Exhibit 10.1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE LEXENT INC. ) Cons. C.A. No. 20177
SHAREHOLDERS LITIGATION )
STIPULATION OF SETTLEMENT
The parties to the above-captioned action, by and through their respective
attorneys, have entered into the following Stipulation of Settlement (the
"Stipulation") subject to the approval of the Court of Chancery of the State of
Delaware in and for New Castle County (the "Court"):
WHEREAS,
A. Defendant Lexent Inc. ("Lexent") is a Delaware corporation with its
principal place of business in New York, New York.
B. Defendants Hugh J. O'Kane, Jr. and Kevin M. O'Kane (together, the
"Individual Defendants" or the "O'Kanes") are directors of Lexent.
C. On February 18, 2003, Lexent announced that it had received an offer
from a management group (the "Buying Group") to purchase all the outstanding
shares of common stock of Lexent, other than those owned by the Buying Group for
$1.25 per share (the "Proposed Transaction"). The O'Kanes are members of the
Buying Group.
D. On the same day, Lexent announced that Richard W. Smith had resigned
from the Lexent board of directors (the "Board"), effective February 17, 2003.
The
resignation of Mr. Smith, coupled with the resignation of three other directors
earlier in the year, left the O'Kanes as the only remaining directors of Lexent.
E. On February 19, 2003, Lexent announced revenue of $31.7 million and a
net loss of $34 million or $0.81 per share for the quarter ended December 31,
2002. Revenue for the full year 2002 was $123.8 million and net loss was $50.3
million or $1.20 per share.
F. In response to the announcement of the Proposed Transaction, six
putative class action complaints (the "Class Actions") were filed in this Court
in actions styled as Robert Ramsey v. Kevin M. O'Kane, et al., C.A. No. 20162;
Ronald Pelletier v. Lexent, Inc., et al., C.A. No. 20163; Anthony Chiarenza v.
Lexent, Inc., et al., C.A. No. 20165; William Moberly v. Lexent, Inc., et al.,
C.A. No. 20166; Birchas Shmuel v. Lexent, Inc., et al., C.A. No. 20171, and Marc
Bocciardi v. Lexent, Inc., et al., C.A. No. 20177. The complaints in the Class
Actions generally alleged that the Individual Defendants breached their
fiduciary duties by proposing to buy out Lexent's public stockholders through an
unfair process and at an unfair price.
G. Certain plaintiffs in the Class Actions sought expedited discovery and
an order preliminarily enjoining the Proposed Transaction. The Court declined to
schedule a hearing on the motion for preliminary injunction. However, the Court
ordered limited document discovery which Lexent and the Individual Defendants
(collectively "Defendants") provided.
H. Due to the fact that the only members of the Board are also members of
the Buying Group, Lexent announced on March 3, 2003 that it had retained Rodman
& Renshaw, Inc. ("Rodman & Renshaw") to assist it in analyzing and evaluating
the Buying
Group's proposal and to render an opinion as to the fairness, from a financial
point of view, of the Proposed Transaction to Lexent's stockholders (other than
the members of the Buying Group). In light of the O'Kanes' interest in the
Proposed Transaction, Rodman & Renshaw was selected by a management committee
comprised of Lexent's chief financial officer and Lexent's general counsel,
neither of whom is a member of the Buying Group. Prior to the formation of the
management committee, Lexent's general counsel retained the law firms of
Lowenstein Sandler PC and Richards, Layton & Finger, P.A. to assist Lexent from
a legal perspective in analyzing, evaluating, responding to and negotiating the
Proposed Transaction and related documentation.
I. On March 12, 2003, Lexent announced that it had received a letter from
The Nasdaq Stock Market ("Nasdaq") notifying Lexent that, as a result of the
previously announced resignations of its independent directors, Lexent did not
meet the independent director and audit committee requirements for listing on
Nasdaq.
J. By order dated April 7, 2003, the Court consolidated the Class Actions
under the caption In re Lexent Inc. Shareholders Litigation, Cons. C.A. No.
20177 (the "Action").
