Exhibit a(16)
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
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)
NEUBERGER BERMAN )
REAL ESTATE INCOME FUND INC., )
)
Plaintiff/Counter-Defendant )
)
v. ) Civil No. AMD 04-3056
LOLA BROWN TRUST NO. 1B, et al., )
)
Defendants/Counter-Claimants )
)
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COUNTER-CLAIMS OF
LOLA BROWN TRUST NO. 1B,
ERNEST HOREJSI TRUST NO. 1B,
AND BADLANDS TRUST COMPANY
Defendants/Counter-Claimants Lola Brown Trust No. 1B and Ernest Horejsi
Trust No. 1B (the "Horejsi Trusts"), and Badlands Trust Company, as trustee for
the Horejsi Trusts, for their Counter-Claims against Neuberger Berman Real
Estate Income Fund, Inc. ("NRL") allege as follows:
1. This counter-claim is filed to stop and enjoin the wrongful devices and
actions adopted by NRL in an effort to thwart the lawful tender offer for up to
50% of NRL's common stock made by the Horejsi Trusts. By its wrongful devices
and actions, NRL has violated the federal Investment Company Act of 1940,
Maryland corporate law, and the Horejsi Trusts' rights as a stockholder of NRL.
2. Unless NRL's unlawful and wrongful devices and actions are stopped by the
Court, NRL's stockholders, including the Horejsi Trusts, will be deprived of
their rights under the Investment Company Act of 1940 and Maryland corporate
law.
THE NEUBERGER BERMAN FUND COMPLEX
3. Neuberger Berger Real Estate Income Fund, Inc. ("NRL") is a corporation
organized and existing under the laws of Maryland. NRL's principal place of
business is located at 605 Third Avenue, New York, New York. NRL is a closed-end
investment company and is subject to the Investment Company Act of 1940 (the
"1940 Act"). NRL's common stock is listed and trades on the New York Stock
Exchange. Peter E. Sundman is Chief Executive Officer and Chairman of the Board
of Directors of NRL.
4. NRL is part of a family or complex of approximately 38 investment company
funds that use the "Neuberger Berman"name, known as the "Neuberger Berman Fund
Complex."
5. Neuberger Berman, Inc. ("NBI") is an investment advisory company owned by
Lehman Brothers Holdings, Inc. Peter E. Sundman is Executive Vice President of
NBI.
6. Neuberger Berman Management, Inc. ("NBM") is the subsidiary of NBI that
manages, administers and distributes mutual funds. NBM is the investment manager
for NRL. NBM also provides investment management services to numerous other of
the Neuberger Berman complex of investment funds. Peter E. Sundman is President
of NBMI.
7. Neuberger Berman, LLC ("NBLLC") is also controlled by NBI. NBI is the sole
member of NBLLC. NBLLC also provides investment advisory services, either to NBM
or to funds in the Neuberger Berman Fund Complex. Peter E. Sundman is Executive
Vice President of NBLLC.
8. There is a "Management Agreement" dated November 3, 2003 pursuant to which
NBM acts as the investment adviser to NRL. NRL pays NBM a fee for these
services.
9. There is an "Administration Agreement" dated November 3, 2003, pursuant to
which NBM supervises the business and affairs of NRL and provides such services
as are required for effective administration of NRL that are not provided by
employees or other agents engaged by NRL. NRL pays NBM a fee for these services.
10. There is a Sub-Advisory Agreement dated November 3, 2003, pursuant to which
NBM retains NBLLC to serve as the sub-advisor to NRL. NBM pays for the services
rendered by NBLLC on behalf of NRL.
11. There are 16 members of the Board of Directors of NRL. None of them own even
one share of NRL common stock.
12. Thirteen of the 16 Directors are considered by NRL to be "Independent"
directors within the meaning of the 1940 Act. These 13 so-called "independent"
directors also serve as directors of approximately 37 other investment funds in
the Neuberger Berman Fund Complex.
13. Each of these 13 allegedly "independent" directors is paid approximately
$70,000 for their service as "independent" directors of the Neuberger Berman
Complex of funds.
THE COUNTER-CLAIMANTS
14. Lola Brown Trust No. 1B (the "Lola Brown Trust") is an irrevocable grantor
trust domiciled and administered in South Dakota. The Lola Brown Trust's
principal business is investing in securities. The business address of the Lola
Brown Trust is c/o Badlands Trust Company, 614 Broadway (P.O. Box 801), Yankton,
South Dakota 57078. Stewart Horejsi is Lola Brown's grandson and an advisor to
the Lola Brown Trust.
15. The Ernest Horejsi Trust No. 1B (the "Ernest Horejsi Trust") is an
irrevocable grantor trust domiciled and administered in South Dakota. The Ernest
Horejsi Trust's principal business is investing in securities. The business
address of the Ernest Horejsi Trust is c/o Badlands Trust Company, 614 Broadway
(P.O. Box 801), Yankton, South Dakota 57078. Stewart Horejsi is Ernest Horejsi's
son and an advisor to the Ernest Horejsi Trust. (The Lola Brown Trust and the
Ernest Horejsi Trust are hereafter sometimes referred to as the "Horejsi Family
Trusts" or the "Horejsi Trusts.")
16. Defendant Badlands Trust Company is a South Dakota corporation and a trustee
of the Lola Brown Trust and the Ernest Horejsi Trust.
