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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 33
TO
SCHEDULE 14D-9
(WITH RESPECT TO THE TENDER OFFER BY QVC NETWORK, INC.)
------------------------
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PARAMOUNT COMMUNICATIONS INC.
(NAME OF SUBJECT COMPANY)
PARAMOUNT COMMUNICATIONS INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
------------------------
699216 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
DONALD ORESMAN, ESQ.
PARAMOUNT COMMUNICATIONS INC.
15 COLUMBUS CIRCLE
NEW YORK, NEW YORK 10023-7780
(212) 373-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
------------------------
COPY TO:
JOEL S. HOFFMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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<PAGE>
This Amendment No. 33 supplements and amends to the extent indicated herein
the Solicitation/Recommendation Statement on Schedule 14D-9 of Paramount
Communications Inc., filed with the Securities and Exchange Commission on
November 8, 1993 (as supplemented and amended through the date hereof, the
"Schedule 14D-9"), with respect to the Current QVC Offer (as described
therein). Capitalized terms used herein and not otherwise defined herein have
the meanings ascribed to such terms in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby supplemented and amended as follows:
On February 4, 1994, the Delaware Supreme Court issued its Opinion
in Paramount Communications Inc., et al. v. QVC Network, Inc., Civ.
Action No. 13208, a copy of which is filed as Exhibit No. 108 to the
Schedule 14D-9 and is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby supplemented and amended to add the
following:
Exhibit 108 - Opinion in Paramount Communications Inc., et al. v. QVC
Network, Inc., Civ. Action No. 13208 (Del. February 4,
1994).
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
PARAMOUNT COMMUNICATIONS INC.
By DONALD ORESMAN
...................................
Name: Donald Oresman
Title: Executive Vice President
Dated: February 9, 1994
2
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
1* Pages 5, 6 and 10-20 of Paramount's Proxy Statement dated
January 29, 1993 for its 1993 Annual Meeting of Stockholders.
2* Employment Agreement with Robert Greenberg, a senior vice
president of Paramount, dated as of April 5, 1993.
3* Press Release issued on November 6, 1993.
4* Letter to Stockholders of Paramount dated November 8, 1993
with respect to the Viacom Offer.
5* Letter to Stockholders of Paramount dated November 8, 1993
with respect to the QVC Offer.
6* Amended and Restated Agreement and Plan of Merger, dated as
of October 24, 1993, between Paramount and Viacom.
7* Amendment No. 1, dated as of November 6, 1993, to the Amended
and Restated Agreement and Plan of Merger.
8* Stock Option Agreement, dated as of September 12, 1993, as
amended on October 24, 1993, between Paramount and Viacom.
9* Voting Agreement, dated as of September 12, 1993, as amended
on October 24, 1993, between Paramount and Amusements.
10* Press Release issued by Viacom on November 12, 1993.
11* Press Release issued on November 15, 1993.
12* Letter to Stockholders of Paramount dated November 16, 1993 with
respect to the QVC Offer.
13* Press Release issued by QVC on November 20, 1993.
14* Press Release issued by Viacom on November 19, 1993.
15* Press Release issued by QVC on November 22, 1993.
16* Press Release issued by Viacom on November 22, 1993.
17* Press Release issued by QVC on November 23, 1993.
18* Press Release issued by Viacom on November 23, 1993.
19* Press Release issued by QVC on November 24, 1993.
20* Press Release issued by Viacom on November 24, 1993.
21* Memorandum Opinion in QVC Network, Inc. v. Paramount Communications
Inc., et al., Civ. Action No. 13208 (Del. Ch. November 24, 1993).
22* Preliminary Injunction Order in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
23* Press Release issued by Paramount on November 24, 1993.
24* Press Release issued by Viacom on November 24, 1993.
25* Press Release issued by Viacom on November 26, 1993.
26* Press Release issued by Viacom on November 29, 1993.
27* Order of the Delaware Supreme Court dated November 29, 1993.
28* Press Release issued by QVC on December 1, 1993.
29* Revised Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
30* Press Release issued by QVC on December 10, 1993.
31* Press Release issued by Paramount on December 9, 1993.
32* Press Release issued by Viacom on December 9, 1993.
33* Order in Paramount Communications Inc., et al. v. QVC
Network, Inc., Civ. Action No. 13208 (Del. December 9, 1993).
34* Press Release issued by QVC on December 9, 1993.
35* Letter from Richards, Layton & Finger to Vice Chancellor
Jack B. Jacobs of the Delaware Court of Chancery dated
December 10, 1993.
36* Bidding Procedures of Paramount dated December 14, 1993.
37* Press Release issued by Paramount on December 14, 1993.
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* Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
38* Letter to Stockholders of Paramount dated December 14,
1993 with respect to the Viacom Offer and the QVC Offer.
39* Press Release issued by QVC on December 14, 1993.
40* Press Release issued by Viacom on December 14, 1993.
41* Press Release issued by QVC on December 16, 1993.
42* Letter from Wachtell, Lipton, Rosen & Katz to Lazard dated
December 14, 1993.
43* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 15, 1993.
44* Press Release issued by Paramount on December 15, 1993.
45* Letter from the Delaware Chancery Court to Young, Conaway,
Stargatt & Taylor; Richards, Layton & Finger; Morris & Morris;
and Morris, Nichols, Arsht & Tunnell dated December 14, 1993.
46* Revised pages to the Memorandum Opinion in QVC Network, Inc.
v. Paramount Communications Inc., et al., Civ. Action No.
13208 (Del. Ch. November 24, 1993).
47* Letter from Shearman & Sterling to Lazard dated December 15, 1993.
48* Letter from Simpson Thacher & Bartlett to Shearman & Sterling
dated December 16, 1993.
49* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 17, 1993.
50* Press Release issued by Paramount on December 20, 1993.
51* Press Release issued by QVC on December 22, 1993.
52* Press Release issued by Paramount on December 22, 1993.
53* Agreement and Plan of Merger, dated as of December 22, 1993,
between Paramount and QVC.
54* Voting Agreement dated December 22, 1993 among BellSouth
Corporation, Comcast Corporation, Cox Enterprises, Inc.,
Advance Publications, Inc. and Arrow Investments, L.P.
55* Letter to Stockholders of Paramount dated December 23, 1993
with respect to the Revised QVC Offer and the Viacom Offer.
56* Opinion of Lazard dated December 21, 1993.
57* Notice of Termination dated December 22, 1993 delivered by
Paramount to Viacom.
58* Exemption Agreement, dated as of December 22, 1993, between
Viacom and Paramount.
59* First Amendment, dated as of December 27, 1993, to Agreement
and Plan of Merger, dated as of December 22, 1993, between
Paramount and QVC.
60* Press Release issued by QVC on January 7, 1994.
61* Press Release issued by QVC on January 10, 1994.
62* Press Release issued by Paramount on January 7, 1994.
63* Press Release issued by Viacom on January 7, 1994.
64* Press Release issued by Viacom on January 9, 1994.
65* Letter from Wachtell, Lipton, Rosen & Katz to the Paramount
Board dated January 11, 1994.
66* Letter from Shearman & Sterling to the Paramount Board dated
January 12, 1994.
67* Letter from Paramount to Wachtell, Lipton, Rosen & Katz dated
January 13, 1994.
68* Press Release issued by Paramount on January 12, 1994.
69* Letter from Simpson Thacher & Bartlett to Shearman & Sterling
and Wachtell, Lipton, Rosen & Katz dated January 13, 1994.
70* Letter to Stockholders of Paramount dated January 13, 1994
with respect to the Current QVC Offer and the Revised Viacom Offer.
71* Opinion of Lazard dated January 12, 1994.
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* Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
72* Letter from Wachtell, Lipton, Rosen & Katz to Simpson Thacher
& Bartlett dated January 14, 1994.
73* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated January 18, 1994.
74* Letter from the Commission to Simpson Thacher & Bartlett dated
January 15, 1994.
75* Press Release issued by Paramount on January 18, 1994.
76* Press Release issued by Viacom on January 18, 1994.
77* Press Release issued by QVC on January 19, 1994.
78* Notice of Termination dated January 21, 1994 delivered by
Paramount to QVC.
79* Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount.
80* Press Release issued by Paramount on January 21, 1994.
81* Letter to Stockholders of Paramount dated January 24, 1994
with respect to the Current QVC Offer and the Revised
Viacom Offer.
82* Opinion of Lazard dated January 21, 1994.
83* Agreement and Plan of Merger, dated as of January 21, 1994,
between Paramount and Viacom.
84* Voting Agreement, dated as of January 21, 1994, between
Paramount and Amusements.
85* Letter from Viacom to Paramount dated January 19, 1994.
86* Letter from Wachtell, Lipton, Rosen & Katz to Paramount dated
January 20, 1994.
87* Letter from Shearman & Sterling to Paramount dated
January 21, 1994.
88* Letter from Wachtell, Lipton, Rosen & Katz to Paramount dated
January 24, 1994.
89* Letter from Paramount to Wachtell, Lipton, Rosen & Katz dated
January 24, 1994.
90* Letter from Shearman & Sterling to Paramount dated January 25, 1994.
91* Letter from Paramount to Shearman & Sterling dated January 25, 1994.
92* First Amendment, dated as of January 27, 1994, to Exemption
Agreement, dated as of January 21, 1994, between QVC and Paramount.
93* Letter from Simpson Thacher & Bartlett to Shearman & Sterling
and Wachtell, Lipton, Rosen & Katz dated January 27, 1994.
94* First Amendment, dated as of January 27, 1994, to Agreement and
Plan of Merger, dated as of January 21, 1994, between Viacom
and Paramount.
95* First Amendment, dated as of January 27, 1994, to Exemption
Agreement, dated as of December 22, 1993, between Viacom and
Paramount.
96* Form of Agreement and Plan of Merger between QVC and Paramount.
97* Press Release issued by QVC on February 1, 1994.
98* Press Release issued by Viacom on February 1, 1994.
99* Press Release issued by QVC on February 1, 1994.
100* Press Release issued by Paramount on February 1, 1994.
101* Press Release issued by Viacom on February 1, 1994.
102* Press Release issued by Viacom on February 1, 1994.
103* Press Release issued by Paramount on February 4, 1994.
104* Letter to Stockholders of Paramount dated February 7, 1994 with
respect to the Current QVC Offer and the Current Viacom Offer.
105* Opinion of Lazard dated February 4, 1994.
106* Amended and Restated Agreement and Plan of Merger, dated as
of February 4, 1994, between Paramount and Viacom.
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* Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
107* Form of Agreement and Plan of Merger between Paramount and
QVC.
108 Opinion in Paramount Communications Inc., et al. v. QVC
Network, Inc., Civ. Action No. 13208 (Del. February 4,
1994).
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* Previously filed.
IN THE SUPREME COURT OF THE STATE OF DELAWARE
PARAMOUNT COMMUNICATIONS INC.,
VIACOM INC., MARTIN S. DAVIS,
GRACE J. FIPPINGER, IRVING R.
FISCHER, BENJAMIN L. HOOKS,
FRANZ J. LUTOLF, JAMES A.
PATTISON, IRWIN SCHLOSS,
SAMUEL J. SILBERMAN, LAWRENCE
M. SMALL, and GEORGE
WEISSMAN,
Nos. 427, 1993 and 428, 1993
Defendants Below, (Consolidated)
Appellants,
Court Below: Court of Chancery
v. of the State of Delaware in
and for New Castle County
QVC NETWORK INC.,
C.A. No. 13208
Plaintiff Below,
Appellee.
IN RE PARAMOUNT
COMMUNICATIONS INC.
SHAREHOLDERS' LITIGATION C.A. No. 13117
(Consolidated)
Submitted: December 9, 1993
Decided by Order: December 9, 1993
Opinion: February 4, 1994
Before VEASEY, Chief Justice, MOORE and HOLLAND, Justices.
Upon appeal from the Court of Chancery. AFFIRMED.
<PAGE>
Charles F. Richards, Jr., Thomas A. Beck, and Anne C. Foster,
Esquires, of RICHARDS, LAYTON & FINGER, Wilmington, Delaware; Barry
R. Ostrager (Argued), Michael J. Chepiga, Robert F. Cusumano, Mary
Kay Vyskocil, and Peter C. Thomas, Esquires, of SIMPSON THACHER &
BARTLETT, New York, New York; Attorneys for Appellants Paramount
Communications Inc., and the Individual Defendants.