K. On April 23, 2003, Lexent announced revenue of $20.3 million and a net
loss of $6 million or $0.14 per share for the quarter ended March 31, 2003.
L. As Rodman & Renshaw performed its analysis, representatives of Rodman &
Renshaw met with plaintiffs' counsel and their financial advisor on three
occasions. In addition, representatives of Rodman & Renshaw spoke with
plaintiffs' financial advisor by telephone on one occasion. Plaintiffs' counsel
also met four times with some
combination of Defendants' counsel, the Individual Defendants and
representatives of Lexent management. Rodman & Renshaw also met with one of
Lexent's institutional investors (subject to a confidentiality covenant).
M. During the course of the meetings and telephone conversations
referenced above, the participants exchanged information and views on, among
other things, (i) Lexent's most recent financial and market performance; (ii)
Lexent's cash positions and consumption; (iii) Lexent's budgets and forecasts;
(iv) Lexent's business prospects and outlook for the future; (v) the
telecommunications industry; (vi) the value of Lexent; (vii) the Proposed
Transaction; (viii) alternatives to the Proposed Transaction; (ix) various
valuation methodologies as they would apply to Lexent, including discounted cash
flow liquidation, comparable transactions and market trading values; and (x) the
Action.
N. After arms-length negotiations, the parties to the Action reached an
agreement in principle pursuant to which (i) the Buying Group agreed, among
other things, to enter into an agreement to purchase all of the outstanding
shares of Lexent common stock not owned by the purchasing entity formed by the
Buying Group for $1.50 per share -- $.25 per share more than was offered in the
Proposed Transaction (the "Transaction") and (ii) the Transaction would be
subject to a "majority of the minority" vote, as described below. In connection
with reaching the agreement in principle, the parties were informed by Rodman &
Renshaw that it was prepared to issue an opinion that the Transaction is fair,
from a financial point of view, to the stockholders of Lexent (other than the
purchasing entity formed by the Buying Group). Consummation of the
Transaction is conditioned upon, among other things, this Stipulation being in
full force and effect and the parties to the Stipulation (other than the
O'Kanes) having complied with and not violated the terms of this Stipulation.
O. On June 25, 2003, Lexent announced that Nasdaq would delist Lexent's
common stock from Nasdaq effective with the open of business on June 26, 2003.
Since that date, Lexent common stock has been trading on the OTC Bulletin Board.
P. In light of the aforementioned investigation, the facts developed in
discovery, the events, negotiations and agreements described above, and analysis
of applicable law, counsel for plaintiffs in the Action have concluded that the
terms and conditions of the settlement provided for in this Stipulation (the
"Settlement") are fair, reasonable, adequate, and in the best interests of the
plaintiffs and all record and beneficial owners of Lexent common stock from and
after February 18, 2003 through and including the effective date of the
Transaction, including any and all of their respective successors in interest,
predecessors, representatives, trustees, executors, administrators, heirs,
assigns or transferees, immediate and remote, and any person or entity acting
for or on behalf of, or claiming under any of them, and each of them, and
excluding the Defendants in the Action and their affiliates and associates (the
"Class").
Q. Plaintiffs in the Action enter into this Stipulation after taking into
account (i) the substantial benefits to the members of the Class from the
Transaction, (ii) the risk of continued litigation, (iii) the desirability of
permitting the Settlement to be consummated as provided by the terms of this
Stipulation, and (iv) the conclusion of
counsel for plaintiffs that the terms and conditions of the Settlement are fair,
reasonable, adequate and in the best interests of the Lexent common stockholders
represented in the Action. Plaintiffs and plaintiffs' counsel have agreed to the
terms of the Settlement because, in their view, the Settlement achieves
plaintiffs' objectives in the Action and provides plaintiffs with a fair value
for their shares.
R. While maintaining their innocence of any fault or wrongdoing, and
relying on the provision of the Stipulation that it shall in no event be
construed as or deemed to be evidence of an admission or concession on the part
of Defendants or any Released Person (as defined below) of any fault or
liability whatsoever, and without conceding any infirmity in their defenses
against the claims alleged in the Action, Defendants consider it desirable that
the Action be settled and dismissed, subject to the terms and conditions of the
Stipulation, because the Settlement will (i) halt the substantial expense,
inconvenience and distraction of continued litigation of plaintiffs' claims;
(ii) finally put to rest those claims; and (iii) dispel any uncertainty that may
exist as a result of this litigation.