17. Stewart Horejsi ("Mr. Horejsi") is a private investor and the portfolio
manager for two registered investment advisers, Boulder Investment Advisers, LLC
("BIA") and Stewart West Indies Trading Company, Ltd., doing business as Stewart
Investment Advisers ("SIA").
JURISDICTION AND VENUE
18. This action arises, inter alia, under section 14(e) of the Securities and
Exchange Act of 1934 (the "1934 Exchange Act"), 15 U.S.C. ss. 78n(e). This Court
has jurisdiction over this action pursuant to section 27 of the 1934 Exchange
Act, 15 U.S.C. ss. 78aa, and pursuant to 28 U.S.C. ss.ss. 1331 and 1337.
19. This Court also has jurisdiction pursuant to 28 U.S.C. ss. 1332(a) because
the matter in controversy exceeds the sum of $75,000, excluding interest and
costs, and is between citizens of different states.
20. This Court has jurisdiction to award declaratory relief pursuant to 28
U.S.C. ss. 2201 and F.R. Civ. P. 57 because there is an actual controversy
between the parties. Declaratory relief is necessary to afford the
Counter-Claimants relief from uncertainty, insecurity and controversy arising
from the illegal nature of the Blocking Actions described below.
21. This Court has personal jurisdiction over NRL because NRL is a Maryland
corporation.
22. Venue is proper in this District pursuant to section 27 of the 1934 Exchange
Act, 15 U.S.C. ss. 78aa, and pursuant to 28 U.S.C. ss. 1391.
23. Acts and transactions constituting, and in furtherance of, the violations of
the law alleged herein have occurred in this District. These acts and
transactions have been carried out by the means and instrumentalities of
interstate commerce and by the use of the United States mail.
FACTUAL BACKGROUND
24. Between July 9, 2004 and September 2, 2004, the Lola Brown Trust acquired
455,200 shares of NRL common stock through open market purchases on the New York
Stock Exchange. On August 31, 2004, the Ernest Horejsi Trust acquired 4,900
shares.
25. As of August 23, 2004, NRL had 4,578,983 outstanding shares of common stock.
26. The Horejsi Trusts made these acquisitions for the purpose of acquiring an
equity ownership in NRL, and they stated in the 13D that they intended to
acquire up to 50% of the common stock of NRL. The Horejsi Trusts also stated in
the 13D that they intend to nominate for consideration and election to NRL's
board of directors at NRL's 2005 annual meeting of shareholders five directors
whom they know, trust, and in whom they have confidence with regard to
company-related business decisions, and that they will do likewise at subsequent
annual meetings of shareholders until all NRL directors meet the Trusts'
criteria. The Horejsi Trusts were not previously shareholders of NRL.
27. On or about September 2, 2004, the Lola Brown Trust, the Ernest Horejsi
Trust and Mr. Horejsi jointly filed a Schedule 13D under the 1934 Exchange Act
with the SEC. The Schedule 13D defined the Lola Brown Trust, the Ernest Horejsi
Trust and Mr. Horejsi as "Reporting Persons." The Schedule 13D showed that the
Lola Brown Trust owned 455,200, or approximately 9.94%, of the 4,578,983
outstanding shares of NRL common stock, and that the Ernest Trust owned 4,900 or
approximately 0.11%, of the 4,578,983 outstanding shares of NRL common stock.
Thus, the two trusts together owned 460,100, or approximately 10.05%, of the
outstanding shares of NRL common stock.
28. On September 10, 2004, the Trusts commenced the Tender Offer for up to
1,825,000 outstanding shares of NRL common stock. The Trusts filed the required
Schedule TO at the Securities and Exchange Commission ("SEC") on that date in
regards to this tender offer.
29. The Schedule TO indicated that the Lola Brown Trust had acquired an
additional 8,000 shares of NRL common stock beyond that disclosed on September
2, 2004, such that the Horejsi Trusts together owned 468,100 shares of NRL
common stock, or approximately 10.22% of the outstanding shares of NRL common
stock and preferred stock.
30. The tender offer has subsequently been amended and extended, and the offer
and the corresponding withdrawal rights will expire at 12:00 midnight on October
15, 2004, unless the offer is extended.
31. In response to the Tender Offer, and following an exchange of correspondence
and a conference call between Mr. Horejsi and the Directors of NRL, the
Directors of NRL decided to recommend against the tender of shares to the
Trusts.
32. NRL created a Special Committee of four of the "independent" directors to
develop its response to the Tender Offer. According to SEC filings by NRL:
On September 21, 2004, the Special Committee reported back to the
Independent Fund Directors regarding the Special Committee's September
20th meeting and its proposed recommendation to the Board in response
to the Offer. Thereafter, the Independent Fund Directors discussed,
evaluated and assessed the terms of the Offer. Later, the remaining
directors joined the meeting and were briefed by the Special Committee
and the Independent Fund Directors as to earlier discussions and
proposed actions.
Thus, as of September 21, all of the directors, including the directors who are
"Interested Persons" within the meaning of the 1940 Act, had been briefed "as to
.... proposed actions."
33. In addition to recommending against the Tender Offer, the Directors of NRL
also took four other actions (hereafter, a "Blocking Action" or, collectively,
the "Blocking Actions").
Blocking Action No. 1 -- the Private Placement and the MCSA Election
34. As a predicate to first Blocking Action, on September 22, 2004, NRL signed a
Common Stock Purchase Agreement providing for the private placement of 139,535
unregistered shares of NRL common stock with its affiliate, NBLLC (hereafter,
the "Private Placement") at a price of $21.50 per share, or $3 million
aggregate. Pursuant to the