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EXHIBIT 2
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
WILLIAM N. STRASSBURGER, )
)
Plaintiff, )
)
v. )
)
MICHAEL A EARLY, LUTHER A. ) Civil Action No. 14267
HENDERSON, JOHN C. STISKA, )
N. RUSSELL WALDEN, and )
TRITON GROUP, LTD., a )
Delaware corporation, )
)
Defendants, )
and )
)
RIDGEWOOD PROPERTIES, INC., )
a Delaware corporation, )
)
Nominal Defendant. )
MOTION OF TRITON DEFENDANTS FOR A NEW TRIAL
Defendants Michael M. Earley, John C. Stiska and Triton Group, Ltd.
(the "Triton Defendant"), by their undersigned counsel, hereby move for a new
trial in this action pursuant to Court of Chancery Rules 59 and 60(b). The
grounds for this motion are as follows.
PRELIMINARY STATEMENT
1. The Triton Defendants believe that newly discovered evidence,
discussed more fully below, should become part of the record in this case
because such evidence demonstrates that the challenged transactions were not
pursued for the purpose of entrenching defendant N. Russell Walden at the
expense of the minority stockholders and that neither Ridgewood nor its minority
stockholders suffered any cognizable harm or injury as a result of the
challenged transactions.
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2. The Court's decision of January 24, 2000 contemplates further
proceedings to determine, among other matters, the appropriate amount of
rescissory damages to be paid by Messrs. Walden, Stiska and Earley. While the
Triton Defendants believe that the newly discovered evidence is extremely
relevant to that determination, and therefore admissible in that regard, they
are filing this motion for a new trial to preserve their rights under Court of
Chancery Rules 59 and 60 to have the Court reconsider its January 24 Opinion
based on the new evidence.
BACKGROUND
3. On April 19-21, 1999, this matter was tried before the Court. On
September 24, 1999, after the parties had filed post-trial briefs, the Court
held oral argument. On January 24, 2000, the Court issued its post-trial Opinion
(the "Decision").
4. In the Decision, the Court ruled that Mr. Walden, the CEO and a
director of Ridgewood Hotels, Inc. (formerly Ridgewood Properties, Inc.), acted
solely in his own self-interest in arranging the two challenged stock repurchase
transactions. The Court further determined that Messrs. Earley and Stiska, who
were appointed to the board by Triton, a 74% stockholder, also breached their
fiduciary duty of loyalty by "approving the repurchases." (Decision at p.58).(1)
The Company's fourth director, Mr. Henderson, was exonerated of liability
despite a finding by the Court that he may have breached his duty of care in
approving the repurchases. The Court held that Mr. Walden and the
Triton-appointed directors (Messrs. Stiska and Earley) were jointly and
severally liable to Ridgewood for
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(1) In fact, Earley and Stiska abstained from consideration of the
Triton repurchase. Only Mr. Henderson approved the Triton repurchase, as the
Court correctly noted in "The Facts" section of the Decision. See Decision at p.
21.
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rescissory damages in an amount to be determined by way of further proceedings.
5. The Court imposed liability on these three directors based on its
conclusions that (a) the two repurchases had to be considered as a "package",
(b) the sole purpose for the transactions was to confer absolute control of the
Company on Walden, and (c) the repurchases left the minority stockholders "worse
off than they were before." (Decision at 46). The Court did, however, find "well
reasoned and credible," the valuation analysis of defendant's expert, and his
conclusion that the price paid in the transaction was "a fair repurchase price."
Decision at n.35.
6. In determining an appropriate remedy for the found breaches of duty
by Messrs. Walden, Stiska and Earley, the Court ruled that the preferred stock
component of the Triton repurchase should be rescinded. The Court declined to
order rescission of the cash component of the Triton transaction and ruled that
it could not order rescission of the Hesperus transaction because Hesperus had
not been made a party to the lawsuit. (Decision at 50). The Court said that
Messrs. Walden, Stiska and Earley should be required to pay rescissory damages
to Ridgewood in an amount to be determined. In providing guidance with respect
to such a determination, the Court indicated that the current status of
Ridgewood and its minority shareholders would be relevant. See Decision at 53
(noting that rescissory damages are "measured as of a point in time after the
transaction") (emphasis in original).
RECENT DEVELOPMENTS AT RIDGEWOOD HOTELS CONFIRM
THAT THE PURPOSES OF THE REPURCHASES WERE BONA FIDE,
THAT NEITHER RIDGEWOOD NOR ITS MINORITY STOCKHOLDERS
WERE INJURED AS A RESULT OF THE CHALLENGED TRANSACTIONS,
AND THAT NONE OF THE DEFENDANTS WAS UNJUSTLY
ENRICHED BY THE CHALLENGED TRANSACTIONS
7. As the trial testimony indicated, the Ridgewood board decided (prior
to
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the time of the repurchases) to exit the mobile home business and to focus
instead on the business of managing and operating hotel properties. (See
Decision, n. 4). By 1999, Ridgewood Hotels was operating 21 mid to luxury hotels
across the United States. (See Exhibit A attached hereto). In the Fall of 1999,
one of the owners of these properties, Fountainhead Development Corp., Inc.
("Fountainhead"), expressed an interest in investing in Ridgewood for the
long-term and enhancing Ridgewood's luxury hotel management operations.
8. On or about January 24, 2000 (which is, coincidentally, the date on
which this Court issued the Decision), an Information Statement was mailed to
the stockholders of Ridgewood Hotels announcing a change of control of the
Company as a result of a series of agreements described below. A copy of the
Information Statement is attached as Exhibit B hereto.
9. On January 10, 2000, Ridgewood entered into a management agreement
with Fountainhead pursuant to which Fountainhead retained Ridgewood to perform
management services at Chateau Elan Winery and Resort, one of Fountainhead's
properties, for a period of five years. In exchange for Fountainhead's agreement
to retain Ridgewood and a payment of $10,000 by Fountainhead to Ridgewood,
Ridgewood issued to Fountainhead one million shares of Ridgewood common stock.
The management agreement provides for the payment by Fountainhead to Ridgewood
of a management fee equal to 2% of the gross revenues of the properties being
managed, plus an annual incentive management fee to be determined each year
based on the profitability of the properties.
10. On January 11, 2000, following execution of the management
agreement, Fountainhead entered into an agreement with Mr. Walden to purchase
650,000
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shares of Ridgewood common stock held by Mr. Walden for $2 per share.
Fountainhead also entered into an agreement with Triton's successor, ADT
Security Services, Inc. ("ADT"), to purchase the 450,000 shares of Ridgewood
preferred stock held by ADT for approximately $1.65 million. The agreement with
ADT provided that Fountainhead would return the preferred stock to ADT if this
Court were to order ADT to return the preferred stock to Ridgewood. In such a
case, Fountainhead would be obligated to purchase any common stock received by
ADT.
11. In connection with these transactions, Mr. Walden made significant
concessions regarding his termination and retirement benefits and resigned his
positions as President and CEO of Ridgewood. See Exhibit B at pp. 9-10. In
addition, the board of Ridgewood was expanded from 3 to 7 members, with
designees of Fountainhead filling the 4 vacancies.(2)
12. These developments confirm that the repurchase transactions were in
the best long-term interests of the Company and its minority stockholders, and
that neither Ridgewood Hotels nor its minority shareholders suffered damages or
injury as a result thereof. In short, these developments vindicate the business
judgment of the director defendants in connection with the repurchases.
13. What is discussed above is only a general summary of the evidence
that the Triton Defendants seek permission to introduce into the record in this
action. The Triton Defendants respectfully submit that this and related
evidence, when fully presented to the
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(2) After announcement of the transactions, the stock of Ridgewood
began to trade more actively and has traded as high $6.00 per share. See Exhibit
C. On an equivalent post-split basis, the assumed price paid in the Triton
repurchase was $2.65 per share.
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Court, will provide a compelling basis upon which the Court should rule that the
payment of rescissory damages is unnecessary and unwarranted, and that
plaintiff's claims in this action are without merit.
STANDARD FOR ALLOWING A NEW TRIAL
14. Court of Chancery Rule 59(a) provides as follows:
(a) Grounds. A new trial may be granted to all or any of the
parties, and on all or part of the issues for any of the reasons for
which rehearings have heretofore been granted in suits in equity. The
Court may open the judgment if one has been entered, take additional
testimony, amend or make new factual findings and legal conclusions,
and direct the entry of a new judgment. A new trial will not be granted
after the filing of an appeal.
Ch.Ct.R. 59(a). Court of Chancery Rule 60(b), in conjunction with Rule 59(a),
provides that a new trial can be granted based on "newly discovered evidence" or
"any other reason justifying relief from the operation of the judgment." Ch.Ct.
