IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
)
IN RE BALLY'S GRAND DERIVATIVE ) Consolidated Civil Actions
LITIGATION ) Nos. 14644 and 15325
)
STIPULATION OF SETTLEMENT
IT IS HEREBY STIPULATED TO AND AGREED, by and among the undersigned
attorneys, that the above-captioned action (the "Litigation") shall be
settled, compromised and dismissed with prejudice, in the manner and upon the
terms and conditions stated below (the "Settlement," "Stipulation" or
"Stipulation of Settlement").
A. OVERVIEW OF LITIGATION. The plaintiffs in this Litigation are
shareholders of Bally's Grand, Inc. ("Bally's Grand"), who have asserted
derivative claims on behalf of Bally's Grand and direct claims on behalf of
themselves. From the time the Litigation was commenced on October 27, 1995
until shortly after the signing of a Memorandum of Understanding on June 12,
1997 pursuant to which the parties agreed in principle to settle the
Litigation, Bally Entertainment Corporation ("Bally Entertainment") owned
between 80.7 and 84.7 percent of the shares of common stock of Bally's Grand.
On March 25, 1993, before the acquisition of 15 percent of Bally Grand's
shares by Bally Entertainment, which at the time was known as Bally
Manufacturing Corpo-
ration ("Bally Manufacturing"), the Bally's Grand board approved that
acquisition and exempted any business combination involving Bally's Grand and
Bally Entertainment or any affiliate of Bally's Entertainment from Section
203 of the Delaware General Corporation Law. On December 18, 1996, Hilton
Hotels Corporation ("Hilton") acquired Bally Entertainment in a stock for
stock merger.
B. THE KAHN ACTION. On October 27, 1995, plaintiff Alan R. Kahn
commenced Civil Action No. 14,644 as a one count derivative action on behalf
of Bally's Grand. Named as defendants were Arthur M. Goldberg (the Chairman
of the Board and Chief Executive Officer of Bally's Grand), Bally
Entertainment, Arveron Investments, L.P. and Bally's Grand. Plaintiff Kahn
alleged that defendants committed breaches of fiduciary duty, including the
duties of care and loyalty, and waste of corporate assets in connection with
the following conduct: (1) an August 20, 1993 management agreement entered
into by Bally's Grand, Bally Manufacturing (as noted above, Bally
Manufacturing is the prior name of Bally Entertainment) and Bally's Grand
Management Co., Inc., a wholly-owned subsidiary of Bally Entertainment
("Grand Management"), (2) Grand Management's designation since 1993 pursuant
to the August 20, 1993 management agreement of Bally's Grand stock option
recipients, (3) purchases of shares of Bally's Grand common stock by Bally's
Grand and Bally Entertainment since August 1993, and (4) a May 10, 1995
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consulting agreement entered into by Bally's Grand and Arveron Investments,
L.P.
On August 19, 1996, plaintiff Kahn filed a three count amended and
supplemental complaint. Plaintiff Kahn's amended and supplemental complaint
dropped Arveron Investments, L.P. as a defendant.
Count I asserted a new derivative claim on behalf of Bally's Grand,
alleging that an August 1996 sale by Bally's Grand to Bally Entertainment of
the stock of a Bally's Grand subsidiary that owned the land upon which a new
casino resort with a Paris theme is being built (the "Paris Transaction")
constituted a breach of fiduciary duty, including the duties of fair dealing,
care and loyalty, a taking of a corporate opportunity, and waste of corporate
assets.
Count II re-asserted the derivative claims in plaintiff Kahn's
original complaint. Count III, a non-derivative claim, asserted that the
August 20, 1993 management agreement constituted an improper delegation of
authority by Bally's Grand's directors to Bally Entertainment.
On September 11, 1996, plaintiff Kahn moved for leave to file a
second amended and supplemental complaint, asserting the same three counts
previously asserted in plaintiff Kahn's August 19, 1996 amended and
supplemental complaint, but alleging new facts and adding five new
defendants, Jay Burnham, J. Kenneth Looloian, Darrell A.
3
Luery, Jack L. McDonald and Nicholas H. Politan, Jr., each of whom was a
Bally's Grand director at the time plaintiff Kahn's second amended and
supplemental complaint was filed. Defendants consented to the amendment, and
on September 18, 1996 plaintiff Kahn filed his second amended and
supplemental complaint.
C. THE SHAEV ACTION. On September 3, 1996, plaintiff David Shaev
commenced a second action, Civil Action No. 15,197. Named as defendants were
the same individuals and entities named as defendants in plaintiff Kahn's
second amended and supplemental complaint. Plaintiff Shaev's complaint
asserted a derivative claim on behalf of Bally's Grand, alleging that the
Paris Transaction was a breach of fiduciary duty and waste of corporate
assets.
D. CONSOLIDATION OF THE KAHN AND SHAEV ACTIONS. On October 9, 1996
this Court consolidated the Kahn action and the Shaev action under the
caption IN RE BALLY'S GRAND DERIVATIVE LITIGATION. On October 18, 1996
plaintiffs Kahn and Shaev designated plaintiff Kahn's second amended and
supplemental complaint as their consolidated complaint.
E. THE TOWER AND EXECUTIVE LIFE ACTION. On November 12, 1996,
plaintiffs Tower Investment Group, Inc. ("Tower") and Executive Life of New
York ("Executive Life") commenced a third action, Civil Action No. 15,325,
with an eight count complaint. Named as defendants were the defendants named
in plaintiff Kahn's second amended and supplemental complaint,
4
plus Grand Management, Bally Manufacturing and Hilton.
