WILL PRESEVE AIL ASPECTS TI{ESTATUS OF .....-........ t9 QUO.........................
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THE QUIZNO'S CORPORATION'SMEMORANDUM OF LAW TO MOTION FOR IN OPPOSITION PLATNTIFF'S A TEMPORARYRXSTRAININCORDER st.tement Prellmlnary atd The CourtshoulddenyPlaintiffs request a TRO. ThoPlaintiffs complaint for damages. with motionpapers showthathis alleged injury couldbe readilycompeNated money Morcove!,hehasno evidence heis likgly to succeed thmerits in fact,thedocumonts on that have hehaszubmitted this motiondemonstrate thedefendants dooeoothingwrongard on that thatthereis no nedfor theemergency injunctive relief herequests. ofThe Quizno's ThePlaintiff,Edward Sebesta, claimsto bea minorityshareholder C. ("Quizno'i'). Hc seeks TROthatwouldprcvent Corporation a Quizno'6fiom holdhg its scheduled shareholders' meting November 2001(the"Sh{reholders'Meeting"). The or 30, purpose ofthe Shareholders' ofFirenzeCorp.("Firenze")with Meetingis to voteon a merger and E. andi o Quizno's.Firenze owned Quizno's is majorityshareholders, Richard Schadei by (excluding Richard Schaden, theproposed F. ln ofQuiztro's common etock merger,shares into certairsharcs beleficially owned theSchadens theiraftiliates) will beconverted the by and right to rereiv$8.50per share, aa6h.TheSahadens owtrapproximately of 67% ill bnefioially
is Ifthe v0teoccws, approval shares have irdicatd will yotefor themerger, and they Quimo's
who per assurcd. Shareholdsrs believe is $8.50 share not a fair pricewill b9 ablgto exercrse apFaisd paid and theirstatutory dghtsunderColomdo to havethe faf valueoftheir shars law to thm. is Sebesta claimsto bea shareholder thinks$8.50is not enough.His complaint who the essentially moncy: thinks fairvalue stock geaterthan $8.50 is about he the ofhis Quizno's per share pricethattheSpecial Committe's of Committee Quizno's Boar4 andtheSpecial
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professional financialadvisors, determined fair. Sebesta was thinksthepriceshould at least be per (Pl. $10.63, hecalculates "direct and the ham" at issue $2.13 sbare. Motion7; Conplaint as priceon analleged offd made to is his 1138.)Sebesta wrong{bqut thefacts hebases $10,63 theSpecial Corftnittee, in factthereis no suchoffer for $I 0.63pershare, the Special but as Committee foundafte!exploring proposal discusscs. evgn But ifhe the Sebesta's complaint wereright hehasa fully adequate The remedy law in theform ofmoneydamages. availability at of money removes basis irjunctiverelief. damages any for Sebesta's TROwoulddeprivstheshareholdrs ofvoting to approve meryerand the promptlyrgceiving significant a premium thei shares. do not knowhowmanyshares for We Sebesta actuallyowns(hiscourtpaperg notdisclose tepresent do this) or whyhe thinksheshould all shareholders. do knowthat$8.50 a pnemium We is price;thataninvestrnent banking firm hasgivena wdttel opidon thatthepriceis fair; altdthatthedelailsofthat opinionandthefacts thatledto themergr agreement disclosed lengtb Quizno'6 ProxyStatement Special are in for at Meetingof Shareholders be Heldon November 2001(the"Proxy StatemeBt"), to {led with 30, the Securities Exohange and Commission mailedto Quizno'sshareholders. and plemium pricefor theshares the is on $8.50per share a l2olo overthaveBg olosing Nasdaq SmaUCap Marketfor thesix monthtrading periodendd June 2001. It is a !i% 21, pl@!g!q overtheolosing pricefor thesharcs May 21,2001, datebefoleQurzno's on the a$Dunced metger prcposal, a zq%J!g!d!I! overthclosing priceofthe common the stock and on November 2000,thehaditrg 9, an datebeforcQuizno's announced earlirselfteder. Thc 26%plemiumis themostmeaningful pice figure,for it reflects indease th oyerthemarket beforefhemarket reflected tender the offr or theproposed merger.
