Free Motion for Summary Judgment - District Court of Colorado - Colorado

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 1 of 6

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 2 of 6

O *rsne"ooo*',l
AttonReYs AT Ll{r ao.d S!..t Soii.2100 101U6r 43215-3422 Colu!i!$ Onio d.pttr .61122lilt5 lutba.6t42t!,0119

lebruary 2002 5,

$'ib!DidDij D i5r4)219.12 hir [email protected] @

Mr PatdclE. Meyers vice Presidont General & Counsel ThcQuizno's Coeoration l4l5 Larrimer Street Denver, 80202 CO Re:
Itrsurell

YTA CERT]FIED MATL

(Vestciestey') Westchester Insuranc Company Fjre ('Quiaro's"o! the"Company') PolicyHolder: Quiano's The Coeomtion Polioy: ManagcmentPtutcctionlnsuranccPolicy PolicyNo.: DON648451 ClaimNo.: X390L9630918

Dear Meyers: l.t. Onbehalfofweskhester, lettrresponds youi Decedlbe! 2001lettr,h whioh this to 2?, youindicate crtain that ouEent forner shargholdersQuizno's ot ol haveexpressed inteitiotr an to assert dght8asdiesentiDg shrrcholde$ connetion Quizrro's wi& moger witb tle Finrue in (thc CorporatioD "Dissenter's Rights to Notices').rIn additiorlthis lcttcrtespondr yourJanuary 23,2002lettet,in whichyou questioned view Weslchester's that theredced.lini{ of liability andincreased deductible setforth in Endorselrlent 6 of thePolioyapplies theSebesta as No. to l,awsuii. We aredirecting letterto you astbeauthorized this represntativr Quiano's the of and individual lnsuleds under "Ditecto$,OlhcelsandCornpany the Securities Liability" ponionof tho above referenoed lolicy (lhe'?olicy). To the extentyou arcnot actingon the Insureds, behalffor insurance pu{Dses, rcqucst youforwarda copyofthis letterto any coverage we that
I W. lore tbdl t!u. Dccanbcr 27n b1'.' did not .nclo|r'. eopicsof &. rolic tcla! ftportrdly rc.eivrd by @izro" ib comcciim wirh lhis mnttcr. If, aftcr rcvicwing th& lancr, you contiruc 0obcliwc thar covengr is avrilablc for thc DtuscDrer's RiSht! Notic.s uod.r thc Policy, w. r.4u6r you lo fo.lyard to us copicaol such concslond.ncc at Your arlicsi convcni.nc!.

07300345

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 3 of 6

O t*"**"^oou*J
Mr. Patdck Myers B. February 2002 5, Page 2

.,

atld replgseBtative irfom us with whom wc should suchpercon or entity or thei! authorized this in conununicate the future concomrng matter. A. nissenter'sRigh$ Notices

previouslyset forth its cowrage position with respectto As you will recall, Westchestr coDhnues recognize to January 2002ietter to you. While 'iJostchc$.r 4, the Sebesta Lawsuit in a the actual and poteqtial Lawsuit subject to that coveragemay be available fot the Sebe'sta irt coverage defs$es discussed that January46 letler, basedoI1th hfortration now ftrown to to Wstchester, coverageappcars bc availableundi the Policy for the Dissenter's Rights no Noticcs,aserplainedbelo$,,. As an initial 6atter, covengeis ollly availableunderthe Policy for ccrtai! Claims first mado against the IDsuredsdurfug the Policy Pedod. Bascd on the informatiotr knowD to a Westchestor, is unclearwhetherthis mattrpresentlycoDstituts Claim underthe Policy. ln it particular,the trm Claim is dcfDed by the ?olicy as ilcluding, amongotlFr things' a wittcn dernadd agaidstany Insued for mototary dainage ot othfi ftliet- Acootdingto your Decembr an "intetrf' to assertdissefltr'srights haveexpressed 27s lettsr, celtain dissentingslureholders in comcction v.ith Quizro's mrgerwift the FircnzeCorporation.To the exteotthe Dissento's or Rights Notices do not presentlyset forth a demaqdlor monett4r darnagss other relie4 the . Dissenter's Rights Noticeswould not constitute Claim underlhe ?olioy. Accordingly' evenif covemgewas olhetwisc available for the Dissehter's Rights Notic.esuudor thc Polioy' tlo coveragewould be available for any Loss, including DefenseCosls, incurred by thc Insureds prior to the dalesuchNoticoscorFtituteda Claim agaiNt anlDsured' I{owever, verl if thc Noticcs presentlyconstitutea Claim under the Policy, coverage would only be available undcr the Policy to the cxtcnt the Dissenter'sRig!$s Noticas abo underSectionIII. of the corFfituteClaimrlrr WIoDEirl Ac.ts. Tbe term Wlorgirl Act is defiDed misleadingstaterned,act omission,neglecl,o! Policy as includirg (1) any !ro!, oisstatement, in breachof duty actuallyor allegdlycommitted any of the l$ured ?ersons their capacityas by q by the Coapa\y, ot (2) aty such,or in aDOutsidePositionor, wi& rslect to Iffuriag Clause thc matterclaimedagainst lnEured PelsorBsolelyby leasonoftheir servingirt suohcapac8 ot in the an Outside Position. Based otr th infomation now krcwn to Westchester, Dissenter's to do rrotappear allegeanyWongful Acts by Quizno'sor atty individual Insured. RightsNotices "fair" price ior the to Ratier, this matte! appears merely involve a determinatio!as to what is a poceeditg doesnol as a malter of laut, dilsenters' shar!. Atry dissentqs' rights or appraisal by involve or seekrecoveryfor any actualor allegedwrotrgdoing Quino's or its directorsand officers. Accandingly,any disse er's rights procedingis not a Claim fo. Wrongftl AcB ard thusDotcoveredurdr the lolioy.

