Opinion ID: 1975412
Heading Depth: 1
Heading Rank: 2

Heading: The Contractual Terms of the Securities

Text: In 1994 Viacom acquired Paramount and Blockbuster by separate mergers. Viacom, a Delaware corporation, is the surviving corporation of each merger. In each merger, the merger consideration consisted of a mix of securities and cash to the former Paramount and Blockbuster stockholders as an inducement to those stockholders to vote for the mergers. The holders of the CVRs issued as consideration in the Paramount merger were entitled to receive cash, and the holders of the VCRs issued in the Blockbuster merger were entitled to receive Viacom common stock upon the redemption in 1995 of their respective securities. The CVRs and the VCRs were contractual obligations of Viacom promising specific additional compensation if Viacom's stock did not reach certain price levels in 1995. The amount of cash or stock that the holders were entitled to receive was inversely related to the price of Viacom stock on stated valuation dates. These securities provided a protective collar to the former Paramount and Blockbuster stockholders as a form of downside protection related to the future Viacom stock price on specified dates. By their terms, the CVRs were redeemable at Viacom's option on the Maturity Date of July 7, 1995, or specified dates thereafter. Viacom had the option to pay the amount due under the CVRs, if any, in cash or in the equivalent value of registered securities of [Viacom], including without limitation, common stock, preferred stock, notes or other securities. The payment due under the CVRs was the amount by which $48 (the Target Price) exceeded the greater of either (i) the median of the average closing price of Viacom Class B Common Stock for certain specified periods preceding the Maturity Date or (ii) the Minimum Price. The Target and Minimum Prices varied depending on whether Viacom decided to extend the Maturity Date beyond July 7, 1995. The higher the median average closing price of Viacom's stock during the relevant valuation periods (so long as it exceeded the Minimum Price), the less was the payment to which CVR holders were entitled on redemption. [5] The CVRs contained discretionary triggers for Viacom to exercise its right of redemption. At its sole discretion Viacom could trigger the redemption of the CVRs at their maturation dates in the summer of 1995, or at later anniversary dates. Viacom's stock price spiked up for a short period in 1995, corresponding to the valuation period, and later receded. As a result of this temporary increase in its stock price, Viacom paid only a fraction of its potential exposure to the security holders when Viacom then exercised the CVR triggers on redemptions. [6] Viacom exercised its option to redeem the CVRs on July 7, 1995, and on that date paid CVR holders approximately $83 million for their CVR certificates. [7]