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, by and among the
parties, subject to the approval of the Court pursuant to Court of Chancery Rule
23 (with no opt-out rights), that the Action hereby is compromised, settled,
released, discharged and dismissed with prejudice in accordance with the terms
and conditions set forth below.
THE SETTLEMENT
1. A new entity ("Merger Corp.") formed and controlled by the Buying
Group (which will consist of only the O'Kanes) and Lexent have entered into a
merger agreement, pursuant to which all of the outstanding shares of common
stock of Lexent not owned by Merger Corp. will be converted into the right to
receive $1.50 per share in cash (except to the extent that appraisal rights have
been exercised). Shares held by members of the Buying Group not contributed to
Merger Corp. will also be converted into the right to receive $1.50 per share in
cash, provided, however, that not more than 20% of the shares of the Buying
Group shall be converted into $1.50 per share in cash. The outstanding shares of
Merger Corp. shall become the shares of the surviving corporation. Outstanding
vested Lexent options shall become fully exercisable and shall be cancelled in
consideration for the product of (i) the excess of $1.50 over the applicable
exercise price and (ii) the number of shares subject to option. Unvested Lexent
options will be terminated and cancelled without consideration.
2. In addition to the approvals required by applicable laws and
regulations and Lexent's certificate of incorporation and bylaws, the
Transaction will not be consummated unless the number of shares held by
stockholders (other than members of the Buying Group) voted in favor of the
Transaction exceeds the number of shares held by stockholders (other than the
members of the Buying Group) voted against the Transaction. In connection with
this determination, abstentions, non-votes and invalid votes will not be counted
for any purpose, and votes by persons who have agreed with the
Buying Group to vote for the Transaction, but who are not also owners or
investors, directly or indirectly, in the Buying Group, will be counted for this
purpose.
3. Prior to the filing and mailing of the proxy statement in
connection with the Transaction (the "Proxy Statement"), Lexent will provide
counsel for plaintiffs with a draft of the Proxy Statement (including the merger
agreement related to the Transaction).
4. In consideration for the terms and conditions of the Stipulation,
any and all claims, demands, rights, actions or causes of action, rights,
liabilities, damages, losses, obligations, judgments, suits, matters and issues
of any kind or nature whatsoever, whether known or unknown, contingent or
absolute, suspected or unsuspected, disclosed or undisclosed, that have been or
could have been asserted in the Action or in any court, tribunal or proceeding
(including, but not limited to, any claims arising under federal or state law
relating to alleged fraud, breach of any duty, negligence or violations of the
federal securities laws) by or on behalf of any and all of the plaintiffs in the
Action and/or any and all of the members of the Class, whether individual,
class, derivative, representative, legal, equitable or any other type or in any
other capacity against Defendants (including the Individual Defendants), and/or
any of their families, parent entities, associates, affiliates (including,
without limitation, Christine G. Kelly, George Garcia, Dennis Olivia, R.
Patricia Kelly, Matthew S. Kelly, William J. Harmon, Bruce Levy and Daniel M.
Corbett) or subsidiaries and each and all of their respective past, present or
future officers, directors (including, without limitation, Richard L. Schwob,
Kathleen A. Perone, Richard W. Smith and L. White Matthews, III), stockholders,
representatives, employees, attorneys, financial or investment advisors,
consultants,
accountants, investment bankers, commercial bankers, engineers, advisors or
agents, heirs, executors, trustees, general or limited partners or partnerships,
personal representatives, estates, administrators, predecessors, successors and
assigns (collectively, the "Released Persons") which have arisen, could have
arisen, arise now, or relate in any manner to, the allegations, facts, events,
transactions, acts, occurrences, statements, representations,
misrepresentations, omissions or any other matter, thing or cause whatsoever, or
any series thereof, embraced, involved, set forth or otherwise related, directly
or indirectly, to any of the complaints filed in the Action, the Proposed
Transaction or the Transaction (collectively, the "Settled Claims") shall be
fully, finally, and forever compromised, settled, discharged, dismissed with
prejudice and released, provided, however, that claims for appraisal under 8
Del. C. Section 262 shall not be released.