A. Gilchrist Sparks, III, and William M. Lafferty, Esquires of
MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; Stuart J.
Baskin (Argued), Jeremy G. Epstein, Alan S. Goudiss, and Seth J.
Lapidow, Esquires, of SHEARMAN & STERLING, New York, New York;
Attorneys for Appellant Viacom Inc.
Bruce M. Stargatt, David C. McBride, Josy W. Ingersoll, William
D. Johnston, Bruce L. Silverstein, and James P. Hughes, Jr.,
Esquires of YOUNG, CONAWAY, STARGATT & TAYLOR, Wilmington,
Delaware; Herbert M. Wachtell (Argued), Michael W. Schwartz,
Theodore N. Mirvis, Paul K. Rowe, and George T. Conway, III,
Esquires, of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York;
Attorneys for Appellee QVC Network Inc.
Irving Morris, Karen L. Morris, and Abraham Rappaport,
Esquires, of MORRIS & MORRIS, Wilmington, Delaware; Pamela S.
Tikellis, Carolyn D. Mack, and Cynthia A. Calder, Esquires, of
CHIMICLES, BURT & JACOBSEN, Wilmington, Delaware; Joseph A.
Rosenthal and Norman M. Monhait, Esquires of ROSENTHAL, MONHAIT,
GROSS & GODDESS, P.A., Wilmington, Delaware; Daniel W. Krasner and
Jeffrey G. Smith, Esquires, of WOLF, HALDENSTEIN, ADLER, FREEMAN &
HERZ, New York, New York; Arthur N. Abbey (Argued) and Mark C.
Gardy, Esquires, of ABBEY & ELLIS, New York, New York; Attorneys
for the Shareholer Appellees.
VEASEY, Chief Justice
-2-
<PAGE>
In this appeal we review an order of the Court Of Chancery
dated November 24, 1993 (the "November 24 Order"), preliminarily
enjoining certain defensive measures designed to facilitate a so-
called strategic alliance between Viacom Inc. ("Viacom") and
Paramount Communications Inc. ("Paramount") approved by the board
of directors of Paramount (the "Paramount Board" or the "Paramount
directors") and to thwart an unsolicited, more valuable, tender
offer by QVC Network Inc. ("QVC"). In affirming, we hold that the
sale of control in this case, which is at the heart of the proposed
strategic alliance, implicates enhanced judicial scrutiny of the
conduct of the Paramount Board under Unocal Corp. v. Mesa Petroleum
------------------------------
Co., Del. Supr., 493 A.2d 946 (1985), and Revlon, Inc. v.
- --- ---------------
MacAndrews & Forbes Holdings, Inc., Del. Supr., 506 A.2d 173 (1986).
- ----------------------------------
We further hold that the conduct of the Paramount Board was not
reasonable as to process or result.
QVC and certain stockholders of Paramount commenced separate
actions (later consolidated) in the Court of Chancery seeking
preliminary and permanent injunctive relief against Paramount,
certain members of the Paramount Board, and Viacom. This action
arises out of a proposed acquisition of Paramount by Viacom through
a tender offer followed by a
-3-
<PAGE>
second-step merger (the "Paramount-Viacom transaction"), and a
competing unsolicited tender offer by QVC. The Court of Chancery
granted a preliminary injunction. QVC Network, Inc. v. Paramount
------------------------------
Communications Inc., Del. Ch., C.A. No. 13208, Jacobs, V.C.
- ------------------
(Nov.24,1993), _______A.2d __________(1993) (the "Court of Chancery
Opinion"). We affirmed by order dated December 9, 1993. Paramount
---------
Communications Inc. v. QVC Network Inc., Del. Supr., Nos. 427 and
- --------------------------------------
428, 1993, Veasey, C.J. (Dec.9,1993) (the "December 9 Order"). 1/
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The Court of Chancery found that the Paramount directors
violated their fiduciary duties by favoring the Paramount-Viacom
transaction over the more valuable unsolicited offer of QVC. The
Court of Chancery preliminarily enjoined Paramount and the
individual defendants (the "Paramount defendants") from amending
or modifying Paramount's stockholder rights agreement (the "Rights
Agreement"), including the redemption of the Rights, or taking
other action to facilitate the consummation
- --------------------------
1/ We accepted this expedited interlocutory appeal on
November 29, 1993. After briefing and oral argument in this Court
held on December 9, 1993, we isssued our December 9 Order affirming
the November 24 Order of the Court of Chancery. In our December 9
Order, we stated, "It is not feasible, because of the exigencies
of time, for this Court to complete an opinion setting forth more
comprehensively the rationale of the Court's decision. Unless
otherwise ordered by the Court, such an opinion will follow in due
course." December 9 Order at 3. This is the opinion referred to
therein.
-4-
<PAGE>
of the pending tender offer by Viacom or any proposed second-step
merger, including the Merger Agreement between Paramount and Viacom
dated September 12, 1993 (the "Original Merger Agreement"), as
amended on October 24, 1993 (the "Amended Merger Agreement").
Viacom and the Paramount defendants were enjoined from taking any
action to exercise any provision of the Stock Option Agreement
between Paramount and Viacom dated September 12, 1993 (the "Stock
Option Agreement"), as amended on October 24, 1993. The Court of
Chancery did not grant preliminary injunctive relief as to the
termination fee provided for the benefit of Viacom in Section 8.05
of the Original Merger Agreement and the Amended Merger Agreement
(the "Termination Fee").
Under the circumstances of this case, the pending sale of
control implicated in the Paramount-Viacom transaction required
the Paramount Board to act on an informed basis to secure the best
value reasonably available to the stockholders. Since we agree with
the Court of Chancery that the Paramount directors violated their
fiduciary duties, we have AFFIRMED the entry of the order of the
Vice Chancellor granting the preliminary injunction and have
REMANDED these proceedings to the Court of Chancery for proceedings
consistent herewith.
-5-
<PAGE>
We also have attached an Addendum to this opinion addressing
serious deposition misconduct by counsel who appeared on behalf of
a Paramount director at the time that director's deposition was
taken by a lawyer representing QVC. 2/
I. FACTS
The Court of Chancery Opinion contains a detailed recitation
of its factual findings in this matter. Court of Chancery Opinion,
_____A.2d_________, slip op. at 2-31. Only a brief summary of the
facts is necessary for purposes of this opinion. The following
summary is drawn from the findings of fact set forth in the Court
of Chancery Opinion and our independent review of the record. 3/
- -----------------------
2/ It is important to put the Addendum in perspective. This Court
notes and has noted its appreciation of the outstanding judicial
workmanship of the Vice Chancellor and the professionalism of
counsel in this matter in handling this expedited litigation
with the expertise and skill which characterize Delaware
proceedings of this nature. The misconduct noted in the Addendum
is an aberration which is not to be tolerated in any Delaware
proceeding.
3/ This Court's standard and scope of review as to facts on
appeal from a preliminary injunction is whether, after
independently reviewing the entire record, we can conclude that the
findings of the Court of Chancery are sufficiently supported by the
record and are the product of an orderly and logical deductive
process. Ivanhoe Partners v. Newmont Mining Corp., Del. Supr., 535
---------------------------------------
A.2d 1334, 1342-41 (1987).
-6-
<PAGE>
Paramount is a Delaware corporation with its principal offices
in New York City. Approximately 118 million shares of Paramount's
common stock are outstanding and traded on the New York Stock
Exchange. The majority of Paramount's stock is publicly held by
numerous unaffiliated investors. Paramount owns and operates a
diverse group of entertainment businesses, including motion
picture and television studios, book publishers, professional
sports teams, and amusement parks.
There are 15 persons serving on the Paramount Board. Four
directors are officer-employees of Paramount: Martin S. Davis
("Davis"), Paramount's Chairman and Chief Executive Officer since
1983; Donald Oresman ("Oresman"), Executive Vice-President, Chief
Administrative Officer, and General Counsel; Stanley R. Jaffe,
President and Chief Operating Officer; and Ronald L. Nelson,
Executive Vice President and Chief Financial Officer. Paramount's
11 outside directors are distinguished and experienced business
persons who are present or former senior executives of public
corporations or financial institutions. 4/
- ---------------------
4/ Grace J. Fippinger, a former Vice President, Secretary
and Treasurer of NYNEX Corporation, and director of
Pfizer, Inc., Connecticut Mutual Life Insurance Company,
and The Bear Stearns Companies, Inc.
(continued...)
-7-
<PAGE>
Viacom is a Delaware corporation with its headquarters in
- -------------------
4/(...continued)
Irving R. Fischer, Chairman and Chief Executive Officer of HRH
Construction Corporation, Vice Chairman of the New York City
Chapter of the National Multiple Sclerosis Society, a member
of the New York City Holocaust Memorial Commission, and an
Adjunct Professor of Urban Planning at Columbia University.
Benjamin L. Hooks, Senior Vice President of the Chapman
Company and director of Maxima Corporation
J. Hugh Liedtke, Chairman of Pennzoil Company
Franz J. Lutolf, former General Manager and a member of the
Executive Board of Swiss Bank Corporation, and director of
Grapha Holding AG, Hergiswil (Switzerland). Banco Santander
(Suisse) S.A., Geneva, Diawa Securities Bank (Switzerland),
Zurich, Cheak Coast Helarb European Acquisitions S.A.,
Luxembourg Internationale Nederlanden Bank (Switzerland),
Zurich
James A. Pattison, Chairman and Chief Executive Officer of the
Jim Pattison Group, and director of the Toronto-Dominion Bank,
Canadian Pacific Ltd., and Toyota's Canadian subsidiary
Lester Pollack, General Partner of Lazard Freres & Co., Chief
Executive Officer of Center Partners, and Senior Managing
Director of Corporate Partners, investment affiliates of Lazard
Freres, director of Loews Corp., CNA Financial Corp.,
Sunamerica Corp., Kaufman & Broad Home Corp., Parlex Corp.,
Transco Energy Company, Polaroid Corp., Continental
Cablevision, Inc., and Tidewater Inc., and Trustee of New York
University
Irwin Schloss, Senior Advisor, Marcus Schloss & Company, Inc.
Samuel J. Silberman, Retired Chairman of Consolidated Cigar
Corporation
Lawrence M. Small, President and Chief Operating Officer of
the Federal National Mortgage Association, director of Fannie
Mae and the Chubb Corporation, and trustee of Morehouse
College and New York University Medical Center
George Weissman, retired Chairman and Consultant of Philip
Morris Companies, Inc., director of Avnet, Incorporated, and
Chairman of Lincoln Center for the Performing Arts, Inc.
-8-
<PAGE>
Massachussets. Viacom is controlled by Sumner M. Redstone
("Redstone"), its Chairman and Chief Executive Officer, who owns
indirectly approximately 85.2 percent of Viacom's voting Class A
stock and approximately 69.2 percent of Viacom's nonvoting Class B
stock through National Amusements, Inc. ("NAI"), an entity 91.7
percent owned by Redstone. Viacom has a wide range of entertainment
operations, including a number of well-known cable television
channels such as MTV, Nickelodeon, Showtime, and The Movie Channel.
Viacom's equity co-investors in the Paramount-Viacom transaction
include NYNEX Corporation and Blockbuster Entertainment
Corporation.
QVC is a Delaware corporation with its headquarters in West
Chester, Pennsylvania. QVC has several large stockholders,
including Liberty Media Corporation, Comcast Corporation, Advance
Publications, Inc., and Cox Enterprises Inc. Barry Diller
("Diller"), the Chairman and Chief Executive Officer of QVC, is
also a substantial stockholder. QVC sells a variety of merchandise
through a televised shopping channel. QVC has several equity co-
investors in its proposed combination with Paramount including
BellSouth Corporation and Comcast Corporation.
-9-
<PAGE>
Beginning in the late 1980s, Paramount investigated the
possibility of acquiring or merging with other companies in the
entertainment, media, or communications industry. Paramount
considered such transactions to be desirable, and perhaps
necessary, in order to keep pace with competitors in the rapidly
evolving field of entertainment and communications. Consistent
with its goal of strategic expansion, Paramount made a tender
offer for Time Inc. in 1989, but was ultimately unsuccessful. See
---
Paramount Communications, Inc. v. Time Inc., Del. Supr., 571 A.2d
- -------------------------------------------
1140 (1990) ("Time-Warner").