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Tte tcrmsofthe merger, includingits price,werecarefullyanalyzed a Special by Committee consisting ofnon-employoe directols ofQuizno'swhowerindependgnt ofth (whoaremakingthc $8.50 share Schadens per offer)andcouldassess faimess the ofthe merger wilhoutbias. TheSpecial its Comnitteeselected financial advisor, TuckrAntftonySutro CapitalMarkets ('"TuckerArthotry"), aier intrviewing number ofcandidates. a Alter studing thetransacfioo, Tucker Anthonyconcludd in its profe$ionalopinion,thepriceof that was $8.50per share fair, ThePlaintiffclaimsheneeds TRObecause ProxyStatement to disclose fails the the certain a.lleged or to drawoertain facts conclusions the Committee a and conceming Special supposed altemativ offer of$10.63per share minodtyshareholdgr iom "FCI", who is another ofQuizno's. But thePlaintiffcannot showa dange! ofireparabloham or aoylikelihoodof success themerits,andthereforc hasno basis couldjustifr a TRO: on he that First, Sebe$ta's alleged damages. injury is fully compensable money with Colorado's procedure dissenting statutory appraisal providos legaldamages for a femedy, and sharcholders sodoes litigation. As Plaintiffknows,some this indicated they have that shaleholders already will vole agaiost merger commence applaisal the procee-ding. litigationandthe This and atr prcoeedilg appraisal rcmoveanypossible need theTRO. for Second, Plaintiffs own eviderce conhadicts claimthatQuizno'sProxyStatement his "fails to disclose the that with if$ed to negotiate FCI but instead, letter by Special Committee
datedOctober 22,2001,directd to negotiate Levinet ichhnan."(Complaint'Il 4l,) FCI with Tho Spcial Committee it5 adviso$considered and and FCI'sploposal its "put option' analyzed discussed with FCI, anddetermined lhecorditionrequired condition, i! it that the of consent Q'uizno's lender, LeeineLeichtman Capital Panners LP ("LevlnLeichtmatr"). Il,
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The Spocial Committee LevineLeichtm&n discussed FCI condition.46 the and the contacted "LevineLoichttnafl ProxyStatement that committee theFoposed reports, informed special the condition to violated termsofits loanfacility with usandthattheywouldnot consnt the tb shareholder's conditiotr."ThePloxy Statement rcpodsthat: also OnOctober 22,2001,the special committee received detailed a Iinancialanalysis ftom Ttrcker Anthonyofthe pat optiotrproposal uponits and it [r:a, thFCI proposal] disoussed in deteil. Based eva.luation the rcsponse Levinelrichtrnan, thesPecial and of committec the informed sharholder FCI] thatwe areunablo [r.e, may to agree theconditiol asproposed, thattheshareholder to and nesoti8te directlywith Levinel,ichtnanto try to reachan to acceptable definitiveoffer to be stxrctur permitanacceptable made.As theshareholdels conditiorhasnotbeenmet,at thistime 13.] the shareholder not made firm offer. lProxyStatement has a the'?utoption" Third, Plaintiff wrong claiming theProxy in misstates is that Statement requested FCI in its ploposal.FCI'Sletter6, to by whichPlaitrtiffhassubmitted theCourton this motion,stote FCI'teqoires" theputoption,aodtheProxySbtcmnt repoltsthis. accurately that incorectly Fourth, Plaintiffis wrongh claimingthatQuizno'sPrcxyStateNnent "describes Special wherl the Committee's legalandfinancialadvisors being'indspcndent' as in theyclearlyareDot." (Complaint 41.) Thehoxy Statement explains detailtheprior fl relationships and between financialadvisor its legal Corunitte's Quizno'sandtheSpecial advisor, why theSpecial and retainthm. Thecasclaw Committee concluded it should that wergnot independnt shows on these that for tllat facts,thercis no basis concluding theadvisors beceuse deprives it Fifth, ttl equities thal dictate thercquested should denicd TRO be theminority shareholdrs thopportunity takeadvantage thepremium $8,50pricc. of to of the Delaying Shareholders' tho th to Meelingincreases costs Quizno'! andleaves sharcholders in anunoertain the situation where proposed merger maynevoroccuralld theyv/ill loseth opportunity receive preniumpric. There 4q otherfirm offer available.Evena short to a is
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delaycouldinvolvesubstantial distraction expense. mayrequirere-circulation the and It of ProxyStatement, updated financialreports attendant professional otherfees. But it and and wouldnot addanything material thebodyofinformationavailable shareholders to to considering themerger.On theothrhand, theTROis denied plaintiff is not iniuredbecause has if tbe he multipledamage remedies. Plaintiffhasknownabout proposed th merger sinceit wasannounced Junc2001. in filed prelimimry proxy statement materials Julyofthis year. Quizno'sfiled a Qui:nto's in definitive ProxyStatement mailed to sharholdelsNov.mber and it on 5,2001.plaintiffhas beenthinkingaboutlitigatingsinceat leastAugustof rhisyear. Yet this lawsuitwasnot filed unlilNovgmberl3, andeventhenno motionfor a TROwasmade,Only at the lastminutehas thePlaintiff sought emergency injunctive relief, while at thesame I tim- Novernber 9, 2001 - he is encowaging othersharoholders voteagainst mgrgr exercise to thc theirappraisal and rights,tellingthemthat"l ktrowof at least500,000 thc and shales will voteagainst merger that in send a rcquest applaisal."(AffidavirofTheodore for AltmanC'Altmar Afl."), Exh.B (intemet mssage boardposting from Sebesta); alsoAlhnanAff. Exh.D (Sebesta message see ftom August2001.) Plaintiffhasa rernedy, it hasnothing do with a TRO. to and