SUBMISSION AND APPLICATION TO COURT
5. As soon as practicable after the execution of the Stipulation,
the parties hereto shall jointly apply to the Court for an order substantially
in the form attached hereto as Exhibit A (the "Scheduling Order").
NOTICE
6. Lexent will pay all actual costs incurred in identifying and
notifying by mail the members of the Class of the Settlement, including the
printing and copying of the Notice of Pendency of Class Action, Proposed
Settlement of Class Action and Settlement Hearing (the "Notice"), substantially
in the form attached hereto as Exhibit B as set forth in the Scheduling Order.
ORDER AND FINAL JUDGMENT
7. If the Settlement (including any modification thereto made with
the consent of the parties as provided for herein) is approved by the Court, the
parties shall promptly request the Court to enter an Order and Final Judgment
substantially in the form attached hereto as Exhibit C.
FINALITY OF SETTLEMENT
8. The Settlement shall be considered final ("Final," "Final
Approval" or "Finally Approved") for purposes of this Stipulation: (i) upon
entry of the Order and Final Judgment approving the Settlement; and (ii) upon
the expiration of any applicable appeal period for the appeal of the Order and
Final Judgment without an appeal having been filed or, if an appeal is taken,
upon entry of an order affirming the Order and Final Judgment appealed from and
the expiration of any applicable period for the reconsideration, rehearing or
appeal of such affirmance without any motion for reconsideration or rehearing or
further appeal having been filed.
RIGHT TO WITHDRAW FROM THE SETTLEMENT
9. Each of the parties shall have the option to withdraw from and
terminate the Settlement in the event that (i) either the Scheduling Order or
the Order and Final Judgment referred to above are not entered substantially in
the forms specified herein, or in a form as may be ordered by the Court with the
consent of the parties, (ii) the Settlement is not approved by the Court, is
disapproved or substantially modified upon appeal or otherwise does not become
Final, or (iii) the Transaction is not consummated.
10. In the event the Settlement proposed herein is not Finally
Approved by the Court, or the Court approves the Settlement but such approval is
reversed or vacated on appeal, reconsideration or otherwise and such order
reversing or vacating the Settlement becomes final by lapse of time or
otherwise, or if any of the conditions to such
Settlement are not fulfilled, then the Settlement proposed herein shall be of no
further force and effect, and this Stipulation and all negotiations, proceedings
and statements relating thereto and any amendment thereof shall be null and void
and without prejudice to any party hereto, and each party shall be restored to
his, her or its respective position as it existed prior to the execution of this
Stipulation.
11. In order to exercise the option to withdraw from and terminate
this Settlement, a party must provide, within five (5) days of the event giving
rise to such option, written notice of such withdrawal and the grounds therefor
to all signatories to this Stipulation.
DEFENDANTS' DENIAL OF LIABILITY
12. Defendants in the Action specifically disclaim any liability
whatsoever relating to any of the Settled Claims, expressly deny having engaged
in any wrongful or illegal activity, or having violated any law or regulation or
duty, expressly deny that any person or entity has suffered any harm or damages
as a result of the Settled Claims, and are making this Settlement solely to
avoid the distraction, burden and expense occasioned by continued litigation.
The Court has made no finding that Defendants engaged in any wrongdoing or
wrongful conduct or otherwise acted
improperly or in violation of any law or regulation or duty in any respect.
Defendants believe they have acted with the utmost candor and honesty, and have
at all times acted in the best interests of the Lexent stockholders. Without
conceding any infirmity in their defenses against the Settled Claims, Defendants
are agreeing to the Settlement solely to avoid the substantial burden, expense,
distraction and inconvenience of continued litigation.