-----------
Although Paramount had considered a possible combination of
Paramount and Viacom as early as 1990, recent efforts to explore
such a transaction began at a dinner meeting between Redstone and
Davis on April 20, 1993. Robert Greenhill ("Greenhill"), Chairman of
Smith Barney Shearson Inc. ("Smith Barney"), attended and helped
facilitate this meeting. After several more meetings between
Redstone and Davis, serious negotiations began taking place in
early July.
It was tentatively agreed that Davis would be the chief
executive officer and Redstone would be the controlling
stockholder of the combined company, but the parties could not
reach agreement on the merger price and
-10-
<PAGE>
the terms of a stock option to be granted to Viacom. With respect
to price, Viacom offered a package of cash and stock (primarily
Viacom Class B nonvoting stock) with a market value of
approximately $61 per share, but Paramount wanted at least $70 per
share.
Shortly after negotiations broke down in July 1993, two
notable events occurred. First, Davis apparently learned of QVC's
potential interest in Paramount, and told Diller over lunch on July
21, 1993, that Paramount was not for sale. Second, the market value
of Viacom's Class B nonvoting stock increased from $46.875 on
July 6 to $57.25 on August 20. QVC claims (and Viacom disputes)
that this price increase was caused by open market purchases of
such stock by Redstone or entities controlled by him.
On August 20, 1993, discussions between Paramount and Viacom
resumed when Greenhill arranged another meeting between Davis and
Redstone. After a short hiatus, the parties negotiated in earnest
in early September, and performed due diligence with the assistance
of their financial advisors, Lazard Freres & Co. ("Lazard") for
Paramount and Smith Barney for Viacom. On September 9, 1993, the
Paramount Board was informed about the status of the negotiations
and was provided information by Lazard, including an analysis of
the proposed transaction.
-11-
<PAGE>
On September 12, 1993, the Paramount Board met again and
unanimously approved the Original Merger Agreement whereby
Paramount would merge with and into Viacom. The terms of the
merger provided that each share of Paramount common stock would be
converted into 0.10 shares of Viacom Class A voting stock, 0.90
shares of Viacom Class B nonvoting stock, and $9.10 in cash. In
addition, the Paramount Board agreed to amend its "poison pill"
Rights Agreement to exempt the proposed merger with Viacom. The
Original Merger Agreement also contained several provisions
designed to make it more difficult for a potential competing bid to
succeed. We focus, as did the Court of Chancery, on three of these
defensive provisions: a "no-shop" provision (the "No-Shop
Provision"), the Termination Fee, and the Stock Option Agreement.
First, under the No-Shop Provision, the Paramount Board agreed
that Paramount would not solicit, encourage, discuss, negotiate, or
endorse any competing transaction unless: (a) a third party "makes
an unsolicited written, bona fide proposal, which is not subject to
any material contingencies relating to financing"; and (b) the
Paramount Board determines that discussions or negotiations with
the third party are necessary for the Paramount Board to comply
with its fiduciary duties.
-12-
<PAGE>
Second, under the Termination Fee provision, Viacom would
receive a $100 million termination fee if: (a) Paramount terminated
the Original Merger Agreement because of a competing transaction;
(b) Paramount's stockholders did not approve the merger; or (c) the
Paramount Board recommended a competing transaction.
The third and most significant deterrent device was the Stock
Option Agreement, which granted to Viacom an option to purchase
approximately 19.9 percent (23,699,000 shares) of Paramount's
outstanding common stock at $69.14 per share if any of the
triggering events for the Termination Fee occurred. In addition to
the customary terms that are normally associated with a stock
option, the Stock Option Agreement contained two provisions that
were both unusual and highly beneficial to Viacom: (a) Viacom was
permitted to pay for the shares with a senior subordinated note of
questionable marketability instead of cash, thereby avoiding the
need to raise the $1.6 billion purchase price (the "Note Feature");
and (b) Viacom could elect to require Paramount to pay Viacom in
cash a sum equal to the difference between the purchase price and
the market price of Paramount's stock (the "Put Feature"). Because
the Stock Option Agreement was not "capped" to
-13-
<PAGE>
limit its maximum dollar value, it had the potential to reach (and
in this case did reach) unreasonable levels.
After the execution of the Original Merger Agreement and the
Stock Option Agreement on September 12, 1993, Paramount and Viacom
announced their proposed merger. In a number of public statements,
the parties indicated that the pending transaction was a virtual
certainty. Redstone described it as a "marriage" that would "never
be torn asunder" and stated that only a "nuclear attack" could
break the deal. Redstone also called Diller and John Malone of
Tele-Communications Inc., a major stockholder of QVC, to dissuade
them from making a competing bid.
Despite these attempts to discourage a competing bid, Diller
sent a letter to Davis on September 20, 1993, proposing a merger in
which QVC would acquire Paramount for approximately $80 per share,
consisting of 0.893 shares of QVC common stock and $30 in cash.
QVC also expressed its eagerness to meet with Paramount to
negotiate the details of a transaction. When the Paramount Board
met on September 27, it was advised by Davis that the Original
Merger Agreement prohibited Paramount from having discussions with
QVC (or anyone else) unless certain conditions were satisfied. In
particular, QVC had to supply evidence that its proposal was
-14-
<PAGE>
not subject to financing contingencies. The Paramount Board was
also provided information from Lazard describing QVC and its
proposal.
On October 5, 1993, QVC provided Paramount with evidence of
QVC's financing. The Paramount Board then held another meeting on
October 11, and decided to authorize management to meet with QVC.
Davis also informed the Paramount Board that Booz-Allen & Hamilton
("Booz-Allen"), a management consulting firm, had been retained to
assess, inter alia, the incremental earnings potential from a
----- ----
Paramount-Viacom merger and a Paramount-QVC merger. Discussions
proceeded slowly, however, due to a delay in Paramount signing a
confidentiality agreement. In response to Paramount's request for
information, QVC provided two binders of documents to Paramount on
October 20.
On October 21, 1993, QVC filed this action and publicly
announced an $80 cash tender offer for 51 percent of Paramount's
outstanding shares (the "QVC tender offer"). Each remaining share
of Paramount common stock would be converted into 1.42857 shares of
QVC common stock in a second-step merger. The tender offer was
conditioned on, among other things, the invalidation of the Stock
Option Agreement, which was worth
-15-
<PAGE>
over $200 million by that point.5/ QVC contends that it had to
commence a tender offer because of the slow pace of the merger
discussions and the need to begin seeking clearance under federal
antitrust laws.
Confronted by QVC's hostile bid, which on its face offered
over $10 per share more than the consideration provided by the
Original Merger Agreement, Viacom realized that it would need to
raise its bid in order to remain competitive. Within hours after
QVC's tender offer was announced, Viacom entered into discussions
with Paramount concerning a revised transaction. These discussions
led to serious negotiations concerning a comprehensive amendment to
the original Paramount-Viacom transaction. In effect, the
opportunity for a "new deal" with Viacom was at hand for the
Paramount Board. With the QVC hostile bid offering greater value
to the Paramount stockholders, the Paramount Board had considerable
leverage with Viacom.
At a special meeting on October 24, 1993, the Paramount Board
approved the Amended Merger Agreement and an amendment to the Stock
Option Agreement. The Amended Merger Agreement was, however,
--------------------
5/ By November 15, 1993, the value of the Stock Option
Agreement had increased to nearly $500 million based on the $90
QVC bid. See Court of Chancery Opinion, ____ A.2d ____, slip op.
---
at 59.
-16-
<PAGE>
essentially the same as the Original Merger Agreement, except that
it included a few new provisions. One provision related to an $80
per share cash tender offer by Viacom for 51 percent of Paramount's
stock, and another changed the merger consideration so that each
share of Paramount would be converted into 0.20408 shares of Viacom
Class A voting stock, 1.08317 shares of Viacom Class B nonvoting
stock, and 0.20408 shares of a new series of Viacom convertible
preferred stock. The Amended Merger Agreement also added a
provision giving Paramount the right not to amend its Rights
Agreement to exempt Viacom if the Paramount Board determined that
such an amendment would be inconsistent with its fiduciary duties
because another offer constituted a "better alternative."6/
Finally, the Paramount Board was given the power to terminate the
Amended Merger Agreement if it withdrew its recommendation of the
Viacom transaction or recommended a competing transaction.
Although the Amended Merger Agreement offered more
consideration to the Paramount stockholders and somewhat more
flexibility to the
- --------------------
6/ Under the Amended Merger Agreement and the Paramount Board's
resolutions approving it, no further action of the Paramount Board
would be required in order for Paramount's Rights Agreement to be
amended. As a result, the proper officers of the company were
authorized to implement the amendment unless they were instructed
otherwise by the Paramount Board.
-17-
<PAGE>
Paramount Board than did the Original Merger Agreement, the
defensive measures designed to make a competing bid more difficult
were not removed or modified. In particular, there is no evidence
in the record that Paramount sought to use its newly-acquired
leverage to eliminate or modify the No-Shop Provision, the
Termination Fee, or the Stock Option Agreement when the subject of
amending the Original Merger Agreement was on the table.
Viacom's tender offer commenced on October 25, 1993, and QVC's
tender offer was formally launched on October 27, 1993. Diller
sent a letter to the Paramount Board on October 28 requesting an
opportunity to negotiate with Paramount, and Oresman responded the
following day by agreeing to meet. The meeting, held on November
1, was not very fruitful, however, after QVC's proposed guidelines
for a "fair bidding process" were rejected by Paramount on the
ground that "auction procedures" were inappropriate and contrary to
Paramount's contractual obligations to Viacom.
On November 6, 1993, Viacom unilaterally raised its tender
offer price to $85 per share in cash and offered a comparable
increase in the value of the securities being proposed in the
second-step merger. At a
-18-
<PAGE>
telephonic meeting held later that day, the Paramount Board agreed
to recommend Viacom's higher bid to Paramount's stockholders.
QVC responded to Viacom's higher bid on November 12 by
increasing its tender offer to $90 per share and by increasing the
securities for its second-step merger by a similar amount. In
response to QVC's latest offer, the Paramount Board scheduled a
meeting for November 15, 1993. Prior to the meeting, Oresman sent
the members of the Paramount Board a document summarizing the
"conditions and uncertainties" of QVC's offer. One director
testified that this document gave him a very negative impression of
the QVC bid.
At its meeting on November 15, 1993, the Paramount Board
determined that the new QVC offer was not in the best interests of
the stockholders. The purported basis for this conclusion was that
QVC's bid was excessively conditional. The Paramount Board did not
communicate with QVC regarding the status of the conditions because
it believed that the No-Shop Provision prevented such communication
in the absence of firm financing. Several Paramount directors also
testified that they believed the Viacom transaction would be more
advantageous to Paramount's future
-19-
<PAGE>
business prospects than a QVC transaction.7/ Although a number of
materials were distributed to the Paramount Board describing the
Viacom and QVC transactions, the only quantitative analysis of the
consideration to be received by the stockholders under each
proposal was based on then-current market prices of the securities
involved, not on the anticipated value of such securities at the
time when the stockholders would receive them.8/
The preliminary injunction hearing in this case took place on
November 16, 1993. On November 19, Diller wrote to the Paramount
Board to inform it that QVC had obtained financing commitments for
its tender offer and that there was no antitrust obstacle to the
offer. On November 24, 1993, the Court of Chancery issued its
decision granting a preliminary injunction in favor of QVC and the
plaintiff stockholders. This appeal followed.
- --------------------
7/ This belief may have been based on a report prepared by Booz-
Allen and distributed to the Paramount Board at its October 24
meeting. The report, which relied on public information regarding
QVC, concluded that the synergies of a Paramount-Viacom merger were
significantly superior to those of a Paramount-QVC merger. QVC has
labelled the Booz-Allen report as a "joke."
8/ The market prices of Viacom's and QVC's stock were poor
measures of their actual values because such prices constantly
fluctuated depending upon which company was perceived to be the
more likely to acquire Paramount.
