Exhibit 10.1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
)
IN RE NEW VALLEY CORPORATION ) Consolidated
DERIVATIVE LITIGATION ) Civil Action No. 17649-NC
)
STIPULATION AND AGREEMENT OF SETTLEMENT
The parties to the above-captioned action, by and through their
respective attorneys, hereby enter into the following Stipulation and Agreement
of Settlement (the "Stipulation" or "Settlement," as appropriate), subject to
the approval of the Court of Chancery of the State of Delaware (the "Court"):
WHEREAS,
A. Two actions were commenced in the Court, styled Fuss v. New Valley
Corporation, C.A. No. 15613-NC and Goodwin v. New Valley Corporation, C.A. No.
16840-NC (the "Actions").
B. The Actions were filed as derivative actions on behalf of the
nominal defendant, New Valley Corporation ("New Valley" and/or the "Company").
Also named as individual defendants in the Actions were various New Valley
directors, namely, Arnold I. Burns ("Burns"), Henry C. Beinstein ("Beinstein"),
Ronald J. Kramer, Richard J. Lampen, Bennett S. LeBow, Howard M. Lorber, Richard
S. Ressler, Barry W. Ridings ("Ridings"), and Victor M. Rivas (collectively, the
"Individual Defendants"), and Brooke Group Ltd. ("Brooke" and, together with the
Individual Defendants and New Valley, the "Defendants").
C. Brooke, now known as Brooke Group Holding Inc., an indirect, wholly
owned subsidiary of Vector Group Ltd. ("Vector"), was New Valley's controlling
stockholder at the time of the Transaction (defined in recital "D" below) and
was the beneficial owner of approximately 40% of New Valley's common stock,
approximately 60% of New Valley's Class A Preferred shares, and approximately
10% of New Valley's Class B Preferred shares. BrookeMil Ltd. ("BML") was a
subsidiary of Brooke and a Russian real estate development company at the time
of the Transaction.
D. In each of the initial operative complaints in the Actions,
plaintiffs claimed that the Individual Defendants knowingly breached their
fiduciary duty of loyalty to New Valley and its shareholders by (1) acquiescing
in the acquisition by New Valley of BML from Brooke (the "Transaction"), (2)
accepting terms in the Transaction that were unfair to New Valley, (3)
overpaying Brooke for the purchase of BML at a price exceeding BML's fair market
value and book value, and (4) engaging in self-dealing and interested
transactions, which were not recommended by a properly functioning or
independent Special Committee of the New Valley Board of Directors and which
were not at arms length. The complaints also asserted that the Transaction
constituted corporate "waste."
E. On February 13, 1997, plaintiff Richard Fuss ("Fuss") filed a
derivative complaint on behalf of nominal defendant New Valley against the
directors of New Valley and Brooke alleging breach of fiduciary duty.
F. On November 17, 1998, in accordance with 8 Del. C. ss. 220, Richard
C. Goodwin ("Goodwin"), formerly a plaintiff herein and at that time a
beneficial owner of New Valley shares, and Cede & Co. ("Cede"), as nominee for
Goodwin, served a demand letter on New Valley, seeking to inspect New Valley's
books and records relating to the disputed Transaction.
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G. On December 11, 1998, Goodwin filed a verified complaint against New
Valley, seeking to enforce his inspection rights under 8 Del. C. ss. 220 to
determine whether to pursue a derivative action against New Valley's officers
and/or directors for waste and/or self-dealing with respect to the Transaction.
On January 4, 1999, defendant moved to dismiss the Goodwin verified complaint
for failure to comply with the requirements of 8 Del. C. ss. 220, including, but
not limited to, failure to state a proper purpose and a claim upon which relief
can be granted. Shortly before trial on the demand for inspection, the parties
settled the dispute over the inspection rights and New Valley gave certain of
the requested documents to Goodwin.