latc'rs
('Brombrg Aff,"), the Thefactsareexplained theafrdavit of Mark Brombrg in chairman merger ofthc jrdependent Special whichconsidered Schadens' the Committee proposal, of tregotiatcd pricepershare from $8.00to $8,50, haspersonal the and knowledge up thefactualinaccuracies theplaintifPsmotionpapeN,Thefactsarealsoreported detailin in itr theProxyStaiement, additional ard factsarein theAlunanAIlidavit andits exhibits. To avoid duplication, factsarenot repeatcd the with in here,although arediscussed lhe argument they citations thesource. !o
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ARGUMENT Unde!Colondo law,a TROo! preliminary injunctive rlief "shouldrct be indiscriminately and and be spadngly cautiously with a full $antedbut should exrcised conviction thepartofthe trial courtofits urgent on AtmelCotp.v. Vitesse r!@essity." Seniconductor tial Corp.,3O P.3d789,792(Colo.Ct. App.,Div. I,2001) (revE(siqg court's grant 10, ofgeliminary injwrctiori, ceft.denied,2001 LEXIS766(Colo. Colo. Sept. 2001). ln ordgrto obtaina TROor prgliminary iljunction, a pertymustestablish: (l) a reasonable on Eobabilityof success themedts;(2) a danger ofreal, immediaie, inparable and injury whichmaybepreventd by injunctive relief: (3) thattherei8 noplain,spedy, adequ.te and remedy law; (4) thattheganting of s preliminary at injunctionlor (5) TROIwill not disserve publicinterst; thatthebalance of the equities favorstheinjunction; (6) thatfheirjunctionwill and prcserve status pending trial onthemerits. quo the a (Colo.1982)); clso, Id (citingandrelyingon Rathke McFq qhe,648P.2d648,653-54 v. see e.g,,Kosrlis v. District Coutt,El PasoCounty,93o (Colo.1997)("Thetest P.2d1329,1333 usuallyapplicable injunctions for under Rule65 is setfolth ilr tRat&ev. McFarlane [supru]')i (same). Baseline Fanu Ttao, e.Henni gs,26P,3d1209, (Colo. App.2001) LLP 1212 Ct. "Unless ofthesecritedaaremet,lljunctivereliefis not available."Atnel Cotp.v. 4!l Plaintiffme.ets ofthe Yitesse Semiconduator Corp.,30P,3dat 791(emphasis added),Here, 4949 I necessary criteria.
questions" ratherthana Plaintiff mistakenly claimsit is enough show"serious to (Pl. likelihoodofsuccess Motion4). Plaintiffcitesfederal law, applying federal cases but Colomdo law is dilferent. Colorado's insists proofof ofl stite Court Supreme provides likelihoodofsuccess v. unless special a othonviEe. Rathke See statute McFarlane,648 at 654; P.2d at Baseline Farms Two, LLPt. He tings,26P,3d 12t2.
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I.
PLAINTTFFCANNOT SHOWA DANGEROF IRREPARABLE HARM BECAUSEHIS ALLEGED INJIJRY CAN BE FULLY COMPENSATED WITII MONEY DAMAGES 'As a plerequisite theissuance to ofan injunction, theremu6tbea showhgofreal,
imnediateandineparable injury to lthepartyseeking injunctioa]whichwill occurpording the final hearitrgandthattheinjunction necessary preveffsuchinjury ot d*aage." American is !o Investors Ins.Co.v.G/een (en Lrfe Shield Plah,lnc.,358 P.2d473, (Colo.1960) banc),No 475 irreparable halm existsifthe alleged injuy oanbecompensatd money by darnagee. Colorado's "is appellate courts rverse preliminary will and a injunction whata plaintiffseks mcasuabl if cornperuable money."Id, at476 Qwerci!:Lggrant in ofpreliminaryinjunction). Jnthepresent case, factsshow, four does prsent danger not of decisively, this case that a irreparablg injury thatcallsfor emergency injunctive rclief First, Plaiotiff specifically anountof alleges thedirectharrn thejnadequate that is money will receive hi6Quizno'$ he for (See Motion 1,7; Complaint 3, 38.) The shares. Pl. lJlJ merger offers$8.50; Plaintiffclaimsthepriceshould at least$10.63.Plaintiffcalculates his be money damages in dollars asa percntage: both less thao and the$8.50poeis"$2.13 persharc" it should (Pl. Motionat 7; Complaint 38),or'25% less"thanwhatheclaims(wrongly)is an be ll available alternative offer. (Co plaint lJ3.) Seco[d,Colorado's provides damage appraisal rightsstatute remedy exactly for this a situation.Appraisal rightsfor sharcholders granted shareholders dissent from a are to who meryer, Colo. Rv,Stat, to Thestatute requires court the $7-ll3-l0l to$ l7-l13-302. deteminethefair valueof thedissenter's shates award plusaccrued atrd it, intsrst.A8Plaintiff "lf admits, theproposed me.ger approved, is dissenting stocklolde$lray still exrcise thir appraisal rights."(Pl.Motion n. 1.) Plaintiffcomplains ,/.) thatthisrightis 2 (at