R. 60(b). To be entitled to a new trial, the movant must show that the proffered
evidence has come to its knowledge since the trial and that it could not, in the
exercise of reasonable diligence, have been discovered for use at trial. Rosauri
v. Ferguson, Del. Ch., C.A. No. 6616, slip op. at 2, Hartnett, V.C. (Mar. 11,
1983), aff'd, Del. Supr., 467 A.2d 452 (1983) (Exhibit D attached hereto). See
also Secretary of Fin. v. Nor-Mar, Inc., Del. Ch., C.A. No. 16605, slip op. at
8, Jacobs, V.C. (Aug. 27, 1999) (Exhibit E attached hereto) (indicating that an
appropriate procedural vehicle to introduce new evidence is a motion for new
trial based on newly discovered evidence under Rule 60(b)). As this Court has
noted, "applications for a new trial are 'always addressed to the judicial
discretion of the Court so that injustice may be prevented ...'"Ross Sys. Corp.
v. Ross Del. Ch., C.A. No. 10378, slip op. at 3-4, Jacobs, V.C. (May 9, 1994)
(Exhibit F attached hereto) (quoting Rappa,
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Inc. v. Hanson, Del. Supr., 209 A.2d 163, 166 (1965).
15. The Triton Defendants respectfully submit that the prerequisites
for entitlement to a new trial or to reopen the record have been met here. This
case was tried in February of last year before Fountainhead and other interested
parties had appeared to express their interest in Ridgewood Hotels. In addition,
the Fountainhead transactions were closed in mid-January of this year, well
after the case had been tried and submitted, and were not publicly disclosed
until the day the Decision was issued. The Triton Defendants further submit that
the newly discovered evidence is relevant to the issues previously presented for
decision and, at a minimum, bear importantly on the issue of what remedies, if
any, should be ordered in this case.
CONCLUSION
For all of the foregoing reasons, the Triton Defendants respectfully
request that their motion for a new trial, or, in the alternative, to reopen the
record to allow for the introduction of newly discovered evidence, be granted.
POTTER ANDERSON & CORROON LLP
By: /s/
--------------------------------
Michael D. Goldman
James F. Burnett
Matthew E. Fischer
1313 North Market Street, Hercules Plaza
P.0. Box 951
Wilmington, Delaware 19899
(302) 984-6000
Attorneys for Defendants Michael M. Earley,
John C. Stiska and Triton Group, Ltd.
Dated: February 7, 2000
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MEDIA CONTACT:
Tracy Louthain
The Headline Group
(404) 262-3000
FOR IMMEDIATE RELEASE:
FOUNTAINHEAD LTD. ACQUIRES MAJORITY INTEREST IN RIDGEWOOD HOTELS
RIDGEWOOD TO MANAGE FOUNTAINHEAD'S COLLECTION OF HOTELS AND RESORTS
ATLANTA - FEBRUARY 3, 2000 -- Fountainhead, Ltd., a privately held
holding company with the majority of its assets in real estate recently
purchased Ridgewood Hotels, Inc., (NASDAQ: RWHT), a publicly traded hotel
management company. The acquisition will provide Fountainhead and its collection
of hotels and resorts, marketed under the Chateau Elan brand, a management base
to continue its high level of customer amenities and service.
"We are ecstatic to find Ridgewood, which shares a common vision for
first class service and places high value in recruiting and retaining
exceptional employees," said Henk Evers, who immediately moves into the
President role with more than 17 years hotel experience. "Working closely with
Ridgewood's seven member board, we plan to become a forward thinking company
and create added value for our shareholders."
Ridgewood Hotels currently operates 21 mid to luxury hotels across the
United States. Fountainhead, owned by Dr. Donald and Nancy Panoz, who will
become Chairman and Vice Chairman respectively, holds luxury resort properties
including Chateau Elan Winery & Resort, Georgia and the soon to open Chateau
Elan Lodge, Sebring, FL, and is currently developing four star, destination golf
resorts in Diablo Grande, CA and St. Andrews Bay, Scotland. These properties
will experience a seamless transition over the next 90 days as Ridgewood steps
in with over 20 years of experience in hotel operations.
Superior service and amenities provided by an accommodating,
detail-oriented staff will continue to be the reigning focus for both Ridgewood
and Fountainhead properties. The new partnership will allow Dr. Donald and Nancy
Panoz more involvement in operations at Fountainhead properties and help
Ridgewood Hotels continue to grow in the upper tier to luxury hotel segment.
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RIDGEWOOD HOTELS, INC.
2859 PACES FERRY ROAD, SUITE 700
ATLANTA, GEORGIA 30339
INFORMATION STATEMENT
Pursuant to Section 14(f) of the
Securities Exchange Act of 1934
and Rule 14f-1 Thereunder
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS
REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE NOT REQUESTED
TO SEND THE COMPANY A PROXY
January 24, 2000
INTRODUCTION
This Information Statement is being mailed on or about January 24,
2000 (the "Statement Date") to holders of record at the close of business on
January 14, 2000 (the "Record Date") of shares of common stock, par value $.01
per share ("Common Stock"), of Ridgewood Hotels, Inc., a Delaware corporation
(the "Company") and to the holder of record at the close of business on the
Record Date of the shares of Series A Convertible Preferred Stock, par value
$1.00 per share ("Preferred Stock"), of the Company. This Information Statement
is being furnished in connection with the appointment to the Company's Board of
Directors, other than at a meeting of the Company's stockholders, of four new
directors (the "Buyer Designees"), each designated by Fountainhead Development
Corp., Inc., a Georgia corporation ("Buyer" or "Fountainhead"). Fountainhead is
engaged principally in the business of owning and operating hotel, resort and
other real estate properties. Fountainhead's principal executive offices are
located at 1394 Broadway Avenue, Braselton, Georgia 30517.
As more fully described below, pursuant to an Agreement, dated January
10, 2000, and a Management Agreement, dated January 10, 2000, each between Buyer
and the Company (together, the "Management Agreement"), the Company issued to
Buyer 1,000,000 shares of Common Stock. In connection with the Management
Agreement, the number of directors constituting the full Board of Directors of
the Company was increased from three to seven, and the four Buyer Designees were
appointed by the directors of the Company to fill the vacancies on the Company's
Board of Directors, such appointments to be effective on February 3, 2000 (the
"Appointment Effective Date"), ten days after this Information Statement is
delivered to stockholders of the Company and filed with the Securities and
Exchange Commission (the "Commission").
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Following the execution of the Management Agreement, one of the
principal stockholders of the Company, N. Russell Walden, entered into a Common
Stock Purchase Agreement (the "Walden Agreement") and another of the principal
stockholders of the Company, ADT Security Services, Inc. ("ADT"), entered into a
Stock Purchase Agreement (the "ADT Agreement"), respectively, each dated as of
January 11, 2000, with Buyer. Pursuant to the terms of the Walden Agreement, Mr.
Walden sold to Buyer, subject to certain terms and conditions, 650,000 shares of
Common Stock (the "Walden Shares"), and pursuant to the ADT Agreement, ADT sold
to Buyer, subject to certain terms and conditions, 450,000 shares of Preferred
Stock, of the Company (the "ADT Shares"). Through the issuance of the Common
Stock pursuant to the Management Agreement and the acquisitions of the Walden
Shares and the ADT Shares, Buyer has obtained beneficial ownership of
approximately 79% of the Common Stock. As of the Record Date, the Company had
2,513,480 shares of Common Stock issued and outstanding that were held of record
by approximately 190 persons. Each share of Common Stock is entitled to one
vote.
As of the Record Date, the Company had 450,000 shares of Preferred
Stock issued and outstanding, and Buyer owned of record all such issued and
outstanding shares of Preferred Stock. Shares of Preferred Stock of the Company
are entitled to vote only as permitted by the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock of Ridgewood
Properties, Inc. ("Certificate of Designations") and as required by the Delaware
General Corporation Law ("DGCL"). Pursuant to the Certificate of Designations,
shares of Preferred Stock, voting as a single class, are entitled to elect one
director to serve on the Board of Directors of the Company for so long as a
minimum of 50,000 shares of preferred stock are outstanding. Shares of Preferred
Stock become entitled to vote on all matters presented to stockholders of the
Company, together with and not separate from the shares of Common Stock, in the
event that, and for so long as, the Company has failed to pay, in full, two
quarterly dividends, whether or not consecutive, payable on the Preferred Stock.
Due to the failure of the Company to pay dividends for the quarters ended April
30, 1999, July 31, 1999 and October 31, 1999, Buyer, as the holder of all the
issued and outstanding Preferred Stock, has and will have for so long as the
Company fails to cure two of such dividend defaults, the right to vote on all
matters presented to the stockholders of the Company for consideration. The ADT
Shares are subject to certain rights of ADT to require Buyer to return the
Preferred Stock to ADT in the event that ADT is required by a court order, in
litigation pending in the Court of Chancery in Delaware involving ADT, the
Company and the directors of the Company, to return the Preferred Stock to the
Company. In such case, Buyer has the obligation to purchase any Common Stock
that may be issued to ADT as a result of such a court order.
The purpose of this Information Statement is to provide certain
information concerning the Buyer, the Company's Board of Directors and the
appointment of the Buyer Designees.