-20-
<PAGE>
II. APPLICABLE PRINCIPLES OF ESTABLISHED DELAWARE LAW
The General Corporation Law of the State of Delaware (the
"General Corporation Law") and the decisions of this Court have
repeatedly recognized the fundamental principle that the management
of the business and affairs of a Delaware corporation is entrusted
to its directors, who are the duly elected and authorized
representatives of the stockholders. 8 Del. C. s. 141(a); Aronson v.
------- ----------
Lewis, Del. Supr., 473 A.2d 805, 811-12 (1984); Pogostin v. Rice,
- ----- -----------------
Del. Supr., 480 A.2d 619, 624 (1984). Under normal circumstances,
neither the courts nor the stockholders should interfere with the
managerial decisions of the directors. The business judgment rule
embodies the deference to which such decisions are entitled.
Aronson, 473 A.2d at 812.
- -------
Nevertheless, there are rare situations which mandate that a
court take a more direct and active role in overseeing the
decisions made and actions taken by directors. In these
situations, a court subjects the directors' conduct to enhanced
scrutiny to ensure that it is reasonable.9/ The
- --------------------
9/ Where actual self-interest is present and affects a majority
of the directors approving a transaction, a court will apply even
more exacting scrutiny to determine whether the transaction is
entirely fair to the stockholders. E.g., Weinberger v. UOP, Inc.,
-----------------------------
Del. Supr., 457 A.2d 701, 710-11 (1983); Nixon v. Blackwell, Del.
------------------
Supr., 626 A.2d 1366, 1376 (1993).
-21-
<PAGE>
decisions of this Court have clearly established the circumstances
where such enhanced scrutiny will be applied. E.g., Unocal, 493
------------
A.2d 946; Moran v. Household Int'l, Inc., Del. Supr., 500 A.2d 1346
------------------------------
(1985); Revlon, 506 A.2d 173; Mills Acquisition Co. v. Macmillan, Inc.,
---------------------------------------
Del. Supr., 559 A.2d 1261 (1989); Gilbert v. El Paso Co., Del.
----------------------
Supr., 575 A.2d 1131 (1990). The case at bar implicates two such
circumstances: (1) the approval of a transaction resulting in a
sale of control, and (2) the adoption of defensive measures in
response to a threat to corporate control.
A. The Significance of a Sale or Change10/ of Control
-------------------------------------------------------
When a majority of a corporation's voting shares are acquired
by a single person or entity, or by a cohesive group acting
together, there is a significant diminution in the voting power of
those who thereby become minority stockholders. Under the
statutory framework of the General Corporation Law, many of the
most fundamental corporate changes can be implemented only if they
are approved by a majority vote of the stock-
- --------------------
10/ For purposes of our December 9 Order and this Opinion, we
have used the terms "sale of control" and "change of control"
interchangeably without intending any doctrinal distinction.
-22-
<PAGE>
holders. Such actions include elections of directors, amendments
to the certificate of incorporation, mergers, consolidations, sales
of all or substantially all of the assets of the corporation, and
dissolution. 8 Del. C. ss. 211, 242, 251-258, 263, 271, 275.
-------
Because of the overriding importance of voting rights, this Court
and the Court of Chancery have consistently acted to protect
stockholders from unwarranted interference with such rights.11/
In the absence of devices protecting the minority
stockholders,12/ stockholder votes are likely to become mere
formalities where there is a
- --------------------
11/ See Schnell v. Chris-Craft Indus., Inc., Del. Supr., 285
--- -----------------------------------
A.2d 437, 439 (1971) (holding that actions taken by management to
manipulate corporate machinery "for the purpose of obstructing the
legitimate efforts of dissident stockholders in the exercise of
their rights to undertake a proxy contest against management" were
"contrary to established principles of corporate democracy" and
therefore invalid); Giuricich v. Emtrol Corp., Del. Supr., 449 A.2d
-------------------------
232, 239 (1982) (holding that "careful judicial scrutiny will be
given a situation in which the right to vote for the election of
successor directors has been effectively frustrated"); Centaur
-------
Partners, IV v. Nat'l Intergroup, Del. Supr., 582 A.2d 923 (1990)
- --------------------------------
(holding that supermajority voting provisions must be clear and
unambiguous because they have the effect of disenfranchising the
majority); Stroud v. Grace, Del. Supr., 604 A.2d 75, 84 (1992)
---------------
(directors' duty of disclosure is premised on the importance of
stockholders being fully informed when voting on a specific
matter); Blasius Indus., Inc. v. Atlas Corp., Del. Ch., 564 A.2d
-----------------------------------
651, 659 n. 2 (1988) ("Delaware courts have long exercised a most
sensitive and protective regard for the free and effective exercise
of voting rights.").
12/ Examples of such protective provisions are supermajority
voting provisions, majority of the minority requirements, etc.
Although we express no opinion on what effect the inclusion of any
such stockholder protective devices would have had in this case, we
note that this Court has upheld, under different circumstances, the
reasonableness of a standstill agreement which limited a 49.9
percent stockholder to 40 percent board representation. Ivanhoe,
-------
535 A.2d at 1343.
-23-
<PAGE>
majority stockholder. For example, minority stockholders can be
deprived of a continuing equity interest in their corporation by
means of a cash-out merger. Weinberger, 457 A.2d at 703. Absent
----------
effective protective provisions, minority stockholders must rely
for protection solely on the fiduciary duties owed to them by the
directors and the majority stockholder, since the minority
stockholders have lost the power to influence corporate direction
through the ballot. The acquisition of majority status and the
consequent privilege of exerting the powers of majority ownership
come at a price. That price is usually a control premium which
recognizes not only the value of a control block of shares, but
also compensates the minority stockholders for their resulting loss
of voting power.
In the case before us, the public stockholders (in the
aggregate) currently own a majority of Paramount's voting stock.
Control of the corporation is not vested in a single person,
entity, or group, but vested in the fluid aggregation of
unaffiliated stockholders. In the event the Paramount-Viacom
transaction is consummated, the public stockholders will receive
cash and a minority equity voting position in the surviving
corporation. Following such consummation, there will be a
controlling stockholder who will have the voting power to: (a)
elect directors; (b) cause
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<PAGE>
a break-up of the corporation; (c) merge it with another company;
(d) cash-out the public stockholders; (e) amend the certificate of
incorporation; (f) sell all or substantially all of the corporate
assets; or (g) otherwise alter materially the nature of the
corporation and the public stockholders' interests. Irrespective
of the present Paramount Board's vision of a long-term strategic
alliance with Viacom, the proposed sale of control would provide
the new controlling stockholder with the power to alter that
vision.
Because of the intended sale of control, the Paramount-Viacom
transaction has economic consequences of considerable significance
to the Paramount stockholders. Once control has shifted, the
current Paramount stockholders will have no leverage in the future
to demand another control premium. As a result, the Paramount
stockholders are entitled to receive, and should receive, a control
premium and/or protective devices of significant value. There
being no such protective provisions in the Viacom-Paramount
transaction, the Paramount directors had an obligation to take the
maximum advantage of the current opportunity to realize for the
stockholders the best value reasonably available.
-25-
<PAGE>
B. The Obligations of Directors in a Sale or Change of
Control Transaction
The consequences of a sale of control impose special
obligations on the directors of a corporation.13/ In particular,
they have the obligation of acting reasonably to seek the
transaction offering the best value reasonably available to the
stockholders. The courts will apply enhanced scrutiny to ensure
that the directors have acted reasonably. The obligations of the
directors and the enhanced scrutiny of the courts are well-
established by the decisions of this Court. The directors'
fiduciary duties in a sale of control context are those which
generally attach. In short, "the directors must act in accordance
with their fundamental duties of care and loyalty." Barkan v.
---------
Amsted Indus., Inc., Del. Supr., 567 A.2d 1279, 1286 (1989). As we
- -------------------
held in Macmillan:
---------
- ---------------------
13/ We express no opinion on any scenario except the actual facts
before the Court, and our precise holding herein. Unsolicited
tender offers in other contexts may be governed by different
precedent. For example, where a potential sale of control by
a corporation is not the consequence of a board's action, this
Court has recognized the prerogative of a board of directors
to resist a third party's unsolicited acquisition proposal or
offer. See Pogostin, 480 A.2d at 627; Time-Warner, 571 A.2d
-------- -----------
at 1152; Bershad v. Curtiss-Wright Corp., Del. Supr., 535 A.2d
------------------------------
840,845 (1987); Macmillan, 559 A.2d at 1285 n.35. The
---------
decision of a board to resist such an acquisition, like all
decisions of a properly-functioning board, must be informed,
Unocal, 493 A.2d at 954-55, and the circumstances of each
------
particular case will determine the steps that a board must
take to inform itself, and what other action, if any, is
required as a matter of fiduciary duty.
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<PAGE>
It is basic to our law that the board of directors has
the ultimate responsibility for managing the business and
affairs of a corporation. In discharging this function,
the directors owe fiduciary duties of care and loyalty to
the corporation and its shareholders. This unremitting
obligation extends equally to board conduct in a sale of
corporate control.
559 A.2d at 1280 (emphasis supplied)(citations omitted).
In the sale of control context, the directors must focus on
one primary objective -- to secure the transaction offering the
best value reasonably available for the stockholders -- and they
must exercise their fiduciary duties to further that end. The
decisions of this Court have consistently emphasized this goal.
Revlon, 506 A.2d at 182 ("The duty of the board... [is] the
- ------
maximization of the company's value at a sale for the stockholders'
benefit."); Macmillan, 559 A.2d at 1288 ("[I]n a sale of corporate
---------
control the responsibility of the directors is to get the highest
value reasonably attainable for the shareholders."); Barkan, 567
------
A.2d at 1286 ("[T]he board must act in a neutral manner to
encourage the highest possible price for shareholders."). See also
Wilmington Trust Co. v. Coulter, Del. Supr., 200 A.2d 441, 448
- -------------------------------
(1964)(in the context of the duty
-27-
<PAGE>
of a trustee, "[w]hen all is equal...it is plain that the Trustee
is bound to obtain the best price obtainable").
In pursuing this objective, the directors must be especially
diligent. See Citron v. Fairchild Camera and Instrument Corp.,
---------------------------------------------------
Del. Supr., 569 A.2d 53, 66 (1989) (discussing "a board's active
and direct role in the sale process"). In particular, this Court
has stressed the importance of the board being adequately informed
in negotiating a sale of control: "The need for adequate
information is central to the enlightened evaluation of a
transaction that a board must make." Barkan, 567 A.2d at 1287.
------
This requirement is consistent with the general principle that
"directors have a duty to inform themselves, prior to making a
business decision, of all material information reasonably available
to them." Aronson, 473 A.2d at 812. See also Cede & Co. v.
------- --- ---- ------------
Technicolor, Inc., Del. Supr., 634 A.2d 345, 367 (1993); Smith v.
- ----------------- --------
Van Gorkom, Del. Supr., 488 A.2d 858, 872 (1985). Moreover, the
- ----------
role of outside, independent directors becomes particularly
important because of the magnitude of a sale of control transaction
and the possibility, in certain cases, that management may not
necessarily be impartial. See Macmillan, 559 A.2d at 1285
---------
(requiring "the intense scrutiny and participation of the
independent directors").
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<PAGE>
Barkan teaches some of the methods by which a board can
------
fulfill its obligation to seek the best value reasonably available
to the stockholders. 567 A.2d at 1286-87. These methods are
designed to determine the existence and viability of possible
alternatives. They include conducting an auction, canvassing the
market, etc. Delaware law recognizes that there is "no single
blueprint" that directors must follow. Id. at 1286-87; Citron 569
--- ------
A.2d at 68; Macmillan, 559 A.2d at 1287.
---------
In determining which alternative provides the best value for
the stockholders, a board of directors is not limited to
considering only the amount of cash involved, and is not required
to ignore totally its view of the future value of a strategic
alliance. See Macmillan, 559 A.2d at 1282 n.29. Instead, the
--- ---------
directors should analyze the entire situation and evaluate in a
disciplined manner the consideration being offered. Where stock or
other non-cash consideration is involved, the board should try to
quantify its value, if feasible, to achieve an objective comparison
of the alternatives.14/
- ---------------------
14/ When assessing the value of non-cash consideration, a board
should focus on its value as of the date it will be received
by the stockholders. Normally, such value will be determined
with the assistance of experts using generally accepted
methods of valuation. See in re RJR Nabisco, Inc. Shareholders
----------------------------------------
Litig., Del. Ch., C.A. No. 10389, Allen, C. (Jan. 31, 1989),
-----
reprinted at 14 Del. J. Corp. L. 1132, 1161.