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"oompromised" because sharcholdeN not haveenough do bur information, thehoxy Staternent djscusses applaisal l|4 these rights(PloxyStatement & App,D) andfully disclos6thefact! concerning Special th procdure Committce. ststutory The asswes fair valuev/ill bepaid. that Third, Plaintiffknowsappraisal proceedings takeplaceandis encauraging v/ill other shareholden joh in them. Onesha.eholder reported ar SECfiling thatit will seek to has in appraisal rights. (See AltmanAS. 'lJ!J4-5, A.) ThePlaintiff,in anintemetmessago Exh. dated November 2001,enooursged Quizno's 19, othei sharholders "qeatea problem the for to Schadens" votingno on themergor exercising by AltmanAlf, n 6 & a1d appraisal rights. (See Exh.B.) Plaintiffinsisted "l knowofat least that the 500,000 shares will voteagainst that merger send a requst appraisal." and in for (Id) tr'ourth,thepresent actionalsoseeks for monetary damages whiohcanoompensate any 'tompensatory injury. (,!eeComplaint 1l, asking Courtto award p. the damages".) Plai[tiffhas not citeda single Colomdo holdingthatin ths casc circumsta[ces TRO a shouldissue despite availability the ofmoneydamages, ody case does on injury is a The he cite Califomiadecision Pl. Motion8) thatdid oot iovotva merger shareholder (see meeting a1l, or at "greennail"palmentto a shareholder but wasaboutanalleged group. Thecase i[elgvant. ie II. PLAINTIFF CAI\NOT SHOWA REASONABLEPROBABILITY OT SUCCESS ON THE MERITS BECAUSETHE PROXYSTATEMENTPROPERLY DISCLOSES TIIE MATERIAL FACTS.AND BECAUSETHE INDEPEI\DENT SPECIAL COMMITTEE ACTED PROPERLY TheComplaint motionallege rhedefendants and that breached fiduciaryduties their by inadequately disclosing ioJormation shareholders to th6 10 conceming merger be votedon atthe Shareholders' Meoting, by approving melger a its and whichis unfairbecause $8,50per shar pdceis lowerthana supposed altemative offerof$10.63pershare.(See CoDplaint 1-4,38u{ 42; Pl, Motion4-7.) TheComplaidard themotionallege for conclusions: threeglouods these - 8-
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.
the Supposedly ProxyStatement not properly that does disclose FCI madea bona fide offer to puoha8e Committe did shares $10.63; theSpecial at that Quizno's not reagonably infom themselves about andthatthe Special it; Committee 'lefi.Eedto degotiate FCIbut with Oc,tober 2001, 22, instead, letterdated by directed to negotiate Lvinekichtman." (Pl, Motion2; Complaint FCI with u 41.) FCI'8proposal Supposedly ProxyStatement not accuratly the does describe whenit refersto the"put option"thatFCIdisousscd its lette8 to theSpeoial in (See Motion2; Complaint,!J Pl. Comrnittee. 41.) Supposedly ProxyStatement inaccurate the is bcause describes Special the it "as legal CorDrnittee's andlinancialadvisors being'independent' whenthoy clearly not."(Complaint,!J Pl.Motion are 4l; 3.)
.
.
But Plaintiffhaspresented evidence support oftheseconclusions. facl,the to In ally !9 hoxy Statement thetwo letters and offeredby Plaintiffdenonstrate thereis no basisfor his thal claims. Theaccuracy theProxyStatement alsocoDfirmed theBromberg Alfidavit. of is by A, properly discloses Contrary to the compl|lnl, the Prory Ststemetrt th 'FCI offef' for $10.63, allgod how the SpcirlCommitteernrlyzed it sDd dlscussed with tr'CI,and why it wosnot a flrm offer !t tll lt
Plaintiffclaimsftat theProxyStatement not adequately that a disclose FCI made does bonafide offer to purahase that Committee not did shares $10.63; theSpecial at Quizno's "refirsd negotiate reasonably informthcmselves to with aboutit; andthattheSpecial Committee FCI butinstead, lettet datd Octobet with by 22,2001,directed to negotiato Lvine FCI 'll Leichtman."(Pl, Motion2; Complaint 41.) Plaintiifs or y suppod this claimi6 a letter for dated of Seplember 21,2001, a letter and dated October M. 2,2001.(See Afffdavit Matthew Houston ('PL Aff.'), Exh.B, C.) But theletters, ProxyStatement, the lPlaintifls legalcounsel] andtheBromberg Plaintiffis wrong. Affidavitshow TheProxyStatement discusssnumber contacts discussions FCIprior to with a and of andin thc fall of2001, andreports in theendFCIdid not resllymakeanoffcr at all: that Thespecial committee thatin orderto pusuetheshareholder's folt [i4, FCI'sl willingness makoanoffer it wouldrequirespeoifics rogarding to