ATTORNEYS' FEES AND EXPENSES
13. At or before the hearing, counsel for plaintiffs in the Action
will petition the Court for an award of attorneys' fees and expenses in an
aggregate amount not to exceed $500,000. Defendants agree they will not object
to such an application by plaintiffs' counsel, but Defendants retain the right
to oppose any other application for fees or disbursements in the Action by
plaintiffs, plaintiffs' counsel or any other person. Defendants agree to pay any
fees and expenses that are awarded by the Court in the Action to the firm of
Prickett, Jones & Elliott, P.A. as receiving agent for plaintiffs' counsel in
the Action. All fees paid to plaintiffs' counsel shall be paid exclusively by
Lexent or its successors on behalf of and for the benefit of the Individual
Defendants. The fairness, reasonableness and adequacy of the Settlement may be
considered and ruled upon by the Court independently of any award of attorneys'
fees and reimbursement of expenses. No counsel for plaintiffs in the Action
shall apply to any court for any fees or disbursements except as provided for in
this paragraph.
14. Subject to the terms and conditions of this Stipulation, any
fees and expenses awarded by the Court shall be payable by Lexent or its
successors within 10
days after the later of (i) Final Approval of the Settlement or (ii) the closing
of the Transaction. Except as expressly provided herein, Defendants shall bear
no other expenses, costs, damages, or fees alleged or incurred by the named
plaintiffs in the Action, or any member of the Class, or by any of their
attorneys, experts, advisors, agents or representatives. If there is an appeal
of the approval of the Settlement and/or the award of attorneys' fees and
expenses, the payment of the award of fees and expenses shall include interest
at the legal rate from the date of entry of the Order and Final Judgment
approving the Settlement.
RELEASE OF UNKNOWN CLAIMS
15. The release contemplated by this Stipulation extends to claims
that plaintiffs, on behalf of the Class, do not know or suspect to exist at the
time of the release, which if known, might have affected the decision to enter
into this release and Stipulation. Each of the named plaintiffs and each member
of the Class shall be deemed to waive any and all provisions, rights and
benefits and benefits conferred by any law of the United States or any state or
territory of the United States, or principle of common law, which governs or
limits a person's release of unknown claims. Plaintiffs, on behalf of the class,
acknowledge that they or members of the Class may discover facts in addition to
or that are different from those that they now know or believe to be true with
respect to the subject matter of this release and Stipulation, but that it is
their intention, on behalf of the Class, to fully, finally and forever settle
and release any and all claims released hereby, known or unknown, suspected or
unsuspected, which now exist, or heretofore existed and without regard to the
subsequent discovery or existence of such
additional or different facts, provided, however, that claims for appraisal
under 8 Del. C. Section 262 shall not be released.
AUTHORITY
16. Each of the attorneys executing the Stipulation on behalf of one
or more of the parties hereto warrants and represents that he or she has been
duly authorized and empowered to execute this Stipulation on behalf of his or
her respective client or clients.
STIPULATION NOT AN ADMISSION
17. The provisions contained in the Stipulation and all
negotiations, statements and proceedings in connection therewith shall not be
deemed a presumption, a concession or an admission by any defendant of any
fault, liability or wrongdoing as to any fact or claim alleged or asserted in
the Action or any other actions or proceedings and shall not be interpreted,
construed, deemed, invoked, offered or received in evidence or otherwise used by
any person in these or any other actions or proceedings, whether civil, criminal
or administrative, except in a proceeding to enforce the terms or conditions of
this Stipulation.
18. This Stipulation, together with any exhibits, shall be deemed to
have been mutually prepared by the settling parties and shall not be construed
against any of them by reason of authorship.
COUNTERPARTS
19. This Stipulation may be executed in any number of actual or
telecopied counterparts and by each of the different parties thereto on several
counterparts, each of which when so executed and delivered shall be an original.
The executed signature page(s) from each actual or telecopied counterpart may be
joined
together and attached to one such original and shall constitute one and the same
instrument.
WAIVER
20. The waiver by any party of any breach of this Stipulation shall
not be deemed or construed as a waiver of any other breach, whether prior,
subsequent, or contemporaneous, of this Stipulation.