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CHANGE OF CONTROL OF THE COMPANY
MANAGEMENT AGREEMENT
On January 10, 2000, the Company entered into the Management Agreement
with Buyer, pursuant to which Buyer retained the Company to perform management
services at Chateau Elan Winery and Resort, one of Buyer's properties, for a
period of five years. In consideration of Buyer's agreement to enter into the
Management Agreement and a payment of $10,000 by Buyer to the Company, the
Company issued to Buyer 1,000,000 shares of Common Stock. In the Management
Agreement, Buyer agreed to pay the Company a base management fee equal to 2% of
the gross revenues of the properties being managed, plus an annual incentive
management fee to be determined each year based on the profitability of the
properties being managed during that year.
The Management Agreement has a term of five years but is terminable
upon the transfer by Buyer of all or a material portion of the properties
covered by the Management Agreement. If the Management Agreement is terminated
upon such a transfer or upon the occurrence of an event of default by Buyer,
Buyer shall pay to the Company a portion of the projected fees owed to the
Company under the Agreement, with adjustments based on the term of the
Management Agreement remaining. In such event, Buyer may elect to surrender to
the Company shares of Common Stock in lieu of a cash payment.
In connection with the Management Agreement, the number of directors
constituting the full Board of Directors of the Company was increased from three
to seven members, effective on January 6, 2000. Further, the four Buyer
Designees were appointed by the directors of the Company to fill the resulting
vacancies on the Company's Board of Directors, effective as of the Appointment
Effective Date. The four Buyer Designees are Donald E. Panoz, Nancy C. Panoz,
Sheldon E. Misher and Henk H. Evers. N. Russell Walden, Luther A. Henderson and
Michael M. Earley, currently directors of the Company, are presently continuing
to serve in that capacity (the "Continuing Directors").
Upon the Appointment Effective Date, the Buyer Designees will
constitute a majority of the Company's directors. The Continuing Directors and
the Buyer Designees will hold office as directors for a term of one year or
until their successors are elected and qualified.
STOCK ACQUISITIONS
Walden Agreement. Pursuant to the Walden Agreement, Buyer purchased
from Mr. Walden 650,000 shares of Common Stock. The consideration paid by Buyer
for the Walden Shares was $1,300,000, or $2.00 per share. To fund the
acquisition of the Walden Shares, Buyer used its own funds for an initial cash
payment of $780,000 and issued two promissory notes to Walden, each in the
principal amount of $260,000, representing the balance of the purchase price of
the Walden Shares. These notes become due and payable in full on January 11,
2001 and
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January 11, 2002, respectively. Each note bears interest at a rate of 6% per
year, which interest is payable quarterly, commencing March 31, 2000. Pursuant
to the Walden Agreement, Buyer has an option to purchase up to 65,000 additional
shares of Common Stock from Mr. Walden, which option remains in effect for 15
months from the date of the Walden Agreement. In the event Mr. Walden wishes to
sell any of the Common Stock owned by him and subject to Buyer's option, Buyer
has a right of first refusal to purchase such shares at a purchase price of
$2.00 per share.
ADT Agreement. Pursuant to the ADT Agreement, Buyer purchased from ADT
450,000 shares of Preferred Stock. The consideration paid by Buyer for the ADT
Shares was approximately $1,650,000. Each share of Preferred Stock is
convertible into three shares of Common Stock. To fund the acquisition of the
ADT Shares, Buyer used working capital and paid the purchase price in cash. The
ADT Shares are subject to certain rights of ADT to require Buyer to return the
ADT Shares to ADT in the event ADT is required by a court order, in litigation
pending in the Court of Chancery in Delaware involving ADT, the Company and the
directors of the Company, to return the ADT Shares to the Company. In such case,
Buyer would receive a return of all consideration paid to ADT pursuant to the
ADT Agreement and would be obligated to purchase any Common Stock issued to ADT
as a result of such court order.
CHANGE IN MANAGEMENT
Effective as of January 11, 2000, Mr. Walden was replaced as President
and Chief Executive Officer of the Company. Donald E. Panoz was appointed to
serve as Chairman of the Board and Chief Executive Officer of the Company, Nancy
C. Panoz was appointed to serve as Vice Chairman and Henk H. Evers was appointed
to serve as President and Chief Operating Officer, in each case effective
January 11, 2000, except that the prospective directors will take office as of
the Appointment Effective Date. Mr. and Mrs. Panoz are directors and executive
officers of Buyer and collectively may be deemed to be the beneficial owners of
all of the voting stock of Fountainhead Holdings, Ltd. ("Holdings"), the owner
of all of the voting stock of Buyer. Although Mr. and Mrs. Panoz may be deemed
to beneficially own such voting shares of Holdings, they do not have any
economic benefit in such shares. Mr. Evers serves as Chief Executive Officer and
President of Buyer.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about the individuals who
currently serve as directors and executive officers of the Company, as well as
those individuals who will serve as directors of the Company pursuant to the
management changes described above.
NAME AGE POSITION
- -------------------------- ----- ---------------------------------------------------
Donald E. Panoz + 64 Chairman of the Board and Chief Executive
Officer
Nancy C. Panoz + 63 Vice Chairman of the Board
Henk H. Evers + 40 President, Chief Operating Officer and Director
Karen S. Hughes 45 Vice President and Chief Financial Officer
Byron T. Cooper 49 Vice President, Planning and Development
Sheldon E. Misher + 58 Secretary and Director
Michael M. Earley 44 Director
Luther A. Henderson 79 Director
N. Russell Walden 61 Director
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+ Each of these individuals was elected to the Board of Directors on January
6, 2000, but shall not take office as a director of the Company until the
Appointment Effective Date.
DONALD E. PANOZ was elected as Chairman of the Board and Chief
Executive Officer of the Company on January 11, 2000 and will take office as
Chairman of the Board on the Appointment Effective Date. In 1986, Mr. Panoz
founded Fountainhead and has served as its Chairman since inception. Since July
1999, Mr. Panoz has served as the Chairman of Elan Motor Sports Technologies,
Inc., an auto racing design, development and manufacturing company located in
Braselton, Georgia. Since 1997, Mr. Panoz has served as the Chairman of Panoz
Motor Sports, a race car manufacturer and competitor that he founded. Since
1996, Mr. Panoz has served as the Chairman and Chief Executive Officer of
L'Auberge International Hospitality Company, a hotel and resort management
company that he co-founded with his wife. From 1969 until 1996, Mr. Panoz served
as the Chairman and Chief Executive Officer of Elan Corporation plc, a leading
worldwide pharmaceutical research and development company located near Dublin,
Ireland that he co-founded with his wife. Since 1992, Mr. Panoz has been a
director of Warner Chilcott plc, a publicly traded company headquartered in
Dublin, Ireland, and served as its Chairman from 1996 to 1998. Since 1981, Mr.
Panoz has served as the Chairman and Chief Executive Officer of Chateau Elan
Winery and Resort, a 422 bedroom inn, conference center and winery located
approximately 40 miles northeast of Atlanta, Georgia. Mr. Panoz also serves on
the Board of Directors of the Georgia Chamber of Commerce. Mr. Panoz is married
to Nancy C. Panoz.
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NANCY C. PANOZ was elected as Vice Chairman of the Board of Directors
of the Company on January 11, 2000 and will take office in such capacity as of
the Appointment Effective Date. Since 1996, Mrs. Panoz has also served as the
Vice Chairman of L'Auberge International Hospitality Company in 1996, a company
that she co-founded with her husband. In 1989, Mrs. Panoz became President of
the Chateau Elan Winery and Resort, which she founded with her husband in 1981.
In 1985, Mrs. Panoz founded Elan Natural Waters, Inc., a company that owns and
operates a mineral water bottling plant in Blairsville, Georgia, and has served
as its President and Chairman since inception. In 1985, Mrs. Panoz founded Nanco
Holdings, Inc., an investment and real estate holding company. In 1969, Mrs.
Panoz co-founded Elan Corporation with her husband, Donald E. Panoz and served
as Elan's Managing Director from 1977 to 1983 and its Vice Chairman from 1983 to
1995. Mrs. Panoz currently serves on the board of directors of numerous
non-profit organizations, including the Atlanta Convention and Visitors Bureau,
the Georgia Chamber of Commerce and Gwinnett Foundation, Inc.
HENK H. EVERS was elected as President, Chief Operating Officer and a
director of the Company on January 11, 2000 and will take office as a director
of the Company on the Appointment Effective Date. Since January 1999, Mr. Evers
has been the Chief Executive Officer of Fountainhead. From November 1994 until
January 1999, Mr. Evers was the General Manager of the Chateau Elan Winery and
Resort, where he was in charge of developing the Chateau Elan brand name and
properties in Georgia, California, Florida and Scotland. Prior to that, Mr.
Evers was a member of the executive committee for various Marriott International
properties for approximately 13 years.
KAREN S. HUGHES has served as Vice President and Chief Financial
Officer of the Company since the Company was formed in October 1985. Ms. Hughes
also served as the Secretary of the Company from October 1985 until January
2000.
BYRON T. COOPER has served as the Vice President, Planning and
Development of the Company since its formation.