07300346

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 4 of 6

O ..trunenrooDENJ,
M!, Patrick Meyers E. February, 2002 5 Page 3

ir Moreover,llo covetage wailablb uDdelthe lolicy for any amountsQuizno's has Faid, for il or may in the futurpay, to the disslting sharelrclders consideration their shares. Rather, is with SectionW.,4-12.of0le Policy, no coverage availablefor any Loss (other in accordance by upon, arising out of or attributableto the than DefenseCosts)incu$e.d the Compatrybased paymentby the Company allegodlyinadequate consideration connection ilr of actualor proposed with its pwchasc of Seruritiesissuedby atry compalry, As set fo.th aboveJthe Dissetter's Rights Notices appearto arise exclusively ftom Quiano'6 pulported paymq,lt of inadequate wilh consideration conlrreclion its mergervith the Fire|IzeCorporalion. Even if covemgowas in would be availsblefor alry Loss otherwiseavailablefor this Euttsr undcrthePolicy,no oovefago with thc Disscnter'sRights (othe! than DefenseCosts)incurcd by th Compaoyin connection Notices.t NoB. Endorsement 6 Lawsuit of thc the Your JaNary 23, 2002 lettsr qucstioned applicabilityto the Sebesta No. 6 of tho dcductible!5 set forth !r Endorsemetrt rcduoedlimit of lirbility and incressed Policy,

I Your Januqy 23, 2002 lcttcr contc'!& thrt Excluior A(12) doct not apply bc.ausc Quiao's did not tcchnic,lly puchrsc it! Necuritic!ih comcctior witl the mergcr. Thc cconomiccffccl ofihc metgcr fa!5lction is !b $lue !s if Quizro's had tcclDicnly punhtled ib s..ndties. TL calh usti to pat dl sbtriLoldc6 i! bci!8 Providld by Quizno's ad dc Schrdnswil bccorE 100',6sharcholdcBof thc Cotnpany. That is cxBcdylhc rlsrlt th3t would occur if Qui2do's prrchascd lhc ahrrc$ fucctly. I! any evcnt, thc pulosc ed inted of lhc Policy is 10 provid. prorccrionfor liability incurrcd by In$Eds ariing out of chiff for nciud or alrgcd Wrongn'l Acts. If thc Policy is ulcd itrslcid to fud incicrcd iI?nsaclio! cosls,tbc rol of thc D&O Policy i[ b! seriouslyjeoPatdizd- Thn corccm M3 rcEogrizdby lic Nortlcm Distict of Csliforda h Slt way- rnc v. N,tidal llnio FiE ln. C... CascNo. C-8&3440,U.S. DistsrctColl4 Nonhcm Disbicr of Califomia, i! whicn JudgcD. Lowell Jmsco ob"rvrd in ! Marcb 30- 1992Ordlr As a lnctical natt r, n tudiDg ftat thc dividcnd plFltrt cotrstitltrd a. iffwabl lo$s could jcopardiz! thc rolc ofdi.lctor/officlr liability ir3u!rc.. tr lhc ficc oflcvcrrSd buy oBtt, ia is offca thc fact th 3!.r.holdcrs wil filc suit ellcgjng lbrt thc ofrrr.d siock pdcc i! isadcqua&. Thcasuits arc oncn sltdcd by tlc .cquiring codpony iftrcasin8 0l Ficc of iha 6iock,$!ich can b acc.rplihcd by having ln. tuaal corporadon igsu. prc't kovcrdividnd. If &is ircrcalc ir considq.tior to ib. sh*.holdds is foond lo bc !d iisurrbl! loss, 6c acquitirg corydy could strucDre ! iatcovcr !o lhal, i! ctrcxt, thc takolq $,ould bc panhlly fur&d by thc ihsur.ncc conD.nt Morcdv.r tic nnount of sitcl . "lors' ir drc podu.r ofn.gotirliol ft.rll.Jrriljo! in this oar. rcpr.!.rt6 ! ncgodlt d runbd rcccpkblc to phbtifts sccljng addcd cor3iiloration and a dcfcndrnt i,iling b add that much moft !o acconplish irs purpos.. tf th.3. p.nics Ealizc lftlt dre dcfcrd&d lid acc.lr lo , rcpatat brdirg lout q ! bi8bqr n!r!b!r nly b no surprisc. lyhethcr or nor sucha "loss" sloold bc coffidc.cd in iffurablc IosB orcstiomblc. is