-29-
<PAGE>
In addition, the board may assess a variety of practical
considerations relating to each alternative, including:
[an offer's] fairness and feasibility; the proposed or
actual financing for the offer, and the consequences of
that financing; questions of illegality; ... the risk of
non-consum[m]ation; ... the bidder's identity, prior
background and other business venture experiences; and
the bidder's business plans for the corporation and their
effects on stockholder interests.
Macmillan, 559 A.2d at 1282 n. 29. These considerations are
- ---------
important because the selection of one alternative may permanently
foreclose other opportunities. While the assessment of these
factors may be complex, the board's goal is straightforward:
Having informed themselves of all material information reasonably
available, the directors must decide which alternative is most
likely to offer the best value reasonably available to the
stockholders.
C. Enhanced Judicial Scrutiny of a Sale or Change of Control
Transaction
Board action in the circumstances presented here is subject to
enhanced scrutiny. Such scrutiny is mandated by: (a) the
threatened diminution of the current stockholders' voting power;
(b) the fact that an asset belonging to public stockholders (a
control premium) is being sold and
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<PAGE>
may never be available again; and (c) the traditional concern of
Delaware courts for actions which impair or impede stockholder
voting rights (see supra note 11). In Macmillan, this Court held:
----- ---------
When Revlon duties devolve upon directors,
------
this Court will continue to exact an enhanced
judicial scrutiny at the threshold, as in
Unocal, before the normal presumptions of the
------
business judgment rule will apply.15/
559 A.2d at 1288. The Macmillan decision articulates a specific
---------
two-part test for analyzing board action where competing bidders
are not treated equally:16/
In the face of disparate treatment, the
trial court must first examine whether the
directors properly perceived that shareholder
interests were enhanced. In any event the
board's action must be reasonable in relation
to the advantage sought to be achieved, or
conversely, to the threat which a particular
bid allegedly poses to stockholder interests.
Id. See also Roberts v. General Instrument Corp., Del. Ch., C.A.
- -------------------------------------------------
No. 11639, Allen, C. (Aug. 13, 1990), reprinted at Del. J. Corp. L.
1540,
- ---------------------
15/ Because the Paramount Board acted unreasonably as to process
and result in this sale of control situation, the business
judgement rule did not become operative.
16/ Before this test is invoked, "the plaintiff must show, and the
trial court must find, that the directors of the target
company treated one or more of the respective bidders on
unequal terms." Macmillan, 559 A.2d at 1288.
---------
-31-
<PAGE>
1554 ("This enhanced test requires a judicial judgement of
reasonableness in the circumstances.").
The key features of an enhanced scrutiny test are: (a) a
judicial determination regarding the adequacy of the decisionmaking
process employed by the directors, including the information on
which the directors based their decision; and (b) a judicial
examination of the reasonableness of the directors' action in light
of the circumstances then existing. The directors have the burden
of proving that they were adequately informed and acted reasonably.
Although an enhanced scrutiny test involves a review of the
reasonableness of the substantive merits of a board's actions,17/ a
court should not ignore the complexity of the directors' task in a
sale of control. There are many business and financial
considerations implicated in investigating and selecting the best
value reasonably available. The board of directors is
- ---------------------
17/ It is to be remembered that, in cases where the traditional
business judgement rule is applicable and the board acted with
due care, in good faith, and in the honest belief that they
are acting in the best interests of the stockholders (which is
not this case), the Court gives great deference to the
substance of the directors' decision and will not invalidate
the decision, will not examine its reasonableness, and "will
not substitute our views for those of the board if the
latter's decision can be "'attributed to any rational business
purpose.'" Unocal, 493 A.2d at 949 (quoting Sinclair Oil Corp.
------ --------------------------
v. Levien, Del. Supr., 280 A.2d 717, 720 (1971)). See
--------- ---
Aronson, 473 A.2d at 812.
-------
-32-
<PAGE>
the corporate decisionmaking body best equipped to make these
judgements. Accordingly, a court applying enhanced judicial
scrutiny should be deciding whether the directors made a reasonable
decision, not a perfect decision. If a board selected one of
several reasonable alternatives, a court should not second-guess
that choice even though it might have decided otherwise or
subsequent events may have cast doubt on the board's determination.
Thus, courts will not substitute their business judgement for that
of the directors, but will determine if the directors' decision
was, on balance, within a range of reasonableness. See Unocal, 493
----------
A.2d at 955-56; Macmillan, 559 A.2d at 1288; Nixon, 626 A.2d at
--------- -----
1378.
D. Revlon and Time-Warner Distinguished
------ -----------
The Paramount defendants and Viacom assert that the fiduciary
obligations and the enhanced judicial scrutiny discussed above are
not implicated in this case in the absence of a "break-up" of the
corporation, and that the order granting the preliminary injunction
should be reversed. This argument is based on their erroneous
interpretation of our decisions in Revlon and Time-Warner.
------ -----------
In Revlon, we reviewed the actions of the board of directors
------
of Revlon, Inc ("Revlon"), which had rebuffed the overtures of
Pantry Pride,
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<PAGE>
Inc. and had instead entered into an agreement with Forstmann
Little & Co. ("Forstmann") providing for the acquisition of 100
percent of Revlon's outstanding stock by Forstmann and the
subsequent break-up of Revlon. Based on the facts and
circumstances present in Revlon, we held that "[t]he directors'
------
role changed from defenders of the corporate bastion to auctioneers
charged with getting the best price for the stockholders at a sale
of the company." 506 A.2d at 182. We further held that "when a
board ends an intense bidding contest on an insubstantial
basis,...[that] action cannot withstand the enhanced scrutiny which
Unocal requires of director conduct." Id. at 184.
- ------ ---
It is true that one of the circumstances bearing on these
holdings was the fact that "the break-up of the company...had
become a reality which even the directors embraced." Id at 182.
--
It does not follow, however, that a "break-up" must be present and
"inevitable" before directors are subject to enhanced judicial
scrutiny and are required to pursue a transaction that is
calculated to produce the best value reasonably available to the
stockholders. In fact, we stated in Revlon that "when bidders make
------
relatively similar offers, or dissolution of the company becomes
inevitable, the directors cannot fulfill their enhanced Unocal
------
duties by playing favorites with the
-34-
<PAGE>
contending factions." Id. at 184 (emphasis added). Revlon thus
--- ------
does not hold that an inevitable dissolution or "break-up" is
necessary.
The decisions of this Court following Revlon reinforced the
------
applicability of enhanced scrutiny and the directors' obligation to
seek the best value reasonably available for the stockholders where
there is a pending sale of control, regardless of whether or not
there is to be a break-up of the corporation. In Macmillan, this
---------
Court held:
We stated in Revlon, and again here, that in a
------
sale of corporate control the responsibility of
the directors is to get the highest value
reasonably attainable for the shareholders.
559 A.2d at 1288 (emphasis added). In Barkan, we observed further:
------
We believe that the general principles
announced in Revlon, in Unocal Corp. v. Mesa
------ ------------ ----
Petroleum Co., Del. Supr., 493 A.2d 946 (1985),
-------------
and in Moran v. Household International, Inc.,
--------------------------------------
Del. Supr., 500 A.2d 1346 (1985) govern this
case and every case in which a fundamental
change of corporate control occurs or is
contemplated.
567 A.2d at 1286 (emphasis added).
Although Macmillan and Barkan are clear in holding that a
--------- ------
change of control imposes on directors the obligation to obtain the
best value reasonably available to the stockholders, the Paramount
defendants have
-35-
<PAGE>
interpreted our decision in Time-Warner as requiring a corporate
-----------
break-up in order for that obligation to apply. The facts in Time-
-----
Warner, however, were quite different from the facts of this case,
- ------
and refute Paramount's position here. In Time-Warner, the
-----------
Chancellor held that there was no change of control in the original
stock-for-stock merger between Time and Warner because Time would
be owned by a fluid aggregation of unaffiliated stockholders both
before and after the merger.
If the appropriate inquiry is whether a
change in control is contemplated, the answer
must be sought in the specific circumstances
surrounding the transaction. Surely under some
circumstances a stock for stock merger could
reflect a transfer of corporate control. That
would, for example, plainly be the case here if
Warner were a private company. But where, as
here, the shares of both constituent
corporations are widely held, corporate control
can be expected to remain unaffected by a stock
for stock merger. This in my judgment was the
situation with respect to the original merger
agreement. When the specifics of that
situation are reviewed, it is seen that, aside
from legal technicalities and aside from
arrangements thought to enhance the prospect
for the ultimate succession of [Nicholas J.
Nicholas, Jr., president of Time], neither
corporation could be said to be acquiring the
other. Control of both remained in a large,
fluid, changeable and changing market.
-36-
<PAGE>
The existence of a control block of stock
in the hands of a single shareholder or a group
with loyalty to each other does have real
consequences to the financial value of
"minority" stock. The law offers some
protection to such shares through the
imposition of a fiduciary duty upon controlling
shareholders. But here, effectuation of the
merger would not have subjected Time
shareholders to the risks and consequences of
holders of minority shares. This is a
reflection of the fact that no control passed
to anyone in the transaction contemplated. The
shareholders of Time would have "suffered"
dilution, of course, but they would suffer the
same type of dilution upon the public
distribution of new stock.
Paramount Communications Inc. v. Time Inc., Del. Ch., No. 10866,
- ------------------------------------------
Allen, C. (July 17, 1989), reprinted at 15 Del. J. Corp. L. 700,
739 (emphasis added). Moreover, the transaction actually
consummated in Time-Warner was not a merger, as originally planned,
-----------
but a sale of Warner's stock to Time.
In our affirmance of the Court of Chancery's well-reasoned
decision, this Court held that "The Chancellor's findings of fact
are supported by the record and his conclusion is correct as a
matter of law." 571 A.2d at 1150 (emphasis added). Nevertheless,
the Paramount defendants here have argued that a break-up is a
requirement and have focused on the following language in our Time-
-----
Warner decision:
- ------
-37-
<PAGE>
However, we premise our rejection of
plaintiffs' Revlon claim on different grounds,
------
namely, the absence of any substantial evidence
to conclude that Time's board, in negotiating
with Warner, made the dissolution or break-up
of the corporate entity inevitable, as was the
case in Revlon.
------
Under Delaware law there are, generally
speaking and without excluding other
possibilities, two circumstances which may
implicate Revlon duties. The first, and
------
clearer one, is when a corporation initiates an
active bidding process seeking to sell itself
or to effect a business reorganization
involving a clear break-up of the company.
However, Revlon duties may also be triggered
------
where, in response to a bidder's offer, a
target abandons its long-term strategy and
seeks an alternative transaction involving the
breakup of the company.
Id. at 1150 (emphasis added) (citation and footnote omitted).
- --
The Paramount defendants have misread the holding of Time-
-----
Warner. Contrary to their argument, our decision in Time-Warner
- ------ -----------
expressly states that the two general scenarios discussed in the
above-quoted paragraph are not the only instances where "Revlon
------
duties" may be implicated. The Paramount defendants' argument
totally ignores the phrase "without excluding other possibilities."
Moreover, the instant case is clearly within the first general
scenario set forth in Time-Warner. The Paramount Board, albeit
-----------
unintentionally, had "initiate[d] an active bidding process seeking
to
-38-
<PAGE>
sell itself" by agreeing to sell control of the corporation to
Viacom in circumstances where another potential acquiror (QVC) was
equally interested in being a bidder.
The Paramount defendants' position that both a change of
control and a break-up are required must be rejected. Such a
holding would unduly restrict the application of Revlon, is
------
inconsistent with this Court's decisions in Barkan and Macmillan,
------ ---------
and has no basis in policy. There are few events that have a more
significant impact on the stockholders than a sale of control or a
corporate break-up. Each event represents a fundamental (and
perhaps irrevocable) change in the nature of the corporate
enterprise from a practical standpoint. It is the significance of
each of these events that justifies: (a) focusing on the
directors' obligation to seek the best value reasonably available
to the stockholders; and (b) requiring a close scrutiny of board
action which could be contrary to the stockholders' interests.