Count I, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted a breach of fiduciary duty, including
the duties of loyalty, candor and due care, by Bally Entertainment.
Count II, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted a breach of fiduciary duty, including
the duties of loyalty, candor and due care, by Messrs. Burnham, Goldberg,
Looloian, Luery, McDonald and Politan.
Count III, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted waste of corporate assets by Bally
Entertainment and Messrs. Burnham, Goldberg, Looloian, Luery, McDonald and
Politan.
Count IV, a derivative claim on behalf of Bally's Grand, alleged
that Hilton aided and abetted the alleged breaches of fiduciary duty and
waste of corporate assets by Bally Entertainment and Messrs. Burnham,
Goldberg, Looloian, Luery, McDonald and Politan.
Count V, a derivative claim on behalf of Bally's Grand, alleged
that actions by Bally Manufacturing and Grand Management, including the Paris
Transaction and alleged abuses of a Bally's Grand incentive stock plan,
constituted a fraud, willful misconduct or gross negligence by Bally
Manufacturing and Grand Management, and thus constituted a ground for the
termination of the August 20, 1993 management
5
agreement entered into by Bally's Grand, Bally Manufacturing and Grand
Management.
Count VI, a derivative claim on behalf of Bally's Grand, alleged
that Bally Entertainment purchased shares of Bally's Grand stock while in
possession of material inside information (consisting of first quarter 1996
operating results), and that these purchases constituted a breach of
fiduciary obligations by Bally Entertainment and Messrs. Burnham, Goldberg,
Looloian, Luery, McDonald and Politan.
Count VII, a non-derivative claim against Bally Entertainment,
alleged that the Paris Transaction and threats by Bally Entertainment to
abuse its controlling interest in Bally's Grand, which allegedly coerced
minority shareholders into selling their shares of Bally's Grand common stock
for less than fair value, constituted a breach of Bally Entertainment's
fiduciary duties of loyalty and fair dealing.
Count VIII, a non-derivative claim against Bally Entertainment and
Messrs. Burnham, Goldberg, Looloian, Luery, McDonald and Politan, alleged
that the Paris Transaction was void because it violated Section 203 of the
Delaware General Corporation Law. According to plaintiffs, (1) the Paris
Transaction constituted a sale of more than 10 percent of the aggregate
market value of all of the assets of Bally's Grand on a consolidated basis
and/or the aggregate market value of all of Bally's Grand's outstanding
6
stock, (2) Section 203 prohibits such sales to a holder of more than 15
percent of a corporation's stock unless the corporation's board approved the
transaction by which the shareholder became the holder of more than 15
percent of the corporation's stock, and (3) Bally's Grand has not disclosed
that its board approved the transaction by which Bally Entertainment became
the holder of 15 percent or more of Bally's Grand's stock.
F. CONSOLIDATION OF THE KAHN, SHAEV AND TOWER AND EXECUTIVE LIFE
ACTIONS. On January 3, 1997, pursuant to a stipulation signed by the parties,
this Court consolidated the Tower and Executive Life action with the Kahn and
Shaev actions previously consolidated under the caption IN RE BALLY'S GRAND
DERIVATIVE LITIGATION. The Court's January 3, 1997 consolidation order did
not require the filing or designation of a consolidated complaint. The
Litigation thus proceeded with two complaints: plaintiff Kahn's second
amended and consolidated complaint, which plaintiff Shaev had joined, and the
Tower and Executive Life complaint.
G. PROCEEDINGS PRIOR TO SETTLEMENT. On November 27, 1995, the
defendants named in plaintiff Kahn's complaint moved to dismiss plaintiff
Kahn's complaint, contending that plaintiff failed to make a pre-litigation
demand or plead facts demonstrating that demand is excused as futile.
Defendants also moved to dismiss plaintiff Kahn's complaint to the extent
that it challenged conduct that occurred
7
before plaintiff became a shareholder of Bally's Grand in March 1995. This
motion to dismiss was mooted by the filing of plaintiff Kahn's amended and
consolidated complaint on August 19, 1996.
Also on August 19, 1996, plaintiff Kahn filed a motion seeking
expedited proceedings and a preliminary injunction enjoining consummation of
the Paris Transaction. On August 28, 1996, after learning that the Paris
Transaction already had closed, plaintiff amended his motion to seek
expedited proceedings and rescission of the Paris Transaction. On August 29,
1996, the Court orally denied plaintiff's motion for expedited proceedings.
On November 7, 1996, all defendants named in plaintiff Kahn's
second amended and supplemental complaint filed answers to Count I and
motions to dismiss Counts II and III. The motions to dismiss Count II were
based upon the same grounds as defendants' prior motion to dismiss plaintiff
Kahn's original complaint. The motion to dismiss Count III contended that
Count III failed to state a claim upon which relief could be granted because
as a matter of law Bally's Grand's directors had not improperly delegated
authority under the management agreement, and in any event, defendants
contended, any such claim was barred because the management agreement was
adopted pursuant to a reorganization plan ordered by the United States
Bankruptcy Court for the District of New Jersey.
8
On June 4, 1997, this Court denied defendants' motions to dismiss
plaintiff Kahn's second amended and supplemental complaint, with leave to
renew the motions following supplemental briefing. With respect to Count II,
the Court held that the demand futility issue could not be decided based upon
the record before the Court, and ordered "the plaintiffs to plead, or the
parties otherwise to stipulate to, the relevant facts concerning the identity
and dates of service of Grand's board at the time of the alleged improper
transactions and the time this suit was filed." With respect to Count III,
the Court held that plaintiffs' improper delegation claim was sufficient
under Court of Chancery Rule 12(b)(6) to state a cause of action upon which
relief could be granted, but that further briefing was required with respect
to the effect of the bankruptcy court's order. The parties agreed to settle
the Litigation before a stipulation was submitted to the Court or
supplemental briefing was completed.