07300347

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 5 of 6

^RTER&HADDEN,-Q
Mr. PstrickE. Meyers febluary J,2002 lage4

believesthat the Lawsuil 4, As explainedin our January 2002letter to you, Westchster and in whole or ir palt arisesout oftbe facts,circumstaqces situatiots desclibedh the la$ualy 5, and thetefore the lower aggregatelimit of 1999 notice le$er 1o Royal Imurance Qoqps11y, in No. 6 appliesto the Lawsuit. In your liability and highe. retentiondascrihed Endorsqnent January23, 2002 letter,you questiol that conclusioq notiDgthat the prio! Ja$uaryJ, 1999letter and a vhich did rot oc.cur which is diffient tlEn th aansachon to Royal referenoed tlansaction at issueill the pendingLa*suit. thd It appoa$basedb! informatiotrnov knowr by W6stchester the proposedhansaction and/ot adsesout of the sarre descdbed that priot January5, 1999lctter to Royal constitutes i4 atrCl urderlying th Sebesta Lawsuit. For example: facts,cLcumstances situations . PaBCrEph6 of lhe Affidavit of Matt L. Bromber& $hich was filcd itr thc Irvsuil statesin patt that'?t vadoustimes since 1999,the company'sboard of dircctors has considFed various vays of olhancing liquidity and shxreholder value....Duling this pedo4 Quiarot publicly iodicated that a second-step v/hich would rcsult in lhe acqui6itiooof all redufuing publioly held transaction, sharcsin a going-private transactioqwas r distiact possibility," Thus, ir appars during 1999 thtoDgh 2001 lhe various proposcdand actu8l transactions that (including the proposed in tralsactiotl described lhc JaNary 5, 1999Royal letter) liquidity and she.holder were part of a conlton plan by Qiizro's to eohance value. hansactions duringthat tituc period (incl.tding the October Unlike otherproposed programand the Novrnber2000 propGed self1999propos.d sharcrepulchase terder by QDizno'6),both tbe ploposedt-alsactiol describedin the January5, 1999 Royal letter and the curent merger tralsactiotr arc trarsaotionsby and directly iDvolving tlte Schadens rather than solely by the Company. In othr that Quizlo's md it words,having tried sevemlaltemativetransactions, appears Otatwas odginally the Schadens basictransaotiofl havenow rctumedto thc satne piopogcdin eady 1999,a6describcd thetanuaty 5, 1999Royal totioe letter. lD in is fact,the priceper 6h!re4ow beingpaid in lhe mergertransaction almostexactly the middl of $e pdcera!,gepropoBed thateadiettransaction. in

.

h other wolds, the "facts, cilgumstarces situations"underlyingthe January5, 1999 and v.lue by Royal dotice letter iroluded the Company's drireto enhalceliquidity and shareholdcr buyi[g out the rhar]Dlde$in a goingprivateFansaction.Although urch a ha$action was not ulti&ately acaoriplisbedfor nearlythreeyears,ill curreDt trersactjoo appeats be lart of that to proposedtransactioil and should fot initial stratesf, is substantiallythc sameas the initially

07300348

Case 1:04-cv-00725-RPM

Document 45-18

Filed 07/21/2005

Page 6 of 6

O -rntsneHoDDEN,,t,
Mr.Patrick Meyers E. February 2002 5,
Page 5

pulposesof Endorsemcnt 6 be heatedas arising out of the samefacts, circumstances No. and pdo! notice. Accordingly,the Sebesta shouldbe subjectto in Lawsuit situationsde,scribed that as No. therEduced limit ofliability andincreascd deductiblo sei foIth in Bndorsmnt 6.

uBderthe Policy Westchester cortinueto qtle9sly reservall of its rights and defenses issues andavailableal law with respcctto this matier,includingbut not limited to thosecoverage you. Westchester's set 4, and defense forth irl Weslchester's January 2002 coveragclettef,to coverageanalysisfor this matteris by ngcssity subjectto changess additionalallcgationsand or factsaredeveloped cometo lhe atte ion ofwcstchestf,, If you or the lr$teds have any questionsor concen$ rcgarding this anslysis, xto welcome you !o oontact!s. In additioq if you or the Intureds disagrocI'ith Wstchester's coverage analysis, invit you !o Fovide us with any oaterials or informationthat you believr we supporta conharyconclusion. Sinc6ly,

DanA- Bailey
cc: KennethD. Milbauer

26J529.r 10571A61t8

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