SHELDON E. MISHER was elected as Secretary and a director of the
Company on January 11, 2000 and will take office as a director on the
Appointment Effective Date. Since May 1999, Mr. Misher has been associated with
Commonwealth Associates, a broker-dealer located in New York, New York. From
1969 to 1999, Mr. Misher practiced law with the firm of Bacher, Tally, Polevoy &
Misher, located in New York, New York, where he was most recently a Senior
Partner.
MICAEL M. EARLEY has been a director of the Company since June 1993.
Mr. Earley is a director of ADT and principal of Triton Group Management, Inc.,
a company that provides management and consulting services. He was President
of Triton Group Ltd. ("Triton") from July 1994 until April 1997 and its Chief
Executive Officer from January 1996 until April 1997. Prior to that time,
Mr. Earley held various senior management positions, including that of Chief
Financial Officer, with Triton and related entities since 1986.
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LUTHER A. HENDERSON has been a director of the Company since its
formation in 1985. From 1983 to 1985, he served as a director of CMEI, Inc.
("CMEI"), the Company's predecessor. From 1980 to 1993, Mr. Henderson served as
a director of Pier 1 Imports, Inc., a commercial retailer. Mr. Henderson is also
a member of the Board of Directors of Beeba's Creations, Inc. and is President
of Pirvest, Inc.
N. RUSSELL WALDEN was President and Chief Executive Officer of the
Company from its formation in 1985 until January 2000. Mr. Walden has also been
a director of the Company since 1985. Mr. Walden was a director of Sunbelt
Nursery Group, Inc. from 1983 until 1990. He is the former President, Chief
Executive Officer and Director of CMEI and a former director of Pier 1 Imports
Inc.
MEETINGS AND COMMITTEES OF THE BOARD
For fiscal year 1999, the Board established an Audit Committee, a
Compensation Committee and a Stock Option Committee, but does not have a
nominating committee.
During fiscal year 1999, the Board held a total of five meetings. Each
of the directors attended all of these meetings. Each director also attended
each of the meetings of the committees on which he served that were held during
the periods that he served as a member of such committee.
COMMITTEES OF THE BOARD
The Audit Committee reviews the professional services and independence
of the Company's certified public accountants, the results of the Company's
internal audits, and the Company's accounts, procedures and internal controls.
During fiscal year 1999, the Audit Committee was comprised of Messrs. Earley and
Henderson. The Audit Committee met once during fiscal year 1999.
The Compensation Committee, which did not meet separately during the
1999 fiscal year, is responsible for reviewing matters relating to compensation
and making recommendations to the Board concerning compensation of the Company's
officers, directors and employees. During fiscal year 1999, the Compensation
Committee was comprised of Messrs. Earley and Henderson.
The Stock Option Committee, which did not meet during the 1999 fiscal
year, is responsible for administering the Company's Stock Option Plan.
During fiscal year 1999, the sole member of the Stock Option Committee was Mr.
Earley.
-7-
16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
DIRECTOR COMPENSATION
During fiscal year 1999, directors who are not employees of the Company
received a retainer of $13,200 per year plus $800 for each Board meeting
attended. All directors were reimbursed for expenses incurred in connection with
attending Board and committee meetings.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation of
the Company's Chief Executive Officer for the Company's past three fiscal years.
The cash compensation of the Company's other executive officers did not exceed
$100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL -------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ------------------------------------- --------- ------------ ----------- ------------------
N. Russell Walden(2) .............. 1999 $ 200,000 $ 0 $ 1,186
President and Chief Executive 1998 200,000 41,000 4,500
Officer 1997 200,000 0 2,535
- ---------------------
(1) The amounts shown in this column consist of Company matching
contributions on behalf of the named person under the Ridgewood Hotels
Employee Savings Plan.
(2) As of January 11, 2000, Mr. Walden was no longer an executive officer
of the Company.
STOCK OPTION PLAN
In September 1993, the Board of Directors adopted the Ridgewood Hotels,
Inc. 1993 Stock Option Plan (the "Plan"). Under the Plan, the Company may grant
to key employees and eligible directors of the Company and its subsidiaries
incentive and non-qualified stock options. The Plan is administered by a
committee of two or more members of the Board of Directors, which interprets the
Plan and is authorized to determine the type of options to be granted, option
exercise prices, the persons eligible to receive awards, the number of shares
subject to each option and the other terms, conditions and limitations
applicable to each such grant of options.
Incentive stock options must comply with all of the requirements
imposed by the Internal Revenue Code of 1986, as amended, with respect to such
options. Incentive stock options granted under the Plan will have an exercise
price of not less than 100% of the fair market value of the shares of Common
Stock on the date on which the option is granted. With respect to an incentive
stock option granted to a participant who owns more than 10% of the combined
voting stock of the Company or any parent or subsidiary of the Company, the
exercise price must be at
-8-
17
least 110% of the fair market value of the shares subject to the option on the
date of grant. The exercise price of a non-qualified stock option granted under
the Plan shall also be determined by the committee, but such exercise price must
be at least the par value of the Common Stock.
There are 1,200,000 shares authorized for possible issuance under the
Plan. As of the Record Date, options to purchase 678,000 of such reserved shares
of Common Stock have been granted under the Plan and not otherwise cancelled or
terminated, and options to purchase 228,000 shares remain outstanding.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted during fiscal year 1999 to the
executive officer named in the Summary Compensation Table.
AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the number and
value of unexercised options held by the officer named in the Summary
Compensation Table as of August 31, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SUM UNDERLYING UNEXERCISED MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR END FISCAL YEAR-END
ON VALUE (#) ($) (1)
EXERCISE REALIZED --------------------------------- ---------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ---------- ---------- ----------- ------------- ----------- -------------
N. Russell Walden........ 0 $ 0 150,000 0 $ 0 $ 0
- ---------------------
(1) The 150,000 shares were not considered in-the-money since the exercise
price of the options ($1.83 per share) was greater than the average of
the bid and ask prices ($0.84 per share) of the Common Stock on August
31, 1999.
EMPLOYMENT AND TERMINATION AGREEMENTS
Mr. Walden was a party to a Post-Employment Consulting Agreement with
the Company, dated September 4, 1991, and amended as of August 13, 1998 (the
"Employment Agreement"), until such agreement was terminated effective January
11, 2000. Under the terms of the Employment Agreement, in the event Mr. Walden's
employment was terminated by the Company without cause or Mr. Walden terminated
his employment with cause (defined as (1) removal from his present position or
title by the Company, (2) a decrease in his salary or (3) forcing him to
relocate), Mr. Walden was permitted to remain with the Company as a consultant
for a period of 12 months. In exchange for such consulting services, the Company
was obligated to pay Mr. Walden an amount equal to his annual salary immediately
prior to the event of termination and to provide him with certain other
benefits.
On January 11, 2000, Mr. Walden entered into a Consulting Agreement
with the Company (the "Consulting Agreement"). According to the terms of the
Consulting Agreement, Mr. Walden
-9-
18
will serve as a consultant to the Company for a period of six months, for which
he will receive a payment of $50,000. The Company also agreed to provide Mr.
Walden with health insurance benefits substantially similar to those offered to
employees of the Company for a period of three years. In the Consulting
Agreement, Mr. Walden released all claims against the Company except with
respect to such health insurance benefits and compensation and terminated his
Employment Agreement and participation in the Company's Supplemental Retirement
and Death Benefit Plan. Mr. Walden also agreed to the cancellation of 150,000
options to purchase Common Stock of the Company, for which the Company agreed to
pay him $25,000.
SUPPLEMENTAL RETIREMENT AND DEATH BENEFIT PLAN
The Ridgewood Hotels, Inc. Supplemental Retirement and Death Benefit
Plan (the "SERP") was adopted, effective January 1, 1987, to provide
supplemental retirement benefits for selected employees of the Company. As of
August 31, 1999, only one employee of the Company was a participant in the SERP.
However, there are currently no employees of the Company participating in the
SERP.
Estimated annual benefits payable upon separation from employment,
determined using the SERP formula, are equal to 50% of the participant's "final
three-year average compensation," defined under the SERP as salary plus bonus,
commissions and any amounts deferred under any deferred compensation plan, less
the total of the participant's (i) Primary Social Security benefit for the
period during which benefits are to be paid and (ii) certain benefits provided
under the qualified retirement plans of the Company or Triton. Benefits vest at
the rate of 10% for each year of credited service for the Company or Triton,
with up to five years of credited service permitted at the time the SERP was
adopted. Benefits are paid monthly over a 15-year period, and commence within 45
days of a participant's retirement. If the participant's employment terminates
before scheduled retirement, benefit payments commence within 30 days of the
participant reaching age 65. The form of benefit payment under the SERP may be
modified at the discretion of the Pension Committee, which administers the SERP.
The SERP also provides for payment of a pre-retirement lump sum death
benefit to the participant's beneficiary equal to 600% of the participant's
final annual compensation if the participant is in the Company's employ or is
less than age 65 and totally and permanently disabled as of his date of death,
and a post-retirement lump sum death benefit to the participant's beneficiary
equal to 200% of the participant's final annual compensation if death occurs
after the participant has retired from the Company or has attained age 65 after
becoming totally and permanently disabled.