On June 11, 1997, defendants moved for reargument with respect to
the sufficiency of plaintiffs' improper delegation claim under Court of
Chancery Rule 12(b)(6). The motion for reargument is pending.
The parties also completed extensive document and interrogatory
discovery prior to their agreement to settle the Litigation. In connection
with this discovery, defendants served interrogatory responses identifying
over 40
9
persons having knowledge or information concerning the transactions and
conduct underlying the Litigation. Approximately 30,000 pages of documents
were produced by the parties and ten third parties, including American
Appraisal Associates, Bank of America NT&SA, The Bank of New York, Chase
Securities Inc., DDJ Capital Management, Donaldson, Lufkin & Jenrette
Securities Corp., Goldman, Sachs & Co., J.P. Morgan & Co. Inc., Libra
Investments, Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. At the time
the parties agreed to settle the Litigation, the parties were attempting to
narrow differences concerning additional document requests, but cross-motions
to compel further discovery by both sides seemed likely.
H. DEFENDANTS' ANSWERS AND AFFIRMATIVE DEFENSES. On November 7, 1996,
defendants answered Count I of plaintiff Kahn's second amended and
supplemental complaint, denying liability and asserting affirmative defenses,
including plaintiffs' alleged failure to state a claim upon which relief can
be granted, plaintiffs' alleged failure to make a pre-litigation demand
pursuant to Court of Chancery Rule 23.1, the business judgment rule, an
assertion that Bally's Grand shareholders have been treated fairly, an
assertion that plaintiffs have suffered no injury, irreparable or otherwise,
the equitable doctrines of waiver and estoppel, an assertion that plaintiffs
are not appropriate representatives to bring a derivative suit, plaintiffs'
alleged
10
failure to satisfy the requirements for equitable relief, and, with respect
to Bally's Grand directors, Section 102(b)(7) of the Delaware General
Corporation Law and Article II, Section Seventh (E) of Bally's Grand's
Certificate of Incorporation.
On December 20, 1996, defendants answered the Tower Complaint,
denying liability and asserting affirmative defenses, including plaintiffs'
alleged failure to state a claim upon which relief can be granted,
plaintiffs' alleged failure to make a pre-litigation demand pursuant to Court
of Chancery Rule 23.1, the business judgment rule, an assertion that Bally's
Grand shareholders have been treated fairly, an assertion that plaintiffs
have suffered no injury, irreparable or otherwise, lack of standing, the
equitable doctrines of waiver, acquiescence, estoppel, laches and unclean
hands, an assertion that plaintiffs are not appropriate representatives to
bring a derivative suit, plaintiffs' alleged failure to satisfy the
requirements for equitable relief, and, with respect to Bally's Grand
directors, Section 102(b)(7) of the Delaware General Corporation Law and
Article II, Section Seventh (E) of Bally's Grand's Certificate of
Incorporation.
I. NEGOTIATION OF SETTLEMENT. Plaintiffs' and defendants' counsel
have engaged in extensive arm's-length negotiations concerning settlement,
including one meeting during which clients participated, and numerous
conferences among
11
counsel. Those extensive negotiations resulted in an agreement in principle
to settle the Litigation embodied in a Memorandum of Understanding dated June
12, 1997, and this Stipulation and the Settlement embodied in this
Stipulation.
J. REPURCHASE OF TOWER AND EXECUTIVE LIFE SHARES. On June 19, 1997,
and pursuant to the Memorandum of Understanding, Bally's Grand repurchased
388,561 shares of Bally's Grand common stock and 61,285 warrants to purchase
shares of Bally's Grand common stock held by plaintiff Tower and 578,186
shares of Bally's Grand common stock and 41,413 warrants to purchase shares
of Bally's Grand common stock held by plaintiff Executive Life at a price of
$52.75 per share in cash for stock, and, for warrants, the difference between
$52.75 per share in cash less the exercise price of warrants.
In connection with this repurchase, Tower and Executive Life agreed
to release rights, demands, suits, matters and issues, whether known or
unknown, which have been, or could have been, or in the future might be
asserted in the Litigation or in any court or proceeding by Tower or
Executive Life, including without limitation any claims arising under federal
or state law relating to alleged fraud, breach of any duty, negligence,
violation of state or federal securities laws or any other alleged wrongdoing
or misconduct, which have arisen, could have arisen, arise now or at some
later time arise out of, or are related in any
12
manner to the allegations, transactions, matters or occurrences,
representations or omissions, or any combination thereof, involved in, set
forth in, referred to in or related to the Litigation against any or all of
the Released Parties (defined below), but only with respect to all shares of
Bally's Grand common stock that were repurchased on June 19, 1997. In
connection with this repurchase, Tower and Executive Life did not agree to
release any claim by or on behalf of Bally's Grand, including any claim
asserted derivatively by any shareholder of Bally's Grand.
K. PLAINTIFFS' POSITION REGARDING SETTLEMENT. While plaintiffs
believe the claims they have asserted are meritorious, plaintiffs also
recognize the uncertainty and the risk of the outcome of any litigation, and
the difficulties and substantial expense and length of time necessary to
prosecute the Litigation through motions to dismiss (with respect to
plaintiffs Kahn's and Shaev's pleadings) discovery, discovery motions,
summary judgment motions, a trial, post-trial motions and appeals. Based
upon their consideration of all of these factors, plaintiffs wish to settle
this Litigation on the terms and conditions set forth in this Stipulation,
and deem this Settlement to be fair, reasonable and adequate and in the best
interests of plaintiffs, Bally's Grand and Bally's Grand shareholders.