H. On December 9, 1999, Goodwin filed a derivative complaint with
allegations similar to those contained in plaintiff Fuss' February 13, 1997
derivative complaint. The Goodwin complaint contained additional factual
allegations based, in part, on the documents New Valley produced pursuant to
Goodwin's action under 8 Del. C.ss.220.
I. By order dated February 7, 2000, the Court consolidated the Fuss and
Goodwin actions and directed that Goodwin's complaint serve as the operative
complaint in the consolidated action. The Court appointed the law firms of Grant
& Eisenhofer and Abbey Gardy as plaintiffs' committee of the whole.
J. On February 28, 2000, plaintiffs filed an amended derivative
complaint ("Amended Complaint"), which corrected certain factual errors
regarding the composition of New Valley's board of directors at the time
plaintiff Goodwin filed his original complaint. In the Amended Complaint,
plaintiffs again claimed, INTER ALIA, that
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the Individual Directors violated their fiduciary duty of loyalty by approving
the Transaction and asserted that the Transaction constituted corporate "waste."
K. On March 13, 2000, Defendants filed a motion to dismiss the
plaintiffs' Amended Complaint, which the Court denied by memorandum opinion and
order dated January 11, 2001.
L. Thereafter, plaintiffs conducted extensive document discovery from
Defendants and third parties and deposed Individual Defendants Burns, Beinstein
and Ridings.
M. On October 3, 2003, Defendants moved for summary judgment against
plaintiff Goodwin. On June 28, 2004, the Court granted Defendants' motion for
summary judgment against plaintiff Goodwin on the grounds that Goodwin lacked
standing, inter alia, because he failed to satisfy the contemporaneous ownership
requirement for derivative actions by virtue of a lapse of ownership of New
Valley stock during the months of October 2000 through March 2001.
N. Counsel for plaintiff have examined the relevant facts and law
relating to the matters set forth in the Amended Complaint and have conferred
with experts regarding damages caused by the Defendants' alleged breaches of
fiduciary duty and plaintiff and his counsel have concluded that the terms and
conditions of the Settlement (as defined below) are fair, reasonable, adequate,
and in the best interests of the Company and its stockholders. Plaintiff has
entered into this Stipulation after taking into account, among other things, (1)
the value of the Settlement to the Company and its public shareholders, (2) the
risks of continued litigation, and (3) the conclusion of plaintiff's
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counsel that the terms and conditions of the Settlement are fair, reasonable,
adequate, and in the best interests of the Company and its stockholders.
NOW, THEREFORE, IT IS STIPULATED AND AGREED, in consideration of the
benefits afforded as described herein, subject to the approval of the Court and
pursuant to Court of Chancery Rule 23.1, as follows:
1. All claims, rights, demands, causes of action, suits, matters and
issues known or unknown by plaintiff, any other past or present stockholder of
the Company, or the Company, or by their or its predecessors, successors or
assigns (or any person claiming by, through, in the right of, or on behalf of
them or the Company by subrogation, assignment or otherwise), whether asserted
directly, derivatively or otherwise, against Defendants (including the Company,
as nominal defendant) or any of their families, parent entities, affiliates,
subsidiaries, predecessors, successors or assigns, and each and all of their
respective past, present or future officers, directors, associates,
stockholders, controlling persons, 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
or administrators (collectively, the "Released Persons"), whether under state,
federal, common or administrative law, which have been, or could have been,
asserted relating to the Transaction, the related disclosure materials,
disclosures, facts and allegations that are or could (insofar as such
transactions, disclosures, facts and allegations relate to, result from, or
occurred in connection with, the subject matter of the Actions) be the subject
of the Actions (collectively, the "Settled Claims"), shall be compromised,
settled, released and dismissed with prejudice, upon and
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subject to the following terms and conditions; provided, however, that the
Settled Claims shall not include the right to enforce the terms of this
Stipulation.