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it thoshareholder's conditiotrs olderto deteminewhether is in a ill position!o negotiate suchoonditions evidence any and offinancial abilitY. On Seplember 2001, special 10. sent !o fte committee a letter this effaotto theshareholder. rcspotlse thespecial committee's Io to provided with ce(ain evidenoe rcquest, shsreholder ofhis the it financialability andwith thespecilics ofhis conditiorsto makean offer. ln a lettordated informed the October 2001, shareholder 2, the special for oomllineedrathewouldmake offer of$10.63pershare ao all ofrhe minorityshares, ifhe wergra eda put optionfromus only on tetmssimilarto those theI-vine loall in Liohtman Thespecial committee a meeting October 2001to held S, on discuss proposal.Thespecial this initially reviewe.d committee andanalyzed financialatrdotherimplicationo ofthe prcposal the on Quizno's, requested and to TuckerAnthoDy do a more comprehensive ofthe financialanalysis.In addition, chairman the special atrd corunitlemctwith managemefi LvineLeichtolan anddetailod proposed to the conditioo.Subsequent this meetil'g, andafterdiscussions counsel. with ilfofmed the Irvine Lightman the of special violated terms aosmitteethattheproposed condition its loanfacility with usard thattheywouldnot coDsent the to shareholder's condition. October 22,2001, special the On committee received detailed a financialanallsisftom Tucker it Anthory of theput optionproposal discussed in detail. and Based and uponits evaluation thercsponse LgviaeLeicltrnan, of the special committee informed shareholder we areunable the that to ageeto thecondition proposed, thatthesharcbolder as and may negotiate to dircctlywith LevineLichtman try to reachan accaptabl structure permitanac4cptabl to delinitiveoffer to be made.As theshareholde!'s hasnot been met,at this time condition thesharehol&r notmade firm offer. a has (ProxyStatement l3). WhattheProxyStatement is alsooonfirmed theBrcmberg at says by did Aflidavit. It shows total lackofmerit to Plaintiffs claimthattheSpecial the CoEmittee nor infomritself. (See Bromberg lJfl1&19.) Aff. Moreover, Ietters the showthatno firm offer wasmade. tom FCIthmselves TheSeptember 2001lctterfromFCI to theSpelialCommittee repods after that 21, letters "sevenl subsequent pho[econvoNations," hasa 'broposal"about whatit '\ir'ould and FCI of offcr" ifcertain conditions weremet. (See Aff. Exh.B at l.) FCI claimsthatit is capable Pl. - 10-
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ftnding its propossl, "FCI is reluctant reveal information but exhibits a to that udil Quizno's concrete coEmihrentto abandoning Schaden proposal."(1/., emphasis rhe added.)In ofter words,FCIwasasking proposal when th Quizno'sto comhit itselfto abatrdoninS Schaden's FCI hadnot evenshown how it wouldfinance proposd its olfer. 'lroposal" from FCIalsostates "fCI would TheSeptember that fgqlilg liquidity protcction very oimilarto thatafforded tse-alone LevineLeichtman, rishls anda fair ingludins market valuput option." (Id. at W, l-2.) Thput optionis required asexplained the and, in ProxyStatement quoted tlis sbove, conflicted with therightsof t evinel,eichtma4whowould not giveits oonsent giveup its rights. to TheOcmber 2001letteroffredby Plaintiffin support 2, the ofhis claimsalsosupports conclusiotr no fiIm off9r wasevermade.Thisletterfrom FCI to the Special that Commrtte reports "4XheUgh_!Ubi99!lq!b!4g9, presently that will FCI that contemplates theacqui6ition be made a newly formed via par'|er." limitedpartne$hip ("LP"), with FCI actingasthegeneral (Pl. Aff. Exh.C at 1, emphssis its added,)In otherwords,no ac4ui6ition entityhadbenformed; form wasnot settled upon;it wasunhDrvnwhowouldprovidetheirllding. "FCI a iciDates not not ofthecapital be to [ie., it does know]thata ponion [r.e, it does knowhowmuch] contributed c4mefrom related will parties."(1d, emphasis the added,)But 'TCI leserves right to invitea smallnumber acoredited of investors contributq LP, although wouldnot to to FCI apFoach suchinvestors any udil it is clearthatanagxeqnent Quizoo'si6 goingto be with (ld) Onits face,this is not d fift offer.,tee 4/ro Brcmbrg flfl l0- 19, reached." Aff TheOotober letteralsosa,s"FCl contemplates 2 a requidng put optionvirtuallyidedical to theonethatQuizro's gaveto Levineljichtmn." "requiring" (1d.2.) FCIneverabandoned
theput option,andits letters neversayit would. See Aff. a/soBromberg {,1J10-19.
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Theallegations thecomplaint in Plaintiffs motionshould withdlawnby in and be Plaintiffas inaccurate withoutfoundation. letters and provided Plairtiffrcpod dut the The by Special Committee discusscd matter lcngthwith FCI. ThePrcxyStatement the at repoltsnot only the faotsquoted above, whichinolude anal'Eis theSpecial by Conmittee'sfuEncial advisor, alsoearlierdiscussions FCI (the"shareholder'). but (See with ProxyStatement 12-13,) TheSpecial Committee everything couldreasonably with a proposal wasnot a firm did that it do offer andthatwassubject clnditionsthattheSpecial to investigated determind and Committ couldnot bemet. See Bromberg flu lGl9. Aff. B. ' Cortrary to th complaitt, the ProxyStatemertrccurrtely dscribes the "put option' that FCI rsked for as! co[dition ot maklDgm offer, and explain8 that condition why couldnot bemet
Contrary Plaintiff,it is lqllaccurate describe put optionrcfenedto in FCI'S to to the letters merely'tontemplated" notre4uired.TheSeptEmber lfte!states FCI as and 2l that "lqquiIgs"thcput option, Therquirement raflirmed thOctober letteraswell asin was 2 in convcrsations theSpecial 1vith (lee PI. Aff. Exh,C; Bromberg {!f 13-19 AIf. Committee. (confirming whatFCI required)).