L. DEFENDANTS' POSITION REGARDING SETTLEMENT. Defendants deny all
allegations of wrongdoing, fault, liability
13
or damage to plaintiffs, Bally's Grand or Bally's Grand shareholders, and
believe that defendants acted properly at all times. Defendants believe the
Litigation has no merit, but recognize the uncertainty and the risk of the
outcome of any litigation, especially a complex shareholder derivative action
such as this Litigation, and the difficulties and substantial expense and
length of time necessary to defend the Litigation through motions to dismiss
(with respect to plaintiffs Kahn and Shaev's pleadings) discovery, discovery
motions, summary judgment motions, a possible trial, possible post-trial
motions and possible appeals. Based upon their consideration of all of these
factors, defendants wish to settle this Litigation on the terms and
conditions set forth in this Stipulation, and avoid the burden, inconvenience
and expense inherent in further lengthy and time-consuming proceedings in
this Litigation, and to put to rest finally and forever any and all claims
that were or could have been asserted in this Litigation or arising out of
the allegations set forth in the complaints, or that could have been asserted
in any amendment of the complaints, without in any way acknowledging any
wrongdoing, fault, liability or damage to plaintiffs, Bally's Grand or
Bally's Grand shareholders.
M. FAIRNESS OPINION. In connection with the consideration by Bally's
Grand of the Settlement embodied in this Stipulation, the Board of Directors
of Bally's Grand
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has obtained opinions from Bally's Grand's financial advisor, Ladenberg,
Thalman & Co., stating that (1) the price paid to Tower and Executive Life to
repurchase shares of Bally's Grand common stock and warrants to purchase
shares of Bally's Grand common stock held by Tower and Executive Life
described above is fair, from a financial point of view, to Bally's Grand and
its shareholders other than Tower and Executive Life, and (2) that the price
to be paid for the remaining shares of Bally's Grand common stock in the
merger provided for by the Settlement described below is fair, from a
financial point of view, to the shareholders of Bally's Grand other than
Hilton.
NOW, THEREFORE, FOR ALL OF THE ABOVE STATED AND OTHER REASONS, IT
HEREBY IS STIPULATED AND AGREED, subject to the approval of the Court
pursuant to Court of Chancery Rule 23.1, as follows:
THE SETTLEMENT
1. The parties agree to settle the Litigation by means of the
following:
a. Hilton or a Hilton subsidiary (referred to collectively
below as "Hilton") will acquire in a merger transaction all shares of Bally's
Grand common stock not already held by Hilton in exchange for $52.75 in cash
(less the pro rata percentage of the attorneys' fees and expenses awarded by
the Court pursuant to Paragraph 8). Warrants to purchase shares of Bally's
Grand common stock will be
15
repurchased in exchange for the difference between $52.75 per warrant in cash
(less the pro rata percentage of the attorneys' fees and expenses awarded by
the Court pursuant to Paragraph 8 below) less the exercise price of warrants.
b. Hilton will use reasonable efforts to complete the merger
described in sub-paragraph (a) as soon as practicable following the Effective
Date of the Settlement. Hilton, in its sole discretion, may complete the
merger at any time prior to the Effective Date of the Settlement.
c. The Effective Date shall be three business days following
the later of the following events: (i) the date upon which the time for the
filing or noticing of any appeal of the final order expires, and (ii) if
there is an appeal or appeals, the completion, in a manner that affirms and
leaves in place the final order, of all proceedings in the Delaware Supreme
Court and the United States Supreme Court arising out of the appeal or
appeals (including, but not limited to, the expiration of all deadlines for
motions for reconsideration or petitions for certiorari, all proceedings
ordered on remand, and all proceedings arising out of any subsequent appeal
or appeals following decisions on remand).
d. In the merger described in sub-paragraph (a), holders of
shares of Bally's Grand common stock other than Tower and Executive Life, and
only holders of shares of
16
Bally's Grand common stock other than Tower and Executive Life, shall have
the right to seek appraisal under Delaware law. In any such appraisal
proceeding, the dissenting shareholder may assert, as an element of value,
his, her or its pro rata percentage share of the value of the derivative
claims asserted in the Litigation.
RELEASE TERMS
2. Upon the Effective Date, the following parties will be
released pursuant to this Stipulation and the Settlement embodied in the
Stipulation (the "Released Parties"):
a. With respect to plaintiffs' derivative claims, defendants
Hilton Hotels Corporation, Bally Entertainment Corporation, Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas H. Politan, Jr., and each of their respective predecessors,
successors, assigns, parents, subsidiaries, associates, heirs, executors,
administrators, affiliates and agents, including without limitation, each of
their respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
b. With respect to plaintiffs' non-derivative claims, all of
the persons and entities identified in sub-paragraph (a) above and Bally's
Grand and any and all of
17
Bally's Grand's predecessors, successors, assigns, parents, subsidiaries,
associates, heirs, executors, administrators, affiliates and agents,
including without limitation, each of Bally's Grand's respective present or
former officers, directors, stockholders, agents, employees, attorneys and
representatives.
c. With respect to the release in Paragraph 3(c) below,
plaintiffs Kahn, Shaev, Tower and Executive Life and each of their respective
predecessors, successors, assigns, parents, subsidiaries, associates, heirs,
executors, administrators, rehabilitators, liquidators, receivers, affiliates
and agents, including without limitation, each of their respective present or
former officers, directors, stockholders, agents, employees, attorneys and
representatives.