Mr. Walden was the sole participant in the SERP until January 11, 2000,
when he was replaced as an officer of the Company. He subsequently entered into
a Consulting Agreement with the Company in which he agreed to a full termination
of his rights and benefits under the SERP. However, the Company agreed to pay
Mr. Walden $55,000 per year for a period of 15 years in accordance with the
terms and conditions of the SERP. Such annual payment represented a decrease in
the amount of benefit to which Mr. Walden would otherwise have been entitled
under the
-10-
19
SERP.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1999, the Company's Compensation Committee consisted
of Michael M. Earley and Luther A. Henderson. Mr. Walden, the then President and
Chief Executive Officer of the Company, participated in deliberations concerning
executive officer compensation during fiscal year 1999 in his capacity as a
member of the Board. He did not, however, participate in any decisions regarding
his own compensation as an executive officer of the Company.
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth information as of the Record Date
regarding the beneficial ownership of the capital stock of the Company by (a)
each person who is currently a director of the Company; (b) each person who will
be a director of the Company as of the Appointment Effective Date, (c) each
executive officer of the Company named in the Summary Compensation Table, (d)
each beneficial owner of more than 5% of the Common Stock and Preferred Stock of
the Company, and (e) all directors and executive officers as a group, including
those directors who will serve as directors of the Company as of the Appointment
Effective Date.
Except as otherwise indicated, each individual or group named has sole
investment and voting power with respect to the securities shown. The share
amounts in the table below include shares of capital stock deemed to be
outstanding for those persons who have the right to acquire beneficial ownership
of such shares within 60 days of the date of this Information Statement through
the exercise of stock options, convertible securities or otherwise. Shares of
capital stock underlying such options, convertible securities or other
securities are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares of the class owned by such person but are not
deemed to be outstanding for the purpose of computing the percentage of the
class owned by any other person.
NUMBER OF SHARES
NAME AND ADDRESS OF CLASS OF SHARES BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER (1) BENEFICIALLY OWNED OWNED OF CLASS
- ----------------------------------------- -------------------------- ------------------------- -------------------
Fountainhead Development Corp., Inc. Common Stock 3,065,000(2) 79.3%
1394 Broadway Avenue
Braselton, GA 30517 Series A Preferred
Stock 450,000(3) 100.0%
Donald E. Panoz Common Stock 3,065,000(4)(5) 79.3%
Series A Preferred
Stock 450,000(3)(5) 100.0%
Nancy C. Panoz Common Stock 3,065,000(4)(5) 79.3%
-11-
20
Series A Preferred
Stock 450,000(3)(5) 100.0%
Sheldon E. Misher Common Stock 0 0%
Henk H. Evers Common Stock 0 0%
Karen S. Hughes Common Stock 135,440(6) 5.3%
Michael M. Earley Common Stock 0 0%
500 West Harbor Drive #1115
San Diego, CA 92101
Luther A. Henderson Common Stock 58,800(7) 2.3%
5608 Malvey Avenue, Suite 104-A
Fort Worth, TX 76107
N. Russell Walden(8) Common Stock 130,000 5.2%
3190 Ridgewood Road
Atlanta, GA 30327
All executive officers and directors Common Stock 3,457,160(5)(9) 86.4%
as a group (9 persons)
Series A Preferred
Stock 450,000(3)(5) 100.0%
- ---------------
(1) Unless otherwise indicated, the address of each beneficial owner is 2859
Paces Ferry Road, Suite 700, Atlanta, Georgia 30339.
(2) Includes (i) 1,350,000 shares of Common Stock that may be received upon the
conversion of the ADT Shares and (ii) 65,000 shares of Common Stock
underlying an option granted to Fountainhead by N. Russell Walden that is
immediately exercisable.
(3) Pursuant to the terms and conditions of the ADT Stock Purchase Agreement,
Fountainhead may be required to return all of these shares of Preferred
Stock to ADT in certain circumstances. See "Change of Control -- Stock
Acquisitions ADT -- Agreement."
(4) Includes (i) 1,350,000 shares of Common Stock that may be received upon the
conversion of the ADT Shares held by Fountainhead, (ii) 1,650,000 shares of
Common Stock held by Fountainhead, and (iii) 65,000 shares of Common Stock
underlying an option granted to Fountainhead by Mr. Walden that is
immediately exercisable.
(5) Mr. and Mrs. Panoz, who are husband and wife, are directors and
collectively may be deemed to beneficially own all of the voting stock of
Holdings, which in turn owns all of the voting stock of Fountainhead.
Although they may be deemed to meet the definition of beneficial ownership
with respect to the voting stock of Holdings, they have no economic
interest in such voting stock. Because these shares of the Company are held
of record by Fountainhead, each of Mr. and Mrs. Panoz may be deemed to be a
beneficial owner of all of such shares.
(6) Includes 60,000 shares of Common Stock underlying options that are
immediately exercisable.
(7) Includes 18,000 shares of Common Stock underlying options that are
immediately exercisable.
(8) As of January 11, 2000, Mr. Walden was no longer an executive officer of
the Company.
(9) Includes (i) 1,350,000 shares of Common Stock that may be received upon the
conversion of the ADT Shares held by Fountainhead, (ii) 7,920 shares of
Common Stock held by persons not listed in the table above and (iii)
203,000 shares of Common Stock underlying options that are immediately
exercisable, including 60,000 shares of Common Stock underlying options
granted to persons not listed in the table above.
-12-
21
COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and persons who own more than 10% of the Common Stock to file
reports of beneficial ownership and changes in beneficial ownership with the
Company and the Securities and Exchange Commission with respect to all classes
of the Company's capital stock. Based solely on its review of the copies of such
reports furnished by such reporting persons to the Company, the Company believes
that during the fiscal year ended August 31, 1999, all filing requirements
applicable to its officers, directors and greater than 10% stockholders were
satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 10, 2000, the Company entered into the Management Agreement
with Buyer, in which Buyer retained the Company to perform management services
at Chateau Elan, one of Buyer's properties, for a period of five years. In
consideration of Buyer's agreement to enter into the Management Agreement and in
consideration of a payment of $10,000 by Buyer to the Company, the Company
issued to Buyer 1,000,000 shares of Common Stock.
The Management Agreement has a term of five years but is terminable
upon the transfer by Buyer of all or a material portion of the properties
covered by the Management Agreement. If the Management Agreement is terminated
upon such a transfer or upon the occurrence of an event of default by Buyer,
Buyer shall pay to the Company the projected fees owed to the Company under the
Agreement, with adjustments based on the term of the Management Agreement
remaining. In such event, Buyer may elect to surrender to the Company shares of
Common Stock in lieu of making a cash payment to the Company.
By order of the Board of Directors of
RIDGEWOOD HOTELS, INC.
By: /s/ Henk H. Evers
---------------------------------
Henk H. Evers
President and Chief Operating Officer
Atlanta, Georgia
January 24, 2000
-13-
22
EXHIBIT 22
RWHT - RIDGEWOOD HOTELS INC. Short BASIC Detailed
4.00 AS OF HIGH LOW OPEN PREV CLOSE BID - ASK 52-WK RANGE
10:39 AM EST 4.50 3.94 4.50 4.56 3.44 - 3.44 0.50 - 6.00
-0.56 12.33% VOLUME P/E EPS DIVIDEND YIELD MARKET CAP
7,500 N/A N/A N/A N/A N/A
TIME FRAME 1m - 2m - 3m - 6m YTD - 1y - 2y - 3y - 5y - 10y MOVING AVERAGES NONE - [13,50] day - [50,200] day (Exponential)
SCALE LOG+ - Log - Linear COMPARE TO INDEX NONE - S&P 500 - DJIA - NASDAQ - TSE 300
[CHART]
23
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
COURT HOUSE
MAURICE A. HARTNETT, III DOVER, DELAWARE
VICE-CHANCELLOR 10 March 1983 GEORGETOWN, DELAWARE
WILMINGTON, DELAWARE
Mrs. Dorothy F. Dunleavy
Mr. Steven D. Ferguson
Mrs. Hilda D. Ferguson
11 Holly Oak Drive
Newark, DE 19713
Bartholomew J. Dalton, Esquire
Charles Brandt, Esquire
BRANDT & BENSON
P. O. Box 248
Wilmington, DE 19801
Leonard L. Williams, Esquire
237 Delaware Trust Building
Wilmington, DE 19801
RE: Rosauri et al v. Ferguson
Civil Action #6616 (1981) - New Castle County
Submitted: February 11, 1983
ON DEFENDANT'S POST-TRIAL MOTIONS: DENIED
Ladies and Gentlemen:
Defendant sua sponte, and without the knowledge of her attorneys of
record in this case, filed post-trial motions after my Opinion of December 2,
1982. All of them are without merit and must be denied.
One of defendant's motions was a motion for reargument. It was filed
on December 30, 1992. It was, therefore, not timely and must be denied. Rule
59(f). She also filed a request for additional time to file additional papers,
which was granted as to the other motions.