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C.
the Contrary to the complaint,ibe Prory StrtmeDtrccurately describes Specirl Comtrdtt lndopetrdeDt rs corducting i6 work wlth qualllld as sDd litraocial aDdlegll rdvisors
special committegs havenot hadoccasion develop law goveming the Colorado courts to have c.ourts ofindependent oflhe Delawarc directors.'It is widelyrecognized thedecisions that addressed issues, theCourtmayconsider these and them. l. committee Thein.leperrdedce olthe SpecialCommrt Approvalby a special "e.
"strongevidonoe" a transaction a controlling provides with of independe[t directors that v. shareholder fair andthata courtshould interfere is with it. Rosenblan GettyOil Co'493 not a A.2d 929,938n.7 @e1. committee not irdependent, was 1985).To showthata special plaintiff hasthebunden "showing thedirectols eitherbeholden thecontrolling to of that are Natio dl sharehofder sounderits influence theirdiscretion sterilizgd."In re Westem or that is Corp. Litigatioa, No. 15927, Shareholders C.A. 2000 Del.Ch.LEXIS82,at r37 (Del.Ch.May (citingArcnson Lewis,473 (Del.1984)). ofa 22,2OOO) v. Disqualification A.2d805,812 dircctorasnot indpendelt e.9.,Cede Co.v. Techni& requires evidence ofdisloydty. See,
that business however, exprssly rcognizes approva! Colorado's coDorations statute, ppvide certain kindsofprctectionfor a by a committee ofdisintorested direotors will has transastion between comolation anentityin whicha diretor a fuancial the and part: interesl. providcs relevant Colo. Rcv,Stat, 7-108-501 in $ 'No aonflictinginterest st or hansaction bevoid or voidable be enjoined, aside, shall or give riseto anaward in a proceeding a shareholder by ofdanagosor othcrsanctions hansor by or in theright ofthe corporation, the solelybeoause conflictinginterest actioninvolves directorofthe corporation anentityin whicha dirctorofthe a or facts corporation a dhectoror offlceror hasa financialhterest. . . if: (a)the material is hansaction asto thedirector'srlation6hip intgrgot asto theconflictinginterest or and aredieclosed areknownto theboard direotors thecommittec, theboardof and or of or directors aommittee goodfaithauthorizes, or or in approves, ratifiostheqonflicting interest diroto$, transaction theaffirmalivevotofa majorityof thedisintersted by evcl though disintelested . the directors lessthana quorum; . . ." are
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color, htc.,634,^.2d345,363 (De1.1993), points,636 A.2d956(Del. in nodiJied part onother 1994).MerercceiptofdirecioN' feas of some or self-intlest, withoutothefevidence immaterial ofdisloyalty, notdisqualify dirctor, e.g., will a See, Cede &Co. v, Technicolor,[nc.,634 A,2d at363; Grobow Perol539A.2d180, (Del,1988). Special v. must the 188 The Cornrnitree hav powerto say"no" to a tradsaction, should and and havgrelevant information appropriatg legal andfinancialconsultants. 4t 1l2O-21. Id. Herethereis !q evidence theSpecial th-at Committee disloyalto Quizno'sor was stelilizedby the Schadens. Special Th said more Cornrnittee "No" to theSchadens thanonce andactivelyngotiated themat anns'length.TheSchadens with per initially proposed $8.00 j.n shate thetrerger. TheSpecial Coranittec that then rcjected price. TheSchadens increased theiroffer to $8.21pershare, again Special but the the Committe rejcted Schatlsns'offer. The Special Cotnmittee urgd priceof98.75,buttheSchadens not agrec,Only efrerthe a did Schadens raised theiroffer again 98.50 theSpecial to Committec agree.Throughout these did negotiations Special the Committee theadvic had ofits finarcial advisor.(tee Ploxy Statmont 1l; Bromberg lill8-9i 22-23,)TheSpecial Aff. deEonstrate its Committe's actions
a
independeooe.