2. In full and final settlement of the Actions, the parties agree that:
(a) Vector will pay seven million dollars ($7,000,000) in cash
to New Valley (i) if no appeal is taken from the entry of the Final Order
(defined in paragraph 4, below), within five (5) business days following the
last date on which such an appeal could have been timely filed; and (ii) if an
appeal is taken from the entry of the Final Order, within five (5) business days
of the first to occur of (x) affirmance of the Final Order on appeal following
the exhaustion of all possible appeals and (y) the expiration of the time to
file a further appeal from an affirmance on appeal of the Final Order with no
such further appeal having been filed.
(b) As soon as practicable after the execution of this
Stipulation, the parties jointly shall apply to the Court for an Order in the
form attached hereto as Exhibit A (the "Scheduling Order"), which shall provide,
inter alia: (a) that a notice substantially in the form attached hereto as
Exhibit B (the "Notice") is approved, and that distribution of the Notice in the
manner and the form set forth in the Scheduling Order is the best notice
practicable under the circumstances and meets the requirements of due process
and applicable law and shall constitute due and sufficient notice of the
proposed Settlement to all persons entitled to receive notice; and (b) that a
hearing (the "Settlement Hearing") shall be held at a date set by the Court to
determine whether the Settlement is fair, reasonable and adequate and should be
approved by the Court.
3. The Company shall be responsible for the reproduction and
distribution of the Notice in accordance with the Scheduling Order and all costs
related to such Notice
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shall be paid by the Company whether or not the Settlement is approved. Prior to
or at the Settlement Hearing, counsel for the Company shall file with the Court
an appropriate affidavit with respect to preparation and distribution of the
Notice.
4. If the Settlement is approved by the Court, the parties promptly
shall request that the Court enter a final order and judgment dismissing the
Actions with prejudice (the "Final Order"), substantially in the form attached
hereto as Exhibit C.
5. At or before the Settlement Hearing, plaintiff's counsel may apply
for an award of fees not to exceed two million one hundred thousand dollars
($2,100,000) and documented expenses not exceeding fifty thousand dollars
($50,000), to be paid by New Valley as plaintiff's counsel shall direct.
Defendants agree not to oppose an application up to those amounts. 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 expenses.
Defendants retain the rights to oppose any other application for fees or
disbursements by plaintiff, plaintiff's counsel or any other person. Subject to
the terms and conditions of this Stipulation, such fees and expenses shall
become payable within two (2) business days from the later of the date on which
(i) the order approving the Settlement is entered or (ii) any separate Order of
the Court awarding plaintiff's counsel fees and expenses is entered. As a
condition precedent to receiving payment of attorneys fees and expenses in
conformity with this paragraph, plaintiff's counsel agree, jointly and
severally, to repay to New Valley the fees and expenses so received, or the
appropriate portion thereof, within 60 days in the event that either the
Settlement is overturned on appeal or the amount of plaintiff's counsel's
approved fees and expenses is lowered on appeal.
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6. Each of the parties shall have the option to withdraw from and
terminate the Settlement in the event that (a) either the Scheduling Order or
the Final Order are not entered substantially in the forms specified herein,
including such modifications thereto as may be ordered by the Court with the
consent of the parties; or (b) the Settlement is not approved by the Court or is
disapproved or substantially modified upon appeal. For purposes of this section,
a disallowance or modification by the Court or on appeal of the fees and
expenses provided for in paragraph 5 hereof shall not be deemed a modification
or disapproval of the Settlement or the Final Order. In the event that a party
withdraws from and terminates this Settlement, that party must provide, within
five (5) business days of the event giving rise to such action, written notice
of such withdrawal or termination and the grounds therefore to all signatories
to this Stipulation.
7. In the event the Settlement proposed herein is not 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, including the
repayment of attorneys' fees and expenses as set forth above.
8. If the Settlement is terminated for any reason whatsoever, all
negotiations, proceedings, agreements, documents, and statements made in
connection herewith shall
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not be deemed or construed to be evidence or an admission by any party of any
act, matter or proposition and shall not be used in any manner or for any
purpose in any subsequent proceeding in the Actions, or in any other action or
proceeding.