3. Upon the Effective Date, the following claims will be released
pursuant to this Settlement (the "Released Claims"):
a. All claims, rights, demands, suits, matters and issues,
whether known or unknown, which have been, or could have been, or in the
future might be asserted in the Litigation or in any court or proceeding by
Bally's Grand or any direct or indirect subsidiary or parent of Bally's
Grand, including without limitation any claims arising under state or federal
law relating to alleged fraud, breach of any duty, negligence, violation of
state or
18
federal securities laws or any other alleged wrongdoing or misconduct,
whether directly, derivatively, including derivatively by any shareholder of
Bally's Grand, or in any other capacity that have arisen, could have arisen,
arise now or at some later time arise out of, or are related in any manner to
the allegations, transactions, matters or occurrences, representations or
omissions, or any combination thereof, involved in, set forth in, referred to
in or related to the Litigation, including whether or in what manner any
allocation of attorneys' fees and reimbursement of expenses among plaintiffs
or counsel for plaintiffs is made.
b. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to plaintiffs Kahn, Shaev, Tower and
Executive Life, which have been, or could have been, or in the future might
be asserted in the Litigation or in any court or proceeding by plaintiffs
Kahn, Shaev, Tower and Executive Life, including without limitation any
claims arising under state or federal law relating to alleged fraud, breach
of any duty, negligence, violation of state or federal securities laws or any
other alleged wrongdoing or misconduct, whether directly, derivatively or in
any other capacity, which have arisen, could have arisen, arise now or at
some later time arise out of, or are related in any manner to the
allegations, transactions, matters or occurrences, representations or
omis-
19
sions, or any combination thereof, involved in, set forth in, referred to in
or related to the Litigation, including whether or in what manner any
allocation of attorneys' fees and expenses among plaintiffs or counsel for
plaintiffs is made. No claim belonging to anyone other than plaintiffs Kahn,
Shaev, Tower and Executive Life will be released pursuant to this
sub-paragraph. The right of plaintiffs Kahn and Shaev to seek appraisal will
not be released pursuant to this sub-paragraph.
c. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to defendants Hilton Hotels Corporation,
Bally Entertainment Corporation, Bally's Grand, Inc., Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas Politan, which have been, or could have been, or in the future might
be asserted in the Litigation or in any court or proceeding by Hilton Hotels
Corporation, Bally Entertainment Corporation, Bally's Grand, Inc., Bally's
Grand Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham,
Arthur M. Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald
and Nicholas Politan, against plaintiffs Kahn, Shaev, Tower and Executive
Life, which have arisen, could have arisen, arise now or at some later time
arise out of, or are related in any manner to the institution, maintenance,
prosecution, assertion,
20
handling or resolution of the Litigation.
d. For purposes of sub-paragraphs (b) and (c), references to
plaintiffs Kahn, Shaev, Tower and Executive Life and defendants Hilton Hotels
Corporation, Bally Entertainment Corporation, Bally's Grand, Inc., Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and Nicholas
Politan include their predecessors, successors, assigns, parents, subsidiaries,
associates, heirs, executors, administrators, rehabilitators, liquidators,
receivers, affiliates and agents, including without limitation, each of their
respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
e. The Released Claims do not include any claims by any party
to this Stipulation to enforce the terms of this Stipulation.
4. Together, the Released Claims against the Released Parties are
referred to below as the "Settled Claims."
SUBMISSION OF SETTLEMENT TO COURT FOR REVIEW
5. As soon as is practicable following signing of this Stipulation,
the parties jointly shall apply to the Court for approval of the Settlement and
for entry of an Order substantially in the form attached as Exhibit A to this
Stipulation (the "Scheduling Order"):
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a. Setting a date for a settlement hearing (the "Settlement
Hearing") (i) to determine whether the Settlement should be approved as fair,
reasonable and adequate and in the best interests of Bally's Grand and the
holders of Bally's Grand common stock, (ii) to determine whether a Final Order
and Judgment should be entered dismissing the Litigation with prejudice in
substantially the form attached as Exhibit B to this Stipulation (the "Final
Order and Judgment"), and (iii) to rule upon an application by plaintiffs'
counsel for an award of attorneys' fees and reimbursement of expenses.
b. Providing that notice of the Settlement and the Settlement
Hearing shall be given to holders of record of shares of Bally's Grand common
stock as of two business days before the date of mailing (the "Record Date") by
mailing, on or before the date specified in the Scheduling Order, a notice
substantially in the form attached as Exhibit C to this Stipulation (the
"Shareholder Notice") by first class mail to last known addresses appearing on
reasonably available records to all holders of record as of the Record Date of
shares of Bally's Grand common stock.
c. Determining that the notice provided for above is the best
notice reasonably practicable under the circumstances and constitutes due and
sufficient notice of the Settlement and the Settlement Hearing to holders of
Bally's Grand common stock under Court of Chancery Rule
22
23.1, the Constitution of the United States, the Constitution of the State of
Delaware and any other applicable law.
d. Providing that the Settlement Hearing may be continued or
adjourned by the Court without further notice to holders of shares of Bally's
Grand common stock.
e. Providing that unless good cause is shown, any holder of
shares of Bally's Grand common stock who objects to the Settlement and/or to
plaintiffs' request for attorneys' fees and reimbursement of expenses or who
otherwise wishes to be heard concerning any matter before the Court may appear
in person or by counsel at the Settlement Hearing and present evidence or
argument, if and only if, no later than ten (10) days prior to the Settlement
Hearing, such person files with the Register in Chancery (1) a written notice of
the person's intent to appear, including (i) the person's name, address and
telephone number, and (ii) a summary of the person's objections to or comments
upon the proposed settlement, plaintiffs' request for attorneys' fees and
reimbursement of expenses or any other matter before the Court, and (2) any
supporting papers, including all documents and writings that the person desires
the Court to consider. Copies of all papers filed with the Register in Chancery
must be mailed by first class mail to counsel for the parties no later than ten
(10) days prior to the Settlement Hearing, as directed in the Shareholder
Notice.