24
RE: C.A. #6616-NC
Rosauri et al v. Ferguson
Page 2
Defendant also filed "a motion for reopening the original hearing" and
"a motion for a new hearing". These two motions are, for all practical
purposes, the same and will be considered together as a motion for a new trial.
Defendant sets forth numerous reasons that she thinks she is entitled to a
new trial - none of them have merit. One of the basis for the motions is that
there was not introduced at the trial any evidence from a real estate appraiser
that the value of the property in question exceeded $16,000. There was evidence
at the hearing, however, in the form of the testimony of the defendant, that
she had been advised by a real estate appraiser that the value of the property
was $15,000.
Defendant also, in effect, claims that she should be excused from her
obligations under the contract she entered into because of her age and lack of
business experience. This area was covered in the trial.
A motion for a new trial to enable a party to introduce additional
evidence will not be granted where the movant fails to show that with
reasonable diligence he could not have discovered the evidence before trial.
Sussex Poultry Co. v. American Ins. Co., Del. Supr., 301 A.2d 281 (1973). He
must show that the proffered evidence has come to his knowledge since the trial
and that it could not, in the exercise of reasonable diligence, have been
discovered for use at the trial. Bata v. Bata, Del. Supr., 170 A.2d 711 (1961).
There has been no showing here that defendant could not have obtained
before trial the evidence she now seeks to assert.
25
RE: C.A. #6616-NC
Rosauri et al v. Ferguson
Page 3
Evidence which is only cumulative at best does not justify granting a
new trial. Cashuan v. Darling, Del. Ch., 107 A.2d 896 (1954). The evidence
which defendant now seeks to assert, even if true and even if it had been
presented at the trial, would not have changed the result. The most persuasive
evidence at trial was the uncontroverted fact that defendant not only received
a $500 down payment but also later received $1,000, then another $1,000 and
finally $500 from the plaintiff at the request of defendant and after she had
time to reflect on the agreement and was aware of all its ramifications.
Defendant also moved to set aside the judgment or order. Since no
final judgment or order has been entered in this case, this motion is, on its
face, without merit. Defendant's other arguments were all considered by me
after trial or are without foundation or merit. Defendant has shown no legally
adequate reason why the result in this matter should be changed.
This case was vigorously litigated by the attorneys involved and,
like many cases, it was not easy to decide. Parties to litigation often are
unable to accept an adverse ruling because they believe they are right. The
Court does not enjoy seeing a litigant lose but as an impartial tribunal its
job is to rule in favor of one or the other. It is not an easy task and the
Court can only do its best.
26
RE: C.A. #6616-NC
Rosauri et al v. Ferguson
Page 4
Litigation, like everything else in life, must have a conclusion. A
litigant is entitled to his day in Court and is entitled to a full and fair
opportunity to present his case -- once to the trial court and then again, if he
desires, to an appellate court. That is all that a litigant is ordinarily
entitled to. The almost impossible burden of a heavy case load does not permit
a litigant two trials on the same issue unless there is error or extremely
unusual circumstances. In my opinion, there is neither here and all the
post-trial motions of the defendant are denied.
IT IS SO ORDERED.
A final order (a copy of which is enclosed) is hereby entered. The
time for an appeal is 30 days from today.
Yours truly,
/s/ Maurice A. Hartnett, III
MAH: jds
Enc.
cc: Register in Chancery
File
27
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JACK B. JACOBS COURT HOUSE
VICE-CHANCELLOR WILMINGTON, DELAWARE 19801
August 27, 1999
Allison E. Reardon, Esquire Joseph D. Kulesza, Jr., Esquire
Deputy Attorney General 824 N. Market Street
Carvel State Building Suite 810
820 N. French Street P.O. Box 2323
Wilmington, DE 19801 Wilmington, DE 19899
RE: The Secretary of Finance v. Nor-Mar,
Inc. t/a The Smoke Shop and Steven
H. Rudnitsky, C.A. No. 16605
Dear Counsel:
On August 20, 1999, the Court heard the plaintiff's motion to hold the
defendants in contempt of this Court's Order, dated August 11, 1999, which
enjoined the defendants from transacting any business in this State in
connection with or related to the business known as Nor-Mar, Inc., trading as
The Smoke Shop. Based upon the testimony of Defendant Steven H. Rudnitsky
("Rudnitsky"), as well as the facts stipulated by the defendants' counsel, this
Court found the defendants in contempt of the August 11 Order, in that they
had continued to operate the Smoke Shop in violation of the injunction
prohibiting them from so doing.
28
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 2
On August 23, 1999, the defendants filed a Motion for Reargument, based
upon purported new evidence that was not presented at the contempt hearing held
three days before.(1) This is the Opinion of the Court on that Motion which,
for the reasons set forth, is denied.
I.
To understand the Motion for Reargument, it becomes necessary to recount
the basis for the contempt ruling from which the defendants seek relief. At the
August 20, 1999 contempt hearing the defendants admitted that (i) they knew of
the prohibitions contained in the August 11 injunction Order, and that (ii)
despite that Order, Mr. Rudnitsky had continued to operate The Smoke Shop.
Nonetheless, the defendants argued that those activities did not violate the
August 11, 1999 injunction, because on or about August 13, 1999 Nor-Mar had
sold its assets (i.e., The Smoke Shop business, including its inventory) to
Moishe, Inc., a separate corporation purportedly owned by one Howard Hyman, who
(Mr. Rudnitsky testified) is a distant cousin. Thereafter (Mr. Rudnitsky
testified),
- ----------------------
(1) Although the defendants continue to be represented by counsel of
record, the Motion for Reargument was signed (and personally filed) by Mr.
Rudnitsky, but was not signed by counsel of record, as our Rules require.
29
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 3
Moishe, Inc. hired Rudnitsky to operate The Smoke Shop as Moishe's employee.
As a consequence of these events, the defendants claimed, Rudnitsky's
continued operation of The Smoke Shop did not constitute a contempt. The August
11 Order enjoined Nor-Mar and Rudnitsky, but Nor-Mar no longer owned or
operated the business, and Rudnitsky was prohibited only from "transacting any
business...related to or connected with the business known as Nor-Mar, Inc.
t/a The Smoke Shop." Because Nor-Mar was no longer involved with that business
and because Rudnitsky was no longer acting as an agent of Nor-Mar, defendants
maintained that the continued operation of The Smoke Shop did not violate the
August 11 Order.
The infirmity in that position is that it rested entirely upon the premise
that The Smoke Shop, including the business and assets associated therewith,
had been sold to a third party in a bona fide transaction. The evidence
presented at the August 20 contempt hearing established, however, that that
premise was factually unsupported.
The evidence presented to support the bona fides of the sale to Moishe,
Inc./Howard Hyman consisted essentially of the uncorroborated (and
30
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 4
self-serving) testimony of Mr. Rudnitsky. More specifically:
1. The defendants presented no documentary evidence (such as a written
agreement of sale or a written agreement evidencing Moishe, Inc.'s employment of
Mr. Rudnitsky) that any such sale and employment relationship had actually
occurred. Mr. Rudnitsky did show that he had formed Moishe, Inc., (using a
Nor-Mar check to pay the incorporation fee). The only relevant document produced
at the hearing was a one page "Bill of Sale," signed by Mr. Rudnitsky on behalf
of Nor-Mar, Inc. which purported to transfer (effective as of August 13, 1999)
"the property described in the attached Exhibit for the amount of $1.00." No
"Exhibit" describing the property being sold was attached, and the "Bill of
Sale" bore no signature of Mr. Hyman on behalf of Moishe, Inc., the putative
buyer. Mr. Rudnitsky testified that that "Bill of Sale" was the only
documentation created in connection with the transaction, and conceded that he
never delivered the Bill of Sale to Mr. Hyman.
2. Mr. Hyman, who Rudnitsky claimed was the other party to this
transaction, never came forward, either in person or by affidavit, to vouch for
its bona fides. His absence is telling, because if in fact Mr. Hyman (or his
31
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 5
corporation) had acquired the business, one would expect him to manifest some
interest in defending his acquisition. In fact, the evidence showed that
throughout this entire scenario there was only one actor -- Mr. Rudnitsky --
who had the strongest self interest in keeping The Smoke Shop's doors open.
Mr. Rudnitsky alone formed Moishe, Inc., caused the "Bill of Sale" to be
prepared, and testified at the contempt hearing. Mr. Hyman never surfaced.
3. In addition, Mr. Rudnitsky testified to facts that were wholly
inconsistent with any bona fide sale. Although Mr. Rudnitsky conceded that The
Smoke Shop had been the source of his livelihood for almost 25 years, and that
the inventory being sold could be liquidated for $20,000, he was unable to
explain why he would be willing to divest his interest in that business for
only $1.00 -- an amount Rudnitsky admitted he never actually received.
Based on this record, the Court found that no legitimate sale of the
business had ever occurred, but also that if a transfer of some kind to Moishe,
Inc. did take place, it had no legal significance because Moishe, Inc. was the
agent or a1ter ego of Mr. Rudnitsky. For these reasons, the Court found the
defendants in contempt of its August 11, 1999 Order.