The iadependence olthe Specid Commidee's,ldrlror,i. Advisors mustbe able
to functionindepodently, this does require theadvisors but haveno prior relationsbip not that with thecompany.Couns regularly uphold direotols'decisions letainsdvisoFnotwithto standing allgations stockholders suchadvisors by the that lacked because independgnce had advisors a prior or cunentrelationship thecorporation. e.g.,Kahnv. Caporella, See, with No. 13,248, Del.Ch.LEXIS29,at *20(Del.Ch.Mar.10,1994) 1994 ('Although boththelegal andfinancialadviso$to theSpecial Corunittee have for lefomed services Bumup& Simsin
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thepast,thereis no evidence those prior elgagments extgnsivg in anywayaffected that were or th adviso6' loyalties thecu entmatter."); in !. Rosenblatt GettyOil Co,,4934,2d929,943 (Del. 1985) a merger Skellyinto Getty,valuation (in questions to of wereproperlydelegated D & M eventhough"D & M hasvalued since and Getty'sreserve,s 1939, hasdonesimilarwork 'there is no proofthatD & M lacked years,"because or with Skellyfor several independence wasin anyway beholden eitherpady. Therccordfully suppofis conclusion D & M had that to a therequisite rputalion experignoe assist and !o GcttyandSkelly.'). ia Her9,theprior connctions Anthonyarefully reported between and Quiano's Tucker thePloxy Statement, well asthereasons theSpecial as CorEnittee determined after why intcrviewing scvcral the candidates Tuaker that Anthonywasstill thebestchoiceto advise Special Committee.(See ProxyStateme 9-10.) Giventhse faots, a matterof law thereis as nothingllTongv/ith T\rckerAnthony'srolein advising Spccial Committee. the Thecaselaw in this area particularly is inshuctive. h thc reced decisiotr Emeruld in Parhelt v, Berlin No. 9700,2001Del. Ch. LEXIS20 (Del. Ch,Feb.7, 2001 a plaintiff shareholde! for breach fiduciarydutyin themerger of of sued ), The May Petloleum with theHall corporations, by whichwercontrolled May's Chairman. merger negotiated apFoved theideperdeot directors was and ofMay. Theplaintiffclaimed by thatthese their directors May werenotrcally independent hadbreached fiduciaryduties. of and Partofthe plaintiffs argument thatthe financialadvisor theMay directors, BearSteams, was to couldllot give qualifiedadvice because hadprviously donework for the Hall corpolations, it But thecourtrqectedplaintiffs argument oonoluded thedefendant directors had and that "testified BearSteams adequateiy explained theirchoice ofBearStoams. defendant that One wasthought be themo$tsuitable to well candidate because hadperfonDed whenit advised it
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May's directors two other198?hansactions. . , Therefore, non-affiliated on . the direcrors concluded BearSteams that couldevaluate proposd the moreexpeditiously mergcr and thoroughly ftan theotherinvestment bar*ing flrms thstwereconsidered." at*22. pIaafif?s Id. claims were dismissed. ln Roberts General v. lnstrument Corp.,No. 639,slipop.at 26(Del.Ch.Aug.13, 11, 1990), reprinted 16Del,J. Corp. 1540, in (1991), L. 1560 aplaintiffshareholder because sued he objected a proposed to merger, claimed thedofendant and that boarddid notploperlyappIove themerger because, amoltg otherthings,its fiDancial advisor, Menill Lynch,hada conflictin the transaction. the courtheldthattheallesed But conflictwasdisclosd theshareholders to and prcsented problsm. therefore no Finally,Quizno'sbriefrctentionofthe Brobeck 6rm bfolethe Special law Corunittee retained themasits legaladvisor disclosed theProxyStatemert creates disabling was and in no corflict.See e.g., Kahnv. Caporella,No.13,248, Del.Ch.LEXIS29,at *20 (Del.Ch. 1994 Mar. 10, 1994)(legaladvisoBto spcial corrnitteewereappropriate thoughattomys even had previously lepresented corporation), the 3. Thelsv, does rcquircthe ProxJt not Stdtement odoptthe Plaint,ffs inaccurate to
chsrdclerizaliot ofthe SpecialComnilteeaad ttsqdtlsors, Whensolicitingproxies, s directors mustdisclose materialfactssunounding proposed all transaction, e.g.,Margoliesv. Pope See, a & Talbot. Inc.,12DeLJ, Corp. 1092, 105(Del.Ch.1986). theyarenotrcquird L. t But to "engage confessions in positions," v. A. WL ofcontested Brugget Budacz,Civ. No. 13376, 1994 18 698609, (Del.Ch.Dec,7, 1994), their in or'1ocharacterize conduct such wayasto admit a waongdoirg."Loudony. Archer-Dqniels-Midland Co.,100A,,2d135,143(Del. 1997): also, see e.g., Margolies Pope Talbot, v. ("ld]irectors notrequired are & Inc.,12Del.J. Corp. at 1105 L.
