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 )
AMENDED STIPULATION OF SETTLEMENT
The parties to the above-captioned action, by and through their respective
attorneys, have entered into the following Amended 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.
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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
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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)
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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
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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
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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. Each
outstanding Lexent option, whether or not presently exercisable, will be
accelerated, if necessary, and canceled in consideration for the product of (i)
the excess, if any, of $1.50 over the applicable exercise price and (ii) the
number of shares subject to such option. To the extent that the exercise price
of such stock option is greater than or equal to $1.50, such option will be
terminated and canceled 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
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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
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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.
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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.
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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
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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
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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
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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.
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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.
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OF COUNSEL:
Schiffrin & Barroway, LLP /s/ Paul A. Fioravanti, Jr.
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
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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: /s/ Raymond J. DiCamillo
Raymond J. DiCamillo
Lowenstein Sandler PC Richards, Layton & Finger, P.A.
65 Livingston Avenue One Rodney Square
Roseland, New Jersey 07068-1791 P.O. Box 551
(973) 597-2500 Wilmington, Delaware 19899
Attorneys for Defendant Lexent Inc.
Dated: August 28, 2003
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