32
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 6
II.
Three days later, on August 23, 1999, Mr. Rudnitsky served and filed a
document styled a "Motion for Reargument" of the Court's contempt ruling. The
thrust of the Motion is that at the contempt hearing the defendants had no fair
opportunity to produce documentation showing (contrary to the Court's finding)
that the Moishe, Inc. sale was a bona fide transaction. Expedited reargument
was requested to enable the defendants to make that showing.
Attached to the Motion was a document purporting to be an "affidavit"
of Howard Hyman, bearing the date August 23, 1999. That document recites that
(i) Mr. Hyman is the purchaser named in "the agreement of sale attached hereto,
dated July 17, 1999, concerning the business...known as the Smoke Shop," that
(ii) the "said agreement is a true and correct agreement;" and that (iii) Mr.
Hyman is the owner of RMCO, Inc., which "to the best of [his] knowledge," owns
Moishe, Inc.(2)
Attached to the Hyman affidavit is a 16 page document that purports
- ----------------------
(2) Although the "affidavit" purports to be signed by Mr. Hyman, the
signature is not acknowledged by a notary. Accordingly, the affidavit is
defective because it does not show on its face that the affiant is, in fact,
Mr. Hyman.
33
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 7
to be an "Agreement of Sale" between Nor-Mar, Inc. and Moishe, Inc. which is
described in the document as an entity yet to be incorporated. That "Agreement"
recites the assets being sold and a purchase price of $25,000. One of the
several attachments to the "Agreement of Sale," is the "Bill of Sale" that was a
subject of Rudnitsky's testimony at the contempt hearing. The attached "Bill of
Sale," however, now shows a signature above the signature line for "Howard M.
Hyman," and an asterisk next to the recited $1.00 purchase price, which directs
the reader to a handwritten notation at the bottom of the page which states:
"Business name The Smoke Shop and goodwill, only."
III.
The plaintiff, Secretary of Finance, opposes the Motion for Reargument.
I agree that the Motion lacks merit on both procedural and substantive grounds.
1. The standard on a Rule 59 motion for reargument is whether the Court
has misapprehended a material fact or rule of law. Any such determination must
be based on the record existing at the time of the decision. Rule 59(f) does not
authorize the submission of affidavits on motions for reargument. Miles v.
34
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 8
Cookson, Del. Ch., 677 A.2d 505, 506 (1995).
The defendants do not argue that the Court misapprehended any facts
based upon the record existing at the time of the decision. What defendants in
truth are asking for is that the Court revisit the issue of the bona fides of
the sale, on the basis of new evidence. The only procedural vehicle appropriate
for that purpose is a motion for new trial based on newly discovered evidence
under Rule 60(b).
2. Even if this Motion could properly be viewed as a Rule 60(b)
application, it would be denied because according to the dates referenced in the
documents (July 17 and August 13, 1999), the defendants cannot argue that this
evidence was "newly discovered." That is defendants cannot argue that the
evidence came to their knowledge after the contempt hearing and that they could
not have produced that evidence at the contempt hearing by exercising due
diligence. See Bata v. Bata, Del. Supr., 170 A.2d 711, 714 (1961).
3. The Court strongly suspects that these documents were not presented at
the contempt hearing because they did not then exist. For this Court to find
that the documents did exist, it would have to reject Mr. Rudnitsky's sworn
testimony
35
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 9
that there was no documentation of the transaction other than the unexecuted,
undelivered one page "Bill of Sale" of The Smoke Shop for $1.00. Now the Court
is being told that that sale was evidenced by a formal Agreement of Sale dated
July 17, 1999 -- almost one month before the August 20, 1999 contempt hearing.
The Court is also asked to believe that (i) the one-page Bill of Sale, which
Rudnitsky testified was not executed by or delivered to Mr. Hyman, had in fact
been executed by and delivered to him several weeks before; and that (ii) the
recited $1.00 purchase price was not for the entire business (as the Bill of
Sale presented at the hearing stated and as Mr. Rudnitsky testified), but only
for the name and goodwill of the business.
The defendants' only explanation for this apparent repudiation of Mr.
Rudnitsky's testimony is a statement in the Reargument Motion that he
[Rudnitsky] "was unable to obtain all material documentation and evidence in
time for the hearing." If that were true, Mr. Rudnitsky's counsel could have
informed the Court of the existence of the "documentation and evidence" and
sought a postponement of the hearing. Neither Rudnitsky nor his counsel did
that. Rather, Mr. Rudnitsky testified under oath that no such documentation
existed.
36
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 10
Mr. Rudnitsky cannot now be heard to contend otherwise, now that the Court has
heard that testimony and ruled adversely to him.
4. Finally, relief must be denied because it is sought by parties with
unclean hands. The defendants were ordered to cease doing business as The Smoke
Shop at its present location. They openly defied that Order, and to this day
have continued to do so. Even if the defendants believed that the injunction was
erroneous, they were not free to disobey it. Their duty was to abide by the
injunction until relieved from it by this Court. Instead they granted themselves
the relief that they seek and now ask this Court to ratify their conduct. Such
behavior will not be countenanced.
* * *
I have enclosed a copy of the Order entered this date, adjudicating the
defendants in contempt and denying the pending Motion.
37
Allison E. Reardon, Esquire
Joseph D. Kulesza, Jr., Esquire
August 27, 1999
Page 11
Very truly yours,
/s/ Jack B. Jacobs
Enclosure
cc: Register in Chancery
Mr. Steven H. Rudnitsky
Nor-Mar, Inc.
1624 Delaware Avenue
Wilmington, DE 19806
38
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
THE SECRETARY OF FINANCE :
FOR THE STATE OF DELAWARE, :
:
Plaintiff, :
:
v. : C.A. No. 16605
:
NOR-MAR; INC., t/a :
THE SMOKE SHOP and :
STEVEN H. RUDNITSKY, :
:
Defendants. :
ORDER
Upon the Motion of Plaintiff for a Rule to Show Cause why the
Defendants should not be held in contempt, and the Court having heard the Motion
on August 20, 1999, and having issued its Opinion of even date, denying the
defendants' Motion for Reargument;
WHEREFORE, IT IS HEREBY DETERMINED, FOUND AND ORDERED this 27th day of
August 1999, as follows:
1. Defendants, Nor-Mar, Inc. t/a The Smoke Shop, its officers,
directors and agents are in contempt of this Court's Order dated August 11,
1999, enjoining them from transacting any business in this State in connection
with or related to the business known as Nor-Mar, Inc. t/a The Smoke Shop.
39
2. Steven H. Rudnitsky, individually and as an officer and agent of
Nor-Mar, Inc. t/a The Smoke Shop, is in contempt of this Court's Order dated
August 11, 1999, enjoining him from transacting any business in this State in
any way related to or connected with the business known as Nor-Mar, Inc. t/a The
Smoke Shop.
3. The defendants' Motion for Reargument is denied.
4. Defendants Nor-Mar, Inc. t/a The Smoke Shop ("The Smoke Shop") and
Steven H. Rudnitsky are ordered immediately to cease doing business and
immediately to close and lock the doors of the business premises located at 1624
Delaware Avenue.
5. Should the defendants fail to comply with Paragraph 4 of this Order,
the Secretary of Finance (a) is authorized to cause the business premises at
1624 Delaware Avenue to be locked or otherwise secured, and (b) may apply for an
order or orders imposing appropriate sanctions, including sanctions authorized
by 10 Del. C. ss.370.
/s/ Jack B. Jacobs
-----------------------------------
Vice Chancellor
40
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JACK B. JACOBS COURT HOUSE
VICE-CHANCELLOR May 9, 1994 WILMINGTON, DELAWARE 19801
David A. Jenkins, Esquire
Smith, Katzenstein & Furlow
P. O. Box 410
Wilmington, DE 19899
Victor F. Battaglia, Esquire
Francis S. Babiarz, Esquire
Biggs & Battaglia
P.O. Box 1489
Wilmington, DE 19899
Re: ROSS SYSTEMS CORPORATION AND LEWIS M. SANG
V. STANLEY E. ROSS, C.A. NO. 10378
DATE SUBMITTED: MARCH 29, 1994
Dear Counsel:
On February 15, 1994, this Court issued its Memorandum Opinion ("Ross
II") determining, inter alia, that the plaintiff, Mr. Lewis M. Sang, was
entitled to damages for loans he made to Ross Systems Corporation (the "Company"
or "Ross Systems") prior to May, 1988. In that Opinion, the Court established
the period from the founding of the Company up to May, 1988 as the so-called
"damage period," during which Mr. Sang's damages were found to have been
proximately induced by the defendant's (Dr. Stanley E. Ross') fraud. The Court
denied that part of Mr. Sang's damage claim based upon his guarantee of the
Company's $254,000 line of credit, because Mr. Sang had not proved that he made
that guarantee within the damage period.