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to confess wtongdoing spculat or uponimproper motivos proxystatements'); in Citrorlr. E.L "arc DuPontdeNemouts Co.,584A.2d490,503(Del.Ch. 1990) (directors not rcquircdto & confess corporate wrongdoing engage 'self-flagellation' proxymatoials'). or in in Her,Plaiatiffclairnstlc ProxySfatemerl shoDld have disclosed theSpecial that Committee not independent, thattheFCI Foposalonly "contemplated" did not was aod ard 'tequirc" thepuf option. (Complaint are The lJ4l.) Plaintiffs assertions not accurate. Proxy
Statgmqnt and disoloses facts.Nothingrequires the to th Quizno's adopt Plaintilfs inaccurate contested charactsf izations facts. of D. 1. Contrsry to the complairg the evldetrce shows that thc SpcislCommitte properly lpproved the mergeral fair Approv&l qn independent prctdes nstrong thdl by spedalcomwilree evide$ce"
the lmrrsacliott fab, an.l pulsthebaden of proof on thepart! challe.,ging fiancqetlott. is the A speoial committee disintorested of provides with directors assurance a transaction a that controllingshareholder fair. "[A]pprovalofthe transartion anindepondent of is by committee direcmrs . . shiftstheburden , ofproofon theissue offaimesstom th conhollilg or dominating shareholder thechallenging to Kahnr. Lytch,638 l\.2d shareholder-plaintiff," I I 1l0,I I 17(Del. 1994); (DeL 1999) Emerald Psrtners Berlin,726A.2d 1215,1222-23 v. (same); far, v. ?remont (Del.1997) (sarne)- also provides A.2d422,429 It Corp.,694 rctjust y. evidence thetraDsaction fair, but "stront cvidence" faimess.See that is Rosenblatt Getty of Oil Co.,493 (chara.tcrizing ofa speoial A.2d929,938 (Del,1985) n.7 as us corFnittee "strong
As notdeadier,Colorado's statutes recogdze a coDllicting interest that transaction receives certain kinds ofprotertion when is approved a committe it by ofdisinterested dil]actots. supn ^t footnote quoting See Rev.Stat. 7-108-501. 2, Colo. $
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evidence faimess');seealso,e.8.,Weinberger IJOP, of Inc,,457 A,2d 701,709n.7 (Del. v. 1983)(useofan independent at directonnegotiatiog arm'sledgthcanbe committee outside of -strongevidence" tbehsnsaction lhat meets testof faime6s). the As explaircdabovo,lhe Committe sctedproperlyon the evidcnoe shows thc Special thal Schadens' merger offer andthatPlaintiff hasno evidence showoth(wise. to TheSpeclalComrnlttee ho altematirelirm oJfer. FCI'8proposal for$10.63 had per shar includes hoxy conditions canflotbefulfilld. (Je?BronberyAft lJu10-19; tftat Statemnt FCI couldmakeanunconditional 13,) offer,but it hasnot doneso. Theonly 6rm offer is the Schadens' offer for $8.50.TheSpecialCommilte concluded tlrc Schadens had that offer wasfair andin thebestinterest After receiving puNuingFCI'S and ofshareholders. proposal, Spcial the quiteproperly adherd its conclusions. Mendelv. to See Committee y. Cauoll, 651A,2d, , 306(Del. Ch.1994); Assoc. Inc., 1987WL Ind., 297 Freednan Restawant 14323,*8, Del.J.Corp. 651,663 (Del.Ch.Oot.16,1987). l3 L. I|L Plaitrflf cantrot rrd remedy lsw at sbowthat thereis no plaiD, spedy, adequrte "Equitywill rcmedyat law" not intervene whero plaintiff hasa plainandadequate a
(en Anedcan Investors Ins.Co.y. Green 476 Plan,1nc.,358P.2d473, (Colo.1960) Lile Shield bam)- Plaintiffhasmorethanonefrrlly adequate law 0Dt at remedy law, Colorado prcvides any minorityshareholdels oppose merger who the havethedght to havethefair valueoftheir shares detelmined a stahriory in proceeding. appraisal Colo.Rev.Stat,$7-113-101 17-113.302. to{ Thedamage clairnsin thepresent remedy. actionalsopmvides fully adequate a
tv.
Plailtiff cauot showthat the TRO wlll trot dlrservethe publlc ilterst TIis case publicshareholders involves whose right to voteon themsrgerandrerive
$8.50per shaleis theatened theplaidilf. Plaintiffdoes like thatplice,but he hasa ftlly by not
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procaeding will providehim with thefair valueofhis shareE. Plaintiff adequate appraisal that the shouldnotbe allowedto deprive publicshareholders oftheir rightsto accept $8.50. the V. favor6th TRO Plaitrtiff cannotshowthrt the bslanceof equides Meetiogis ifthe TROissued.Ifthe Shareholders' Quizno'swouldbe unfairlyharmed who not heldandthemerger does close, trot Quizno'ssharcholdrs wantthe$8.50pdcewill be price. Thc deprived ofthe only opponunity theyhavchadof obtaidngthis premium whether betterfiim any unceiainties themarketsiroeSeptember in makeir highlyproblematic offer will cometo Quizno'sin thefore6geable future. Evena shortdelaycouldinvolve updated substantial distraction expense. mayrequire of and [t re-circulation th ProxyStatment, financialreports attendant profossional otherfees.But it wouldrct addanything and and material thebodyofinformationavailable shareholders to considering merger.Plaintiff the to wouldnotbe tmfairlyharmed all have because shareholders statutory ifthe TROweredenied appraisal rightsandcanrecovgr monetary damage6. appropriate
vt.
quo of PlaiDtiffcarlotshowtbat th. TRO wlll pr$erve all aspcti theEtatu8 quo quo, Thestatus It is misleading saytherequested will preserve status to the TRO
includes obligations plansfor theSharcholders' and ard Meetingandmerger, ticse will b disrupted tlrc requ*ted TROat a sjgnificant to Quizno's. by oost
@Ng!!SXA
Plaintilfs motionfor a TROshould denied. be
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Dated: Novernber 2001 26,
fMichael Dglgle(#3I 798)
ATIORNEYSFORDEFENDANT ]]rE QUtZNO'SCOFJORATION
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I hercby cedifythata tue ardconect TIIE aopy oftheforegoing QUIZNO'S TO CORPOMTION'S MEMORANDIJM LAWIN OPPOSMON PLAINNFF'S OT MOTION FORA TEMPOMRY by and RESTRAINING ORDER served facsimile uas mail to the ovemight onthel'1r
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