f. Providing that any person or entity who
23
fails to object in the manner prescribed above shall be deemed to have
waived his, her or its right to object, and shall forever be barred from
raising such objection in this or any other action or proceeding.
g. Pending the Settlement Hearing, staying all proceedings in
the Litigation, other than proceedings necessary to carry out or enforce the
terms and conditions of this Stipulation.
h. Pending the Settlement Hearing, enjoining plaintiffs and all
other holders of shares of Bally's Grand common stock from commencing or
prosecuting any action asserting the Settled Claims.
i. Containing any additional provisions consistent with the
terms of the Settlement to which the parties consent.
6. Bally's Grand will pay the cost of the notice provided for in the
preceding paragraph.
FINAL ORDER AND JUDGMENT
7. If the Court approves the Settlement, then at or following the
Settlement Hearing the parties jointly will request that the Court enter a Final
Order and Judgment in substantially the form attached as Exhibit B to this
Stipulation:
a. Finally approving the Settlement as fair, reasonable,
adequate and in the best interests of Bally's Grand and the holders of Bally's
Grand common stock,
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and directing consummation of this Settlement pursuant to
its terms;
b. Dismissing the Litigation with prejudice and without costs
except as provided for in Paragraph 8;
c. Permanently enjoining plaintiffs and all other holders of
Bally's Grand common stock from the institution and prosecution, either directly
or indirectly, of any other action in this Court or any other court or
proceeding asserting any of the Settled Claims;
d. Ordering the releases provided for in Paragraph 3; and
e. Containing any additional provisions consistent with the
terms of the Settlement to which the parties consent.
ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES
8. The parties have agreed to the following provisions concerning
attorneys' fees and reimbursement of expenses for plaintiffs and their counsel.
a. Counsel for Tower and Executive Life will be compensated by
Tower and Executive Life. Counsel for Tower and Executive Life will not seek
attorneys' fees and expenses from the Court except as provided for in sub-
paragraph (b).
b. If the Court enters a final order substantially in the form
submitted to the Court with the Settlement Agreement, counsel for plaintiffs
Kahn and Shaev
25
will seek attorneys' fees and expenses, in an amount to be
determined by the Court and not to exceed $1.25 million. Defendants will not
oppose this application. Any attorneys' fees and expenses awarded by the Court
may be shared with Tower and Executive Life as partial reimbursement for
attorneys' fees and expenses incurred by Tower and Executive Life in the
Litigation.
c. Any attorneys' fees and expenses awarded by the Court to
counsel for Kahn and Shaev will be paid by Hilton or a Hilton subsidiary out of
the merger consideration provided for in Paragraph 1(a) above, and not in any
other manner by any defendant in the Litigation. The amount of attorneys' fees
and expenses awarded by the Court shall be allocated to all shares (including
shares that can be obtained by the conversion of warrants) on a pro rata
percentage basis, whether or not shareholders seek appraisal. With respect to
shares for which appraisal is not sought (and shares that can be obtained by the
conversion of warrants), the pro rata percentage amount allocated to those
shares shall be deducted from the amounts payable in the merger transaction
provided for in Paragraph 1(a) before any amount is paid to Bally's Grand
shareholders. With respect to shares for which appraisal is sought, the pro
rata percentage amount allocated to those shares shall be deducted from the
amount awarded in the appraisal proceeding. The pro rata percentage amount
allocated to shares for which
26
appraisal is sought and shares for which appraisal is not sought will be the
same. Defendants bear no responsibility with respect to whether or in what
manner any allocation of attorneys' fees and expenses among plaintiffs or
counsel for plaintiffs is made.
d. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiffs Kahn and Shaev, then payment will
be made five business days following the Court's award of attorneys' fees and
expenses. If one or more objections are made to the Settlement or plaintiffs'
request for attorneys' fees and reimbursement of expenses, the payment will be
made five business days following the later of the following events: (i) the
date upon which the time for the filing or noticing of any appeal of the Final
Order and Judgment and/or other order awarding attorneys' fees and expenses
expires, and (ii) if there is an appeal or appeals, the completion, in a manner
that affirms and leaves in place the Final Order and Judgment and/or other order
awarding attorneys' fees and expenses, of all proceedings in the Delaware
Supreme Court and the United States Supreme Court arising out of the appeal or
appeals (including, but not limited to, the expiration of all deadlines for
motions for reconsideration or petitions for certiorari, all proceedings ordered
on remand, and all proceedings arising out of any subsequent appeal or appeals
following decisions on remand).
27
e. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiff Kahn and Shaev and if attorneys'
fees and expenses are awarded by the Court and paid to counsel for plaintiffs
Kahn and Shaev pursuant to the first sentence of sub-paragraph (d) but there is
an appeal or appeals, the completion of which does not affirm and leave in place
the Final Order and Judgment and/or other order awarding attorneys' fees and
expenses, then, within five (5) business days of receiving notice from counsel
for Bally's Grand or Hilton, counsel for plaintiffs Kahn and Shaev shall refund
the amounts previously paid to them as attorneys' fees and reimbursement of
expenses, except for any amounts paid to Executive Life and Tower, pending a
further Order by this Court, and shall be jointly and severally liable for any
amounts not refunded to Bally's Grand or Hilton. Each such plaintiffs'
counsel's law firm, as a condition of receiving such fees and expenses, on
behalf of itself and each partner and/or shareholder of it, agrees that the law
firm and its partners and/or shareholders are subject to and hereby submit to
the jurisdiction of this Court for the purpose of enforcing this Paragraph.