Mr. Sang now moves for a new trial, pursuant to Chancery Court Rule
59(a), in order to supplement the record with documents that would prove that
$174,500 of his loan guarantee
41
was in fact made within the damage period. Mr. Sang contends that those
documents conclusively corroborate his uncontroverted trial testimony that Ross
Systems borrowed $174,500 pursuant to a line of credit (which he guaranteed)
during February and March of 1988. P1. Mar. 30, 1994 Memorandum at 2. Mr. Sang
admits that at all relevant times most of these documents existed in his
personal files. Thus, Mr. Sang does not claim that he exercised proper diligence
to obtain those documents either before or during the trial, or during
post-trial briefing. Id. at 5 n.2. He contends, nonetheless, that it would be a
"grave miscarriage of justice" for the Court not to allow him to reopen the
record, or to modify its adverse factual finding based on this newly proffered
evidence. Id. at 7.
In support of his position, Mr. Sang relies on Ferrell v. Trailmobile,
223 F.2d 697, 698 (5th Cir. 1955), where the Fifth Circuit created a narrow
exception to the general rule that a new trial based upon "newly discovered
evidence" will not be granted where the evidence was available or, by use of
reasonable diligence could have been available, at the trial.(1) In Ferrell,
judgment had been entered against the defendant. Thereafter, the defendant
obtained copies of money orders that demonstrated that he had, in fact, made the
payment which the Court had previously found had not been made. Reversing the
District Court's denial of the defendant's motion for a new trial, the Fifth
Circuit held:
If, in fact, practically conclusive evidence shows that the appellant
had actually paid [his debt], it is obvious that the judgment should be
set aside to prevent a manifest miscarriage of justice. In such a case,
the ends of justice may require granting a new
- ---------------
(1) Federal case law requires that before a new trial may be granted on
the basis of "newly discovered evidence," the court must be satisfied that the
alleged newly discovered evidence: (1) was discovered since the trial; (2) could
not with due diligence have been discovered earlier; (3) is not merely
cumulative or impeaching; (4) is material to the issues; and (5) is such that
upon a retrial it would probably produce a different result. Estate of Kraus v.
Commissioner of Internal Revenue, 875 F.2d 597, 602 (7th Cir. 1989); McCullough
Tool Co. v. Well Surveys, Inc., 343 F.2d 381, 410 (10th Cir. 1965).
2
42
trial even though proper diligence was not used to secure such evidence
for use at the trial.
Id. at 698. See also Johnson Waste Materials v. Marshall, 611 F.2d 593, 599 (5th
Cir. 1980) (applying Ferrell on a motion under Rule 60(b)(2)); Ope Shipping,
Ltd. v. Underwriters at Lloyds, 100 F.R.D. 428, 432 (S.D.N.Y. 1983) (applying
Ferrell on a motion under Rule 59(a)). Mr. Sang contends that because the facts
here are comparable to those in Ferrell, this Court should follow Ferrell and
its progeny and grant a new trial to avoid a "manifest miscarriage of justice."
Dr. Ross does not dispute Mr. Sang's contention that the evidence he
seeks to introduce would establish that his guarantee became effective within
the damage period. What Dr. Ross does contend is that Mr. Sang's motion should
be denied because (i) evidence was in his possession, and was fully available to
him, before the Court rendered its damage determination; and (ii) the Court has
already afforded Mr. Sang at least one opportunity to supplement the record.
Therefore, no "miscarriage of justice" would result from a denial of Mr. Sang's
motion.
Mr. Sang's position rests upon the notion that a "manifest miscarriage
of justice" will occur if a party is not permitted to reopen the record to
introduce "practically conclusive evidence" that concededly could have been
presented earlier had the moving party been diligent. That proposition, as thus
articulated, has not been accepted as the law of Delaware. In Delaware, a motion
for a new trial will normally be denied where the moving party fails to show
that by exercising reasonable diligence it could not have discovered the
evidence before trial. See Sussex Poultry Co., Inc. v. American Ins. Co., Del.
Supr., 301 A.2d 281, 283 (1973). Moreover, our Supreme Court has explicitly
recognized that applications for a new trial are "always addressed to the
judicial discretion of the Court so that injustice may be prevented...."
3
43
Rappa, Inc. v. Hanson, Del. Supr., 209 A.2d 163, 166 (1965) (emphasis added).
Thus, our law in its present form is adequate to avoid injustice.
I find it unnecessary in this case to decide whether Ferrell should be
adopted as a principle of general application. For even if Ferrell were the
governing principle, Mr. Sang would still not be entitled to relief. Mr. Sang is
misguided in suggesting that the goal of reaching a just result based on all the
facts is the only principle to be considered. To the contrary, the Court must
also consider an equally valid principle, namely, that judicial determinations,
once made, are usually final and that litigation at some point must conclude. In
balancing those potentially conflicting principles, the need for finality of a
judgment will sometimes outweigh the need to consider all available facts
(particularly when the trial is long over) to reach the just result. In this
case, the interests of finality must prevail, because Mr. Sang has already had
opportunities to augment the record, but did not utilize them.
In its February 19, 1993 trial Opinion ("Ross I"), the Court noted that
the plaintiffs' briefs were "largely devoid of explanatory damage-related
facts." Ross I at 45. At that stage the Court could have properly rejected the
plaintiffs' unsupported damage claim outright, but instead it afforded Mr. Sang
an opportunity to submit further briefs in order to address its concerns and to
avoid a "miscarriage of justice." Id. at 47. After the parties submitted their
supplemental memoranda, the Court again became concerned that two of Mr. Sang's
damage claims remained unsupported by adequate documentation, and specifically
asked counsel whether documentation existed to support those claims. The Court's
first inquiry concerned Mr. Sang's damage claim of $109,500. That amount
included a $10,000 note dated September 22, 1987 that Mr. Sang had inadvertently
omitted from his trial exhibits. In a letter to the Court dated January
4
44
24, 1994, W. Sang's counsel noted that oversight, and moved to reopen the record
to include the $10,000 note. The Court granted that motion. Ross II at 4 n.4.
The second inadequately documented claim was for the loss arising out of Mr.
Sang's guarantee of Ross Systems' $254,500 line of credit. Regarding that
guarantee, Mr. Sang's counsel wrote:
Your Honor is ... correct that no document from 1988 concerning this
guarantee of Mr. Sang is in the trial record. Nevertheless, as
plaintiffs have previously argued, this uncontroverted amount should be
included among his damages.
Pl. Jan. 24, 1994 Letter at 2.
Thus, Mr. Sang has already been given at least one--and arguably
two--opportunities since the trial to supplement the record to support his
damage claims. One of those opportunities arose in connection with the very
guarantee that is the subject of Mr. Sang's present request for a new trial. Mr.
Sang was specifically put on notice of the Court's concern that his claim for
recovery of the loss arising out of the loan guarantee was not adequately
documented, and Mr. Sang's January 24, 1994 response to the Court evidenced his
awareness that he could move to reopen the record. In fact, Mr. Sang did move
(successfully) to reopen the record with respect to the $10,000 note. However,
for unknown reasons, Mr. Sang consciously decided not to do so with respect to
the loan guarantee Instead, he rested upon the then-existing record.
In these circumstances, and given the substantial judicial resources
already invested in this case, it would not be unjust (let alone "manifestly"
unjust) to deny Mr. Sang yet another opportunity to prove his damage case. Mr.
Sang has had more "bites out of the apple" than any litigant is normally
afforded, and he cannot seriously claim to have been treated unfairly. The time
has now come in this lengthy and highly contentious litigation for the interest
of finality
5
45
to prevail. Any other result would undermine the integrity of the litigation
process.
For the foregoing reasons, the plaintiff's motion to open the record,
some 32 months after the trial, to introduce evidence that was available to him
before and during the trial, is denied. See Rappa, Inc., 209 A.2d at 166 (Rule
59(a) motion to supplement the record denied where the movant made its
application 17 months after trial using evidence available to it at the time of
the original hearing). Counsel shall submit a form of final order implementing
this ruling and the relevant prior ruling of this Court.(2)
Very truly yours,
/s/ Jack B. Jacobs
-----------------------------------
Jack B. Jacobs
cc: Register in Chancery
- -------------------
(2) It should be noted that the only undecided issue remaining after this
Court's Ross II Opinion, the plaintiff's Rule 11 claims, was resolved through
mediation. Accordingly, that matter need not be referred to a Special Master as
it would otherwise have been. See Ross II at 20.
6
46
CERTIFICATE OF SERVICE
I hereby certify that on February 7, 2000, two copies of the within MOTION
FOR A NEW TRIAL were served by hand delivery on the following attorneys of
record at the addresses indicated:
Charles E. Butler, Esquire
Smith Katzenstein & Furlow
800 Delaware Avenue
Wilmington, Delaware 19801
Stephen E. Jenkins, Esquire
Ashby & Geddes
One Rodney Square
Wilmington, Delaware 19801
John T. Dorsey, Esquire
Richards, Layton & Finger
One Rodney Square
Wilmington, Delaware 19801
/s/ Matthew E. Fischer
------------------------------------
Matthew E. Fisher