Accordingly, when a corporation undertakes a transaction which
will cause: (a) a change in corporate control; or (b) a break-up
of the corporate entity, the directors' obligation is to seek the
best value reasonably available to the stockholders. This
obligation arises because the effect of the Viacom-Paramount
transaction, if consummated, is to shift control of Paramount
-39-
<PAGE>
from the public stockholders to a controlling stockholder, Viacom.
Neither Time-Warner nor any other decision of this Court holds that
-----------
a "break-up" of the company is essential to give rise to this
obligation where there is a sale of control.
III. BREACH OF FIDUCIARY DUTIES BY PARAMOUNT BOARD
We now turn to duties of the Paramount Board under the facts
of this case and our conclusions as to the breaches of those duties
which warrant injunctive relief.
A. The Specific Obligations of the Paramount Board
Under the facts of this case, the Paramount directors had the
obligation: (a) to be diligent and vigilant in examining critically
the Paramount-Viacom transaction and the QVC tender offers; (b) to
act in good faith; (c) to obtain, and act with due care on, all
material information reasonably available, including information
necessary to compare the two offers to determine which of these
transactions, or an alternative course of action, would provide the
best value reasonably available to the stockholders; and (d) to
negotiate actively and in good faith with both Viacom and QVC to
that end.
-40-
<PAGE>
Having decided to sell control of the corporation, the
Paramount directors were required to evaluate critically whether or
not all material aspects of the Paramount-Viacom transaction
(separately and in the aggregate) were reasonable and in the best
interests of the Paramount stockholders in light of current
circumstances, including: the change of control premium, the Stock
Option Agreement, the Termination Fee, the coercive nature of both
the Viacom and QVC tender offers,18/ the No-Shop Provision, and the
proposed disparate use of the Rights Agreement as to the Viacom and
QVC tender offers, respectively.
These obligations necessarily implicated various issues,
including the questions of whether or not those provisions and
other aspects of the Paramount-Viacom transaction (separately and
in the aggregate): (a) adversely affected the value provided to
the Paramount stockholders; (b) inhibited or encouraged alternative
bids; (c) were enforceable contractual obligations in light of the
directors' fiduciary duties; and (d) in the end
______________
18/ Both the Viacom and the QVC tender offers were for 51 percent
cash and a "back-end" of various securities, the value of each
of which depended on the fluctuating value of Viacom and QVC
stock at any given time. Thus, both tender offers were two-
tiered, front-end loaded, and coercive. Such coercive offers
are inherently problematic and should be expected to receive
particularly careful analysis by a target board. See Unocal,
------
493 A.2d at 956.
-41-
<PAGE>
would advance or retard the Paramount directors' obligation to
secure for the Paramount stockholders the best value reasonably
available under the circumstances.
The Paramount defendants contend that they were precluded by
certain contractual provisions, including the No-Shop Provision,
from negotiating with QVC or seeking alternatives. Such
provisions, whether or not they are presumptively valid in the
abstract, may not validly define or limit the directors' fiduciary
duties under Delaware law or prevent the Paramount directors from
carrying out their fiduciary duties under Delaware law. To the
extent such provisions are inconsistent with those duties, they are
invalid and unenforceable. See Revlon, 506 A.2d at 184-85.
----------
Since the Paramount directors had already decided to sell
control, they had an obligation to continue their search for the
best value reasonably available to the stockholders. This
continuing obligation included the responsibility, at the October
24 board meeting and thereafter, to evaluate critically both the
QVC tender offers and the Paramount-Viacom transaction to determine
if: (a) the QVC tender offer was, or would continue to be,
conditional; (b) the QVC tender offer could be improved; (c) the
Viacom tender offer or other aspects of the Paramount-Viacom
transaction could be
-42-
<PAGE>
improved; (d) each of the respective offers would be reasonably
likely to come to closure, and under what circumstances; (e) other
material information was reasonably available for consideration by
the Paramount directors; (f) there were viable and realistic
alternative courses of action; and (g) the timing constraints could
be managed so the directors could consider these matters carefully
and deliberately.
B. The Breaches of Fiduciary Duty by the Paramount Board
The Paramount directors made the decision on September 12,
1993, that, in their judgment, a strategic merger with Viacom on
the economic terms of the Original Merger Agreement was in the best
interests of Paramount and its stockholders. Those terms provided
a modest change of control premium to the stockholders. The
directors also decided at that time that it was appropriate to
agree to certain defensive measures (the Stock Option Agreement,
the Termination Fee, and the No-Shop Provision) insisted upon by
Viacom as part of that economic transaction. Those defensive
measures, coupled with the sale of control and subsequent disparate
treatment of competing bidders, implicated the judicial scrutiny of
Unocal, Revlon, Macmillan, and their progeny. We conclude that the
- ------ ------ ---------
-43-
<PAGE>
Paramount directors' process was not reasonable, and the result
achieved for the stockholders was not reasonable under the
circumstances.
When entering into the Original Merger Agreement, and
thereafter, the Paramount Board clearly gave insufficient attention
to the potential consequences of the defensive measures demanded by
Viacom. The Stock Option Agreement had a number of unusual and
potentially "draconian"19/ provisions, including the Note Feature
and the Put Feature. Furthermore, the Termination Fee, whether or
not unreasonable by itself, clearly made Paramount less attractive
to other bidders, when coupled with the Stock Option Agreement.
Finally, the No-Shop Provision inhibited the Paramount Board's
ability to negotiate with other potential bidders, particularly QVC
which had already expressed an interest in Paramount.20/
- ----------------------
19/ The Vice Chancellor so characterized the Stock Option
Agreement. Court of Chancery Opinion, ____ A.2d___, slip op.
at 60. We express no opinion whether a stock option agreement
of essentially this magnitude, but with a reasonable "cap" and
without the Note and Put Features, would be valid or invalid
under other circumstances. See Hecco Ventures v. Sea-Land
--------------------------
Corp., Del Ch., C.A. No. 8486, Jacobs, V.C. (May 19, 1986)
-----
(21.7 percent stock option); In re Vitalink Communications
-----------------------------
Corp. Shareholders Litig., Del. Ch., C.A. No. 12085, Chandler,
-------------------------
V.C. (May 16, 1990) (19.9 percent stock option).
20/ We express no opinion whether certain aspects of the No-Shop
Provision here could be valid in another context. Whether or
not it could validly have operated here at an early stage solely
to prevent Paramount from actively "shopping" the company, it
could not prevent the Paramount directors from carrying out
their fiduciary duties in considering unsolicited bids or in
negotiating for the best value
(continued...)
-44-
<PAGE>
Throughout the applicable time period, and especially from the
first QVC merger proposal on September 20 through the Paramount
Board meeting on November 15, QVC's interest in Paramount provided
the opportunity for the Paramount Board to seek significantly
higher value for the Paramount stockholders than that being offered
by Viacom. QVC persistently demonstrated its intention to meet and
exceed the Viacom offers, and frequently expressed its willingness
to negotiate possible further increases.
The Paramount directors had the opportunity in the October 23-
24 time frame, when the Original Merger Agreement was renegotiated,
to take appropriate action to modify the improper defensive
measures as well as to improve the economic terms of the Paramount-
Viacom transaction. Under the circumstances existing at that time,
it should have been clear to the Paramount Board that the Stock
Option Agreement, coupled with the
- ---------------------
20/ (..continued)
reasonably available to the stockholders. Macmillan, 559
---------
A.2d at 1287. As we said in Barkan: "Where a board has no
------
reasonable basis upon which to judge the adequacy of a
contemplated transaction, a no-shop restriction gives rise to
the inference that the board seeks to forestall competing
bids." 567 A.2d at 1288. See also Revlon, 506 A.2d at 184
---------------
(holding that "[t]he no-shop provision, like the lock-up
option, while not per se illegal, is impermissible under the
------
Unocal standards when a board's primary duty becomes that of
------
an auctioneer responsible for selling the company to the
highest bidder").
-45-
<PAGE>
Termination Fee and the No-Shop Clause, were impeding the
realization of the best value reasonably available to the Paramount
stockholders. Nevertheless, the Paramount Board made no effort to
eliminate or modify these counterproductive devices, and instead
continued to cling to its vision of a strategic alliance with
Viacom. Moreover, based on advice from the Paramount management,
the Paramount directors considered the QVC offer to be
"conditional" and asserted that they were precluded by the No-Shop
Provision from seeking more information from, or negotiating with,
QVC.
By November 12, 1993, the value of the revised QVC offer on
its face exceeded that of the Viacom offer by over $1 billion at
then current values. This significant disparity of value cannot be
justified on the basis of the directors' vision of future strategy,
primarily because the change of control would supplant the
authority of the current Paramount Board to continue to hold and
implement their strategic vision in any meaningful way. Moreover,
their uninformed process had deprived their strategic vision of
much of its credibility. See Van Gorkom, 488 A.2d at 872; Cede v.
-------------- -------
Technicolor, 634 A.2d at 367; Hanson Trust PLC v. ML SCM
- ----------- --------------------------
Acquisition Inc., 2d Cir., 781 F.2d 264, 274 (1986).
- ----------------
-46-
<PAGE>
When the Paramount directors met on November 15 to consider
QVC's increased tender offer, they remained prisoners of their own
misconceptions and missed opportunities to eliminate the
restrictions they had imposed on themselves. Yet, it was not "too
late" to reconsider negotiating with QVC. The circumstances
existing on November 15 made it clear that the defensive measures,
taken as a whole, were problematic: (a) the No-Shop Provision
could not define or limit their fiduciary duties; (b) the Stock
Option Agreement had become "draconian"; and (c) the Termination Fee,
in context with all the circumstances, was similarly deterring the
realization of possibly higher bids. Nevertheless, the Paramount
directors remained paralyzed by their uninformed belief that the
QVC offer was "illusory." This final opportunity to negotiate on
the stockholders' behalf and to fulfill their obligation to seek
the best value reasonably available was thereby squandered.21/
- -----------------------
21/ The Paramount defendants argue that the Court of Chancery
erred by assuming that the Rights Agreement was "pulled" at
the November 15 meeting of the Paramount Board. The problem
with this argument is that, under the Amended Merger Agreement
and the resolutions of the Paramount Board related thereto,
Viacom would be exempted from the Rights Agreement in the
absence of further action of the Paramount Board and no
further meeting had been scheduled or even contemplated prior
to the closing of the Viacom tender offer. This failure to
schedule and hold a meeting shortly before the closing date in
order to make a final decision, based on all of the
information and circumstances then existing,
(continued...)
-47-
<PAGE>
IV. VIACOM'S CLAIM OF VESTED CONTRACT RIGHTS
Viacom argues that it had certain "vested" contract rights
with respect to the No-Shop Provision and the Stock Option
Agreement.22/ In effect, Viacom's argument is that the Paramount
directors could enter into an agreement in violation of their
fiduciary duties and then render Paramount, and ultimately its
stockholders, liable for failing to carry out an agreement in
violation of those duties. Viacom's protestations about vested
rights are without merit. This Court has found that those
defensive measures were improperly designed to deter potential
bidders, and that such measures do not meet the reasonableness test
to which they must be subjected. They are consequently invalid and
unenforceable under the facts of this case.
The No-Shop Provision could not validly define or limit the
fiduciary duties of the Paramount directors. To the extent that a
contract, or a provision thereof, purports to require a board to
act or not in such a fashion as to limit the exercise of fiduciary
duties, it is invalid and
- ---------------------
21/ (...continued)
whether to exempt Viacom from the Rights Agreement was
inconsistent with the Paramount Board's responsibilities and
does not provide a basis to challenge the Court of Chancery's
decision.
22/ Presumably this argument would have included the Termination
Fee had the Vice Chancellor invalidated that provision or if
appellees had cross-appealed from the Vice Chancellor's
refusal to invalidate that provision.
-48-
<PAGE>
unenforceable. Cf. Wilmington Trust v. Coulter, 200 A.2d at 452-
-------------------------------
54. Despite the arguments of Paramount and Viacom to the contrary,
the Paramount directors could not contract away their fiduciary
obligations. Since the No-Shop Provision was invalid, Viacom never
had any vested contract rights in the provision.
As discussed previously, the Stock Option Agreement contained
several "draconian" aspects, including the Note Feature and the Put
Feature. While we have held that lock-up options are not per se
------
illegal, see Revlon, 506 A.2d at 183, no options with similar
----------
features have ever been upheld by this Court. Under the
circumstances of this case, the Stock Option Agreement clearly is
invalid. Accordingly, Viacom never had any vested contract rights
in that Agreement.