Without limitation, each such law firm and its partners and/or shareholders
agree that this Court may, upon application of Bally's Grand or Hilton and on
notice to plaintiffs' counsel, summarily issue orders, including but not limited
to, judgments and attachment
28
orders, and may make appropriate findings against them or any of them if they
fail to repay amounts owed pursuant to this sub-paragraph when due.
f. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiffs Kahn and Shaev, and if attorneys'
fees and expenses are awarded by the Court and are paid to counsel for
plaintiffs Kahn and Shaev pursuant to the first sentence of sub-paragraph (d),
the amount to be shared with Tower and Executive Life shall be deposited into a
separate interest-bearing attorneys' escrow account. Payment of the amount to
be shared with Tower and Executive Life, with applicable interest, shall be made
on the Effective Date of the Settlement. If one or more objections are made to
the Settlement or to the request for attorneys' fees and by plaintiffs Kahn and
Shaev, payment of the amount to be shared with Tower and Executive Life shall be
made immediately upon the receipt by counsel for plaintiffs Kahn and Shaev of
attorneys' fees and expenses awarded by the Court.
g. If payments required pursuant to sub-paragraphs (e) are not
made when due, interest, calculated at the statutory rate in Delaware from the
date the amount is due, plus reasonable attorneys' fees and expenses incurred by
Bally's Grand and/or Hilton in seeking to collect amounts due, will be assessed.
29
THIS STIPULATION IS NOT AN ADMISSION
9. This Stipulation and the Settlement provided for in this
Stipulation, whether or not consummated, do not constitute and shall not be
construed, argued or deemed in any way to constitute:
a. An admission or a concession by defendants, Released
Parties or anyone else with respect to any of the Released Claims or anything
else, or be deemed evidence of any violation of any statute or law or of any
wrongdoing, fault, liability or damages caused by defendants, Released
Parties or anyone else with respect to the Released Claims or anything else;
b. An admission or a concession by plaintiffs or Bally's
Grand that the Released Claims lack merit or that the defenses that have been
or may be asserted by the defendants have merit; or
c. An admission or a concession by anyone that the
consideration provided for in this Stipulation represents the amount that
could be or would be recovered after further pre-trial, trial, post-trial
and/or appellate proceedings in this Litigation.
10. This Stipulation and the Settlement provided for in this
Stipulation shall not be offered or received in evidence or otherwise be
admissible for any purpose in any civil, criminal or administrative action,
arbitration or other proceeding, other than proceedings necessary to
30
approve or enforce this Stipulation.
CONTINGENCIES
11. If this Stipulation is not approved by the Court substantially
in the form submitted to the Court, and/or if the Final Order and Judgment
attached as Exhibit B to this Stipulation is not approved by the Court
substantially in the form submitted to the Court, then this Stipulation shall
be null and void, and shall have no further force and effect. All
proceedings in the Litigation will revert to their status as of 5:00 P.M. on
May 7, 1997, with the exception of matters decided in the Court's Memorandum
Opinion dated June 4, 1997.
12. Notwithstanding the provisions of the preceding paragraph, and
whether or not this Stipulation and the Final Order and Judgment are approved
by the Court substantially in the form submitted to the Court, Tower and
Executive Life already have agreed to and will release rights, demands,
suits, matters and issues, whether known or unknown, which have been, or
could have been, or in the future might be asserted in the Litigation or in
any court or proceeding by Tower or Executive Life, including without
limitation any claims arising under federal or state law relating to alleged
fraud, breach of any duty, negligence, violation of state or federal
securities laws or any other alleged wrongdoing or misconduct, which have
arisen, could have arisen, arise now or at some later time arise out of,
31
or are related in any manner to the allegations, transactions, matters or
occurrences, representations or omissions, or any combination thereof,
involved in, set forth in, referred to in or related to the Litigation
against any or all of the Released Parties, but only with respect to the
shares of Bally's Grand common stock that were repurchased on June 19, 1997.
No claim by or on behalf of Bally's Grand, including any claim asserted
derivatively by any shareholder of Bally's Grand, is released pursuant to
this Paragraph.
ADDITIONAL PROVISIONS
13. Upon the Effective Date defined in Paragraph 1(d), this
Litigation shall be deemed to have reached a conclusion as that term is used
in the Stipulation and Protective Orders dated November 15, 1996 and December
19, 1996. Pursuant to Paragraph 10 of those Stipulations and Protective
Orders, all copies of Confidential Materials, as the term is used in the
Stipulations and Protective Orders, shall be returned to the producing party
or destroyed within thirty (30) days after the Effective Date.
14. Except to the extent otherwise specified in this Stipulation,
notices required by this Stipulation shall be delivered either by hand,
facsimile or overnight mail to:
Robert K. Payson Jesse A. Finkelstein
Stephen C. Norman Raymond J. DiCamillo
POTTER ANDERSON & CORROON RICHARDS, LAYTON & FINGER
350 Delaware Trust Building One Rodney Square
Post Office Box 951 P.O. Box 551
32
Wilmington, DE 19899 Wilmington, DE 19899
Attorneys for Plaintiffs Attorneys for Defendant
Tower Investment Group, Hilton Hotels Corporation
Inc. and Executive Life
of New York Stephen E. Jenkins
Richard D. Heins
Victor F. Battaglia, Sr. ASHBY & GEDDES
Robert D. Goldberg One Rodney Square
BIGGS AND BATTAGLIA P.O. Box 1150
1800 Mellon Bank Center Wilmington, DE 19899
P.O. Box. 1489
Wilmington, DE 19899 Attorneys for Defendants
Bally Entertainment
Attorneys for Plaintiff Corporation, Bally's Grand
Alan R. Kahn Management Co. Inc., Bally
Manufacturing Corporation,
Joseph A. Rosenthal Arthur M. Goldberg, J.