9. The provisions contained in this Stipulation are not and shall not
be argued by any person to be or to be deemed to be a presumption, concession or
admission by any defendant of any fault, liability or wrongdoing as to any facts
or claims alleged or asserted in this or any other action or proceeding, or to
be or to be deemed to be a presumption, concession or admission by plaintiff of
any lack of merit in the claims alleged or asserted, and shall not be
interpreted, construed, deemed, invoked, offered or received in evidence or
otherwise used by any person in this or any other action or proceeding, civil,
criminal or administrative, except in a proceeding to enforce the terms or
conditions of the Stipulation.
10. Defendants have denied and continue to deny that they have engaged
in any misconduct or breaches of duty alleged in the Actions, and they have
denied and continue to deny the material allegations of the Amended Complaint
and all prior complaints in the Actions, and assert that the claims alleged are
without merit, and that their conduct at all times has been lawful and proper.
Nevertheless, Vector believes that the continued litigation of the Actions could
have a substantial adverse effect upon its reputation, and it has agreed to fund
the settlement payment set forth in paragraph 2 hereof to ensure that it does
not suffer such reputational injury.
11. If any claims which are or would be subject to the release and
dismissal contemplated by the Settlement are asserted against any Released
Person in any court
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prior to the Settlement becoming Final, plaintiff shall join
in any motion to dismiss or stay such proceedings.
12. Each of the attorneys executing this Stipulation on behalf of one
or more parties hereto warrants and represents that he or she duly has been
authorized and empowered to execute the Stipulation on behalf of his or her
respective clients.
13. This Stipulation constitutes the entire agreement among the
parties, and supersedes any prior agreements among the parties (including,
without limitation, the proposed settlement in principle) with respect to the
subject matter hereof. This Stipulation may not be amended nor may any of its
provisions be waived except by a writing executed by all of the parties hereto.
14. This Stipulation, upon becoming operative, shall be binding upon
and inure to the benefit of the parties hereto (and in the case of the benefits,
all Released Persons) and their respective executors, administrators, legal
representatives, heirs, transferees, successors in interest and assigns and upon
any corporation, partnership or other entity into or with which any party may
merge or consolidate.
15. 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.
16. This Stipulation shall be governed by and interpreted according to
Delaware law, without reference to rules of conflicts of laws.
17. 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.
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18. This Stipulation may be executed in any number of actual or
telecopied counterparts and by each of the different parties thereto on several
counterparts, each of which when so executed and delivered shall be an original.
The executed signature page(s) from each actual or telecopied counterpart may be
joined together and attached to one such original and shall constitute one and
the same instrument.
19. The parties hereto and their attorneys agree to cooperate fully
with one another and to use their best efforts in seeking and securing Court
approval of this Stipulation and the Settlement.
Dated: March 11, 2005
/s/ Jay W. Eisenhofer
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Jay W. Eisenhofer
Grant & Eisenhofer, P.A.
1220 North Market Street, Suite 500
Wilmington, Delaware 19801
(302) 622-7000
/s/ Norman M. Monhait
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Norman M. Monhait
ROSENTHAL, MONHAIT, GROSS & GODDESS
Mellon Bank Center, Suite 1401
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
/s/ Arthur N. Abbey
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Arthur N. Abbey
ABBEY GARDY, LLP
212 East 39th Street
New York, New York 10016
(212) 889-3700
Attorneys for Plaintiff
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/s/ Michael D. Goldman
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Michael D. Goldman
POTTER, ANDERSON & CORROON, LLP
1313 North Market Street
P.O. Box 951
Wilmington, Delaware 19899
/s/ Michael L. Hirschfeld
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Michael L. Hirschfeld
MILBANK, TWEED, HADLEY & McCLOY, LLP
1 Chase Manhattan Plaza
New York, New York 10005
Attorneys for Defendants
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