AMENDMENTS
21. This Stipulation may not be amended, or any of its provisions
waived, except by a writing executed by all of the parties hereto.
22. This Stipulation, upon becoming operative, shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns, heirs, executors and administrators and upon any corporation,
partnership or entity into or with which any party may merge or consolidate.
23. All of the exhibits hereto are incorporated herein by reference
as if set forth herein verbatim, and the terms of all exhibits are expressly
made part of this Stipulation.
GOVERNING LAW; FORUM
24. This Stipulation shall be construed and enforced in accordance
with the laws of the State of Delaware, without regard to conflict of law
principles.
25. In the event of any dispute or disagreement with respect to the
meaning, effect or interpretation of the Stipulation or an attached exhibit or
in the event of a claimed breach of the Stipulation or an attached exhibit, the
parties hereto agree that
such dispute will be adjudicated only in this Court. The Court shall retain
jurisdiction for purposes, among other things, of administering the Settlement
and resolving any disputes hereunder without affecting the finality of the
Settlement.
BEST EFFORTS
26. The parties hereto and their attorneys agree to cooperate fully
with one another in seeking the Court's approval of this Stipulation and the
Settlement and to use their best efforts to effect the prompt Final Approval of
this Stipulation and the Settlement.
27. If any claims which are or would be subject to the release and
dismissal contemplated by the Settlement are asserted against any person in any
court prior to or following Final Approval of the Settlement, the plaintiffs
shall join, where possible, in any motion to dismiss or stay such proceedings
and shall otherwise use their best efforts to effect a withdrawal or dismissal
of the claims.
NON-ASSIGNMENT OF CLAIMS
28. Plaintiffs in the Action and their counsel represent and
warrant that (i) plaintiffs are members of the Class, and (ii) none of the
plaintiffs' claims or causes of action in the Action has been assigned,
encumbered or in any manner transferred in whole or in part.
OF COUNSEL:
Schiffrin & Barroway, LLP /s/ Michael Hanrahan
Three Bala Plaza East, Suite 400 Michael Hanrahan
Bala Cynwyd, Pennsylvania 19004 Gary F. Traynor
(610) 667-7706 Paul A. Fioravanti, Jr.
Prickett Jones & Elliott, P.A.
Beatie and Osborn LLP 1310 King Street
521 Fifth Avenue, 34th Floor P.O. Box 1328
New York, New York 10175 Wilmington, Delaware 19899
(212) 888-9000 Plaintiffs' Lead Counsel
Rosenthal, Monhait, Gross & Goddess, P.A.
919 Market Street
Mellon Bank Center, Suite 1401
Wilmington, Delaware 19801
(302) 656-4433
Cauley Geller Bowman Coates & Rudman, LLP
2255 Glades Road, Suite 421A
Boca Raton, Florida 33431
(561) 750-3000
Klett Rooney Lieber & Schorling
The Brandywine Building
1000 West Street, Suite 1410
Wilmington, Delaware 19801
(302) 552-4200
Shepherd, Finkelman, Miller & Shah, LLC
35 East State Street
Media, Pennsylvania 19063
(610) 891-9880
Law Office of William Coudert Rand
711 Third Avenue, Suite 1505
New York, New York 10017
(212) 286-1425
OF COUNSEL:
Mayer, Brown, Rowe & Maw LLP /s/ Danielle Gibbs
1675 Broadway David C. McBride
New York, New York 10019-5820 Danielle Gibbs
(212) 506-2500 Young Conaway Stargatt & Taylor, LLP
The Brandywine Building
1000 West Street, 17th Floor
Wilmington, Delaware 19801
Attorneys for Defendants Hugh J.
O'Kane, Jr. and Kevin M. O'Kane
OF COUNSEL:
Lowenstein Sandler PC /s/ Raymond J. DiCamillo
65 Livingston Avenue Raymond J. DiCamillo
Roseland, New Jersey 07068-1791 Richards, Layton & Finger, P.A.
(973) 597-2500 One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Attorneys for Defendant Lexent Inc.
Dated: August 5, 2003
-22-