Viacom, a sophisticated party with experienced legal and
financial advisors, knew of (and in fact demanded) the unreasonable
features of the Stock Option Agreement. It cannot be now heard to
argue that it obtained vested contract rights by negotiating and
obtaining contractual provisions from a board acting in violation
of its fiduciary duties. As the Nebraska Supreme Court said in
rejecting a similar argument in ConAgra, Inc. v. Cargill, Inc.,
------------------------------
Neb. Supr., 382 N.W.2d 576, 587-88 (1986), "To so hold,
-49-
<PAGE>
it would seem, would be to get the shareholders coming and going."
Likewise, we reject Viacom's arguments and hold that its fate must
rise or fall, and in this instance fall, with the determination
that the actions of the Paramount Board were invalid.
V. CONCLUSION
The realization of the best value reasonably available to the
stockholders became the Paramount directors' primary obligation
under these facts in light of the change of control. That
obligation was not satisfied, and the Paramount Board's process was
deficient. The directors' initial hope and expectation for a
strategic alliance with Viacom was allowed to dominate their
decision making process to the point where the arsenal of defensive
measures established at the outset was perpetuated (not modified or
eliminated) when the situation was dramatically altered. QVC's
unsolicited bid presented the opportunity for significantly greater
value for the stockholders and enhanced negotiating leverage for
the directors. Rather than seizing those opportunities, the
Paramount directors chose to wall themselves off from material
information which was reasonably available and to hide behind the
defensive measures as a rationalization for refusing
-50-
<PAGE>
to negotiate with QVC or seeking other alternatives. Their view of
the strategic alliance likewise became an empty rationalization as
the opportunities for higher value for the stockholders continued
to develop.
It is the nature of the judicial process that we decide only
the case before us--a case which, on its facts, is clearly
controlled by established Delaware law. Here, the proposed change
of control and the implications thereof were crystal clear. In
other cases they may be less clear. The holding of this case on
its facts, coupled with the holdings of the principal cases
discussed herein where the issue of sale of control is implicated,
should provide a workable precedent against which to measure future
cases.
For the reasons set forth herein, the November 24, 1993, Order
of the Court of Chancery has been AFFIRMED, and this matter has
been REMANDED for proceedings consistent herewith, as set forth in
the December 9, 1993, Order of this Court.
-51-
<PAGE>
ADDENDUM
The record in this case is extensive. The appendix filed in
this Court comprises 15 volumes, totalling some 7251 pages. It
includes substantial deposition testimony which forms part of the
factual record before the Court of Chancery and before this Court.
The members of this Court have read and considered the appendix,
including the deposition testimony, in reaching its decision,
preparing the Order of December 9, 1993, and this opinion.
Likewise, the Vice Chancellor's opinion revealed that he was
thoroughly familiar with the entire record, including the
deposition testimony. As noted, supra p. 6 note 2, the Court has
-----
commended the parties for their professionalism in conducting
expedited discovery, assembling and organizing the record, and
preparing and presenting very helpful briefs, a joint appendix, and
oral argument.
The Court is constrained, however, to add this Addendum.
Although this Addendum has no bearing on the outcome of the case,
it relates to a serious issue of professionalism involving
deposition practice in proceedings in Delaware trial courts.23/
- ---------------------
23/ We raise this matter sua sponte as part of our exclusive
--- ------
supervisory responsibility to regulate and enforce appropriate
conduct of lawyers appearing in Delaware (continued...)
-52-
<PAGE>
The issue of discovery abuse, including lack of civility and
professional misconduct during depositions, is a matter of
considerable concern to Delaware courts and courts around the
nation.24/ One particular
- ---------------------
23/ (...continued)
proceedings. See in re Infotechnology, Inc. Shareholder
------------------------------------------
Litig., Del. Supr., 582 A.2d 215 (1990); In re Nenno, Del.
------ ------------
Supr., 472 A.2d 815,819 (1983); In re Green, Del. Supr., 464
-----------
A.2d 881, 885 (1983); Delaware Optometric Corp. v. Sherwood,
--------------------------------------
Del. Supr., 128 A.2d 812 (1957); Darling Apartment Co. v.
------------------------
Springer, Del. Supr., 22 A.2d 397 (1941). Normally our
--------
supervision relates to the conduct of members of the Delaware
Bar and those admitted pro hac vice. Our responsibility for
------------
supervision is not confined to lawyers who are members of the
Delaware Bar and those admitted pro hac vice, however. See In
------------ ------
re Metviner, Del. Supr., Misc. No. 256, Christie, C.J. (July
-----------
7, 1989 and Aug. 22, 1989) (ORDERS). Our concern, and our
duty to insist on appropriate conduct in any Delaware
proceeding, including out-of-state depositions taken in
Delaware litigation, extends to all lawyers, litigations,
witnesses, and others.
24/ Justice Sandra Day O'Connor recently highlighted the national
concern about the deterioration in civility in a speech
delivered on December 14, 1993, to an American Bar Association
group on "Civil Justice Improvements."
I believe that the justice system cannot
function effectively when the professionals
charged with administering it cannot even be
polite to one another. Stress and frustration
drive down productivity and make the process
more time-consuming and expensive. Many of the
best people get driven away from the field.
The profession and the system itself lose
esteem in the public's eyes.
....
... In my view, incivility disserves the
client because it wastes time and energy--time
that is billed to the client at hundreds of
dollars an hour, and energy that is better
spent working on the case than working over the
opponent.
(continued...)
-53-
<PAGE>
instance of misconduct during a deposition in this case
demonstrates such an astonishing lack of professionalism and
civility that it is worthy of special note here as a lesson for the
future--a lesson of conduct not to be tolerated or repeated.
On November 10, 1993, an expedited deposition of Paramount,
through one of its directors, J. Hugh Liedtke,25/ was taken in the
state of Texas. The deposition was taken by Delaware counsel for
QVC. Mr. Liedtke was individually represented at this deposition
by Joseph D. Jamail, Esquire, of the Texas Bar. Peter C. Thomas,
Esquire, of the New York Bar appeared and defended on behalf of the
Paramount defendants. It does not appear that any member of the
Delaware bar was present at the deposition representing any of the
defendants or the stockholder plaintiffs.
- ---------------------
24/ (...continued)
The Honorable Sandra Day O'Connor, "Civil Justice System
Improvements," ABA at 5 (Dec. 14, 1993) (footnotes omitted).
25/ The docket entries in the Court of Chancery show a November 2,
1993, "Notice of Deposition of Paramount Board" (Dkt. 65).
Presumably, this included Mr. Liedtke, a director of
Paramount. Under Ch. Ct. R. 32(a)(2), a deposition is
admissible against a party if the deposition is of an officer,
director, or managing agent. From the docket entries, it
appears that depositions of third party witnesses (persons who
were not directors or officers) were taken pursuant to the
issuance of commissions.
-54-
<PAGE>
Mr. Jamail did not otherwise appear in this Delaware
proceeding representing any party, and he was not admitted pro hac
-------
vice.26/ Under the rules of the Court of Chancery and this Court,27/
- ----
lawyers who are admitted pro hac vice to represent a party in
------------
Delaware proceedings are
- ---------------------
26/ It does not appear from the docket entries that Mr. Thomas was
admitted pro hac vice in the Court of Chancery. In fact, no
------------
member of his firm appears from the docket entries to have
been so admitted until Barry R. Outrager, Esquire, who
presented the oral argument on behalf of the Paramount
defendants, was admitted on the day of the argument before the
Vice Chancellor, November 16, 1993.
27/ Ch. Ct. R. 170; Supr. Ct. R. 71. There was no Delaware lawyer
and no lawyer admitted pro hac vice present at the deposition
------------
representing any party, except that Mr. Johnson, a Delaware
lawyer, took the deposition on behalf of QVC. The Court is
aware that the general practice has not been to view as a
requirement that a Delaware lawyer or a lawyer already
admitted pro hac vice must be present at all depositions.
------------
Although it is not as explicit as perhaps it should be, we
believe that Ch. Ct. R. 170(d), fairly read, requires such
presence:
(d) Delaware counsel for any party shall
appear in the action in which the motion for
admission pro hac vice is filed and shall sign
------------
or receive service of all notices, orders,
pleadings or other papers filed in the action,
and shall attend all proceedings before the
Court, Clerk of the Court, or other officers of
the Court, unless excused by the Court.
Attendance of Delaware Counsel at depositions
shall not be required unless ordered by the
Court.
See also Hoechst Celanese Corp. v. National Union Fire Ins.
-----------------------------------------------------------
Co., Del. Super., 623 A.2d 1099, 1114 (1991). (Super. Ct.
----
Civ. R. 90.1, which corresponds to Ch. Ct. R. 170, "merely
excuses attendance of local counsel at depositions, but does
not excuse non-Delaware counsel from compliance with the pro
---
hac vice requirement... A deposition conducted pursuant to
--------
Court rules is a proceeding."). We believe that these
shortcomings in the enforcement of proper lawyer conduct can
and should be remedied consistent with the nature of expedited
proceedings.
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<PAGE>
subject to Delaware Disciplinary Rules,28/ and are required to
review the Delaware State Bar Association Statement of Principles
of Lawyer Conduct (the "Statement of Principles").29/ During the
Liedtke deposition, Mr.
- ---------------------
28/ It appears that at least Rule 3.5(c) of the Delaware Lawyer's
Rules of Professional Conduct is implicated here. It
provides: "A lawyer shall not...(c) engage in conduct
intended to disrupt a tribunal or engage in undignified or
discourteous conduct which is degrading to a tribunal."
29/ The following are a few pertinent excerpts from the Statement
of Principles:
The Delaware State Bar Association, for
the Guidance of Delaware lawyers, and those
lawyers from other jurisdictions who may be
associated with them, adopted the following
Statement of Principles of Lawyer Conduct on
[November 15, 1991].... The purpose of adopting
these Principles is to promote and foster the
ideals of professional courtesy, conduct and
cooperation.... A lawyer should develop and
maintain the qualities of integrity,
compassion, learning, civility, diligence and
public service that mark the most admired
members of our profession.... [A]
lawyer...should treat all persons, including
adverse lawyers and parties, fairly and
equitably.... Professional civility is conduct
that shows respect not only for the courts and
colleagues, but also for all people encountered
in practice....Respect for the court
requires...emotional self-control; [and] the
absence of scorn and superiority in words of
demeanor.... A lawyer should use pre-trial
procedures, including discovery, solely to
develop a case for settlement or trial. No
pre-trial procedure should be used to harass an
opponent or delay a case.... Questions and
objections at deposition should be restricted
to conduct appropriate in the presence of a
judge.... Before moving the admission of a
lawyer from another jurisdiction, a Delaware
lawyer should make such investigation as is
required to form an informed conviction that
the lawyer to be admitted is ethical and
competent, and should
(continued...)
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<PAGE>
Jamail abused the privilege of representing a witness in a Delaware
proceeding, in that he: (a) improperly directed the witness not to
answer certain questions; (b) was extraordinarily rude, uncivil,
and vulgar; and (c) obstructed the ability of the questioner to
elicit testimony to assist the Court in this matter.
To illustrate, a few excerpts from the latter stages of the
Liedtke deposition follow:
A. [Mr. Liedtke] I vaguely recall [Mr. Oresman's
letter].... I think I did read it, probably.
....
Q. (By Mr. Johnston [Delaware counsel for QVC])
Okay. Do you have any idea why Mr. Oresman was calling
that material to your attention?
MR. JAMAIL: Don't answer that.
How would he know what was going on in Mr. Oresman's
mind?
Don't answer it.
- ---------------------
29/ (... continued)
furnish the candidate for admission with a copy of this
Statement.
(Emphasis supplied.)
-57-
<PAGE>
Go on to your next question.
MR. JOHNSTON: No, Joe--
MR. JAMAIL: He's not going to answer that. Certify
it. I'm going to shut it down if you don't go to your
next question.
MR. JOHNSTON: No. Joe, Joe--
MR. JAMAIL: Don't "Joe" me, asshole. You can ask
some questions, but get off of that. I'm tired of you.
You could gag a maggot off a meat wagon. Now, we've
helped you every way we can.