ROSENTHAL, MONHAIT, GROSS & Kenneth Looloian and
GODDESS, P.A. Darrell A. Luery
Suite 1401, Mellon Bank
Center A. Gilchrist Sparks, III
P.O. Box 1070 Alan J. Stone
Wilmington, DE 19899 MORRIS, NICHOLS, ARSHT &
TUNNELL
Attorneys for Plaintiff 1201 N. Market Street
David Shaev P.O. Box 1347
Wilmington, DE 19899
Attorneys for Defendants
Jay Burnham, Jack L.
MacDonald and Nicholas H.
Politan, Jr.
Brett D. Fallon
SMITH KATZENSTEIN & FURLOW
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
Attorneys for Defendant
Bally's Grand, Inc.
15. The waiver by any party of any breach of this Stipulation by
any other party shall not be deemed a waiver of any other prior or subsequent
breach of this Stipulation.
16. This Stipulation shall be governed by and interpreted according
to the substantive laws of the State
33
of Delaware and without regard to its choice of law rules.
17. The undersigned counsel represent that they are duly
authorized by their respective clients to enter into this Stipulation, to
bind their respective clients as stated in this Stipulation, and to take all
appropriate action required or permitted to be taken pursuant to this
Stipulation to effectuate its terms.
18. This Stipulation and the accompanying exhibits constitute the
entire agreement and understanding between plaintiffs and defendants. No
representations, warranties or inducements have been made to any party
concerning this Stipulation and the accompanying exhibits, other than the
representations, warranties and covenants contained in this Stipulation and
the accompanying exhibits, and any agreement among counsel for plaintiffs
regarding allocation of attorneys' fees and expenses.
19. This Stipulation may be modified only in a writing signed by
counsel for all of the parties.
20. This Stipulation may be signed in counterparts.
[Signatures begin on following page]
34
POTTER ANDERSON & CORROON RICHARDS, LAYTON & FINGER
/s/ ROBERT K. PAYSON /s/ JESSE A. FINKELSTEIN
- ---------------------------------- ----------------------------------
Robert K. Payson Jesse A. Finkelstein
Stephen C. Norman Raymond J. DiCamillo
350 Delaware Trust Building One Rodney Square
Post Office Box 951 P.O. Box 551
Wilmington, Delaware 19899 Wilmington, DE 19899
(302) 984-6000 (302) 651-7754
-and- -and-
Linda C. Goldstein Hugh Steven Wilson
HOWARD, DARBY & LEVIN LATHAM & WATKINS
1330 Avenue of the Americas 701 B Street, Suite 2100
New York, NY 10019 San Diego, CA 92101-8197
(212) 841-1000 (619) 236-1234
Attorneys for Plaintiffs Tower Everett C. Johnson, Jr.
Investment Group, Inc. and LATHAM & WATKINS
Executive Life of New York 1001 Pennsylvania Ave., N.W.
Suite 1300
BIGGS AND BATTAGLIA Washington, DC 20004-2505
(202) 637-2200
/s/ ROBERT D. GOLDBERG Attorneys for Defendant
- ---------------------------------- Hilton Hotels Corporation
Victor F. Battaglia, Sr.
Robert D. Goldberg ASHBY & GEDDES
1800 Mellon Bank Center
P.O. Box. 1489
Wilmington, DE 19899 /s/ RICHARD D. HEINS
(302) 655-9677 ----------------------------------
Stephen E. Jenkins
-and- Richard D. Heins
One Rodney Square
Sidney B. Silverman P.O. Box 1150
SILVERMAN HARNES & HARNES Wilmington, DE 19899
750 Lexington Avenue (302) 654-1888
New York, NY 10022
(212) 754-2333 -and-
Attorneys for Plaintiff Alan Dennis J. Block
R. Kahn Stephen A. Radin
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000
35
ROSENTHAL, MONHAIT, GROSS & Attorneys for Defendants
GODDESS, P.A. Bally Entertainment
Corporation, Bally's Grand
Management Co. Inc., Bally
/s/ JOSEPH A. ROSENTHAL Manufacturing Corporation,
- ---------------------------------- Arthur M. Goldberg, J. Kenneth
Joseph A. Rosenthal Looloian and Darrell A. Luery
Suite 1401, Mellon Bank Center
P.O. Box 1070 MORRIS, NICHOLS, ARSHT
Wilmington, DE 19899 & TUNNELL
(302) 656-4433
-and- /s/ ALAN J. STONE
----------------------------------
Robert I. Harwood A. Gilchrist Sparks, III
WECHSLER HARWOOD HALEBIAN Alan J. Stone
& FEFFER LLP 1201 N. Market Street
805 Third Avenue P.O. Box 1347
New York, NY 10022 Wilmington, DE 19899
(212) 935-7400 (302) 658-9200
Attorneys for Plaintiff David Attorneys for Defendants
Shaev Jay Burnham, Jack L. MacDonald
and Nicholas H. Politan, Jr.
SMITH KATZENSTEIN & FURLOW
/s/ BRETT D. FALLON
----------------------------------
Brett D. Fallon
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
(302) 652-8400
Attorneys for Defendant
Bally's Grand, Inc.
Dated: August 7, 1997
36