MR. JOHNSTON: Let's just take it easy.
MR. JAMAIL: No, we're not going to take it easy.
Get done with this.
MR. JOHNSTON: We will go on to the next question.
MR. JAMAIL: Do it now.
MR. JOHNSTON: We will go on to the next question.
We're not trying to excite anyone.
MR. JAMAIL: Come on. Quit talking. Ask the
question. Nobody wants to socialize with you.
MR. JOHNSTON: I'm not trying to socialize. We'll
go on to another question. We're continuing the
deposition.
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<PAGE>
MR. JAMAIL: Well, go on and shut up.
MR. JOHNSTON: Are you finished?
MR. JAMAIL: Yeah, you--
MR. JOHNSTON: Are you finished?
MR. JAMAIL: I may be and you may be. Now, you want
to sit here and talk to me, fine. This deposition is
going to be over with. You don't know what you're doing.
Obviously someone wrote out a long outline of stuff for
you to ask. You have no concept of what you're doing.
Now, I've tolerated you for three hours. If you've
got another question, get on with it. This is going to
stop one hour from now, period. Go.
MR. JOHNSTON: Are you finished?
MR. THOMAS: Come on, Mr. Johnston, move it.
MR. JOHNSTON: I don't need this kind of abuse.
MR. THOMAS: Then just ask the next question.
Q. (By Mr. Johnston) All right. To try to move
forward, Mr. Liedtke,... I'll show you what's been marked
as Liedtke 14 and it is a covering letter dated October
29 from Steven Cohen of Wachtell, Lipton, Rosen & Katz
including QVC's Amendment Number 1 to its Schedule 14D-1,
and my question--
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<PAGE>
A. No.
Q. -- to you, sir, is whether you've seen that?
A. No. Look, I don't know what your intent in
asking all these questions is, but, my God, I am not
going to play boy lawyer.
Q. Mr. Liedtke--
A. Okay. Go ahead and ask your question.
Q. --I'm trying to move forward in this deposition
that we are entitled to take. I'm trying to streamline
it.
MR. JAMAIL: Come on with your next question. Don't
even talk with this witness.
MR. JOHNSTON: I'm trying to move forward with it.
MR. JAMAIL: You understand me? Don't talk to this
witness except by question. Did you hear me?
MR. JOHNSTON: I heard you fine.
MR. JAMAIL: You fee makers think you can come here
and sit in somebody's office, get your meter running, get
your full day's fee by asking stupid questions. Let's go
with it.
-60-
<PAGE>
(JA 6002-06).30/
Staunch advocacy on behalf of a client is proper and fully
consistent with the finest effectuation of skill and
professionalism. Indeed, it is a mark of professionalism, not
weakness, for a lawyer zealously and firmly to protect and pursue a
client's legitimate interests by a professional, courteous, and
civil attitude toward all persons involved in the litigation
process. A lawyer who engages in the type of behavior exemplified
by Mr. Jamail on the record of the Liedtke deposition is not
properly representing his client, and the client's cause is not
advanced by a lawyer who engages in unprofessional conduct of this
nature. It happens that in this case there was no application to
the Court, and the parties and the witness do not appear to have
been prejudiced by this misconduct.31/
- ------------------------
30/ Joint Appendix of the parties on appeal.
31/ We recognize the practicalities of litigation practice in our
trial courts, particularly in expedited proceedings such as
this preliminary injunction motion, where simultaneous
depositions are often taken in far-flung locations, and
counsel have only a few hours to question each witness.
Understandably, counsel may be reluctant to take the time to
stop a deposition and call the trial judge for relief. Trial
courts are extremely busy and overburdened. Avoidance of this
kind of misconduct is essential. If such misconduct should
occur, the aggrieved party should recess the deposition and
engage in a dialogue with the offending lawyer to obviate the
need to call the trial judge. If all else fails and it is
necessary to call the trial judge, sanctions may be
appropriate against the offending lawyer or party, or against
the complaining lawyer or party if the request for court
relief is unjustified. See Ch. Ct. R. 37. It should also be
---
noted that discovery abuse
(continued...)
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<PAGE>
Nevertheless, the Court finds this unprofessional behavior to
be outrageous and unacceptable. If a Delaware lawyer had engaged
in the kind of misconduct committed by Mr. Jamail on this record,
that lawyer would have been subject to censure or more serious
sanctions.32/ While the specter of disciplinary proceedings should
not be used by the parties as a litigation tactic,33/ conduct such
as that involved here goes to the heart of the trial court
proceedings themselves. As such, it cries out for relief under the
trial court's rules, including Ch. Ct. R. 37. Under some
circumstances, the use of the trial court's inherent summary
contempt powers may be appropriate. See In re Butler, Del. Supr.,
----------------
609 A.2d 1080, 1082 (1992).
Although busy and overburdened, Delaware trial courts are "but
a phone call away" and would be responsive to the plight of a party
and its
- ------------------------
31/ (...continued)
sometimes is the fault of the questioner, not the lawyer
defending the deposition. These admonitions should be read as
applying to both sides.
32/ See In re Ramunno, Del. Supr., 625 A.2d 248, 250 (1993)
-----------------
(Delaware lawyer held to have violated Rule 3.5 of the Rules
of Professional Conduct, and therefore subject to public
reprimand and warning for use of profanity similar to that
involved here and "insulting conduct toward opposing counsel
[found]... unacceptable by any standard").
33/ See Infotechnology, 582 A.2d at 220 ("In Delaware there is the
------------------
fundamental constitutional principle that [the Supreme] Court,
alone, has the sole and exclusive responsbility over all
matters affecting governance of the Bar.... The Rules are to
be enforced by a disciplinary agency, and are not to be
subverted as procedural weapons.").
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<PAGE>
counsel bearing the brunt of such misconduct.34/ It is not
appropriate for this Court to prescribe in the abstract any
particular remedy or to provide an exclusive list of remedies under
such circumstances. We assume that the trial courts of this State
would consider protective orders and the sanctions permitted by the
discovery rules. Sanctions could include exclusion of obstreperous
counsel from attending the deposition (whether or not he or she has
been admitted pro hac vice), ordering the deposition recessed and
------------
reconvened promptly in Delaware, or the appointment of a master to
preside at the deposition. Costs and counsel fees should follow.
- -----------------------
34/ See Hall v. Clifton Precision, E.D. Pa., 150 F.R.D. 525 (1993)
-----------------------------
(ruling on "coaching," conferences between deposed witnesses
and their lawyers, and obstructive tactics):
Depositions are the factual battleground
where the vast majority of litigation actually
takes place... Thus, it is particularly
important that this discovery device not be
abused. Counsel should never forget that even
though the deposition may be taking place far
from a real courtroom, with no black-robed
overseer peering down upon them, as long as the
deposition is conducted under the caption of
this court and proceeding under the authority
of the rules of this court, counsel are
operating as officers of this court. They
should comport themselves accordingly; should
they be tempted to stray, they should remember
that this judge is but a phone call away.
150 F.R.D. at 531.
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<PAGE>
As noted, this was a deposition of Paramount through one of
its directors. Mr. Liedtke was a Paramount witness in every
respect. He was not there either as an individual defendant or as
a third party witness. Pursuant to Ch. Ct. R. 170(d), the
Paramount defendants should have been represented at the deposition
by a Delaware lawyer or a lawyer admitted pro hac vice. A Delaware
------------
lawyer who moves the admission pro hac vice of an out-of-state
------------
lawyer is not relieved of responsibility, is required to appear at
all court proceedings (except depositions when a lawyer admitted
pro hac vice is present), shall certify that the lawyer appearing
- ------------
pro hac vice is reputable and competent, and that the Delaware
- ------------
lawyer is in a position to recommend the out-of-state lawyer.35/
Thus, one of the principal purposes of the pro hac vice rules is to
------------
assure that, if a Delaware lawyer is not to be present at a
deposition, the lawyer admitted pro hac vice will be there. As
------------
such, he is an officer of the Delaware Court, subject to control of
the Court to ensure the integrity of the proceeding.
Counsel attending the Liedtke deposition on behalf of the
Paramount defendants had an obligation to ensure the integrity of
that proceeding. The record of the deposition as a whole (JA 5916-
6054) demonstrates that, not
- ------------------------
35/ See, e.g., Ch. Ct. R. 170(b), (d), and (h).
---------
-64-
<PAGE>
only Mr. Jamail, but also Mr. Thomas (representing the Paramount
defendants), continually interrupted the questioning, engaged in
colloquies and objections which sometimes suggested answers to
questions,36/ and constantly pressed the questioner for time
throughout the deposition.37/ As to Mr. Jamail's tactics quoted
above, Mr. Thomas passively let matters proceed as they did, and at
times even added his own voice to support the behavior of Mr.
Jamail. A Delaware lawyer or a lawyer admitted pro hac vice would
------------
have been expected to put an end to the misconduct in the Liedtke
deposition.
- ------------------------
36/ Rule 30(d)(1) of the revised Federal Rules of Civil Procedure,
which became effective on December 1, 1993, requires
objections during depositions to be "stated concisely and in a
non-argumentative and non-suggestive manner." See Hall, 150
--------
F.R.D. at 530. See also Rose Hall, Ltd. v. Chase Manhattan
-------------------------------------------
Overseas Banking Corp. D. Del., C.A. No. 79-182, Steel, J.
---------------------
(Dec. 12, 1980); Cascella v. GDV, Inc., Del. Ch., C.A. No.
---------------------
5899, Brown, V.C. (Jan. 15, 1981); In re Asbestos Litig., Del.
---------------------
Super., 492 A.2d 256 (1985); Deutschman v. Beneficial Corp.,
------------------------------
Del. Del., C.A. No. 86-595 MMS, Schwartz, J. (Feb. 20, 1990).
The Delaware trial courts and this Court are evaluating the
desirability of adopting certain of the new Federal Rules, or
modifications thereof, and other possible rule changes.
37/ While we do not necessarily endorse everything set forth in
the Hall case, we share Judge Gawthrop's view not only of the
----
impropriety of coaching witnesses on and off the record of the
deposition (see supra note 34), but also the impropriety of
-----
objections and colloquy which "tend to disrupt the question-
and-answer rhythm of a deposition and obstruct the witness's
testimony." See 150 F.R.D. at 530. To be sure, there are
---
also occasions when the questioner is abusive or otherwise
acts improperly and should be sanctioned. See supra note 31.
---------
Although the questioning in the Liedtke deposition could have
proceeded more crisply, this was not a case where it was the
questioner who abused the process.
-65-
<PAGE>
This kind of misconduct is not to be tolerated in any Delaware
court proceeding, including depositions taken in other states in
which witnesses appear represented by their own counsel other than
counsel for a party in the proceeding. Yet, there is no clear
mechanism for this Court to deal with this matter in terms of
sanctions or disciplinary remedies at this time in the context of
this case. Nevertheless, consideration will be given to the
following issues for the future: (a) whether or not it is
appropriate and fair to take into account the behavior of Mr.
Jamail in this case in the event application is made by him in the
future to appear pro hac vice in any Delaware proceeding;38/ and (b)
------------
what rules or standards should be adopted to deal effectively with
misconduct by out-of-state lawyers in depositions in proceedings
pending in Delaware courts.
As to (a), this Court will welcome a voluntary appearance by
Mr. Jamail if a request is received from him by the Clerk of this
Court within thirty days of the date of this Opinion and Addendum.
The purpose of such
- ------------------------
38/ The Court does not condone the conduct of Mr. Thomas in this
deposition. Although the Court does not view his conduct with
the gravity and revulsion with which it views Mr. Jamail's
conduct, in the future the Court expects that counsel in Mr.
Thomas's position will have been admitted pro hac vice before
------------
participating in a deposition. As an officer of the Delaware
Court, counsel admitted pro hac vice are now clearly on notice
------------
that they are expected to put an end to conduct such as that
perpetrated by Mr. Jamail on this record.
-66-
<PAGE>
voluntary appearance will be to explain the questioned conduct and
to show cause why such conduct should not be considered as a bar to
any future appearance by Mr. Jamail in a Delaware proceeding. As
to (b), this Court and the trial courts of this State will
undertake to strengthen the existing mechanism for dealing with the
type of misconduct referred to in this Addendum and the practices
relating to admissions pro hac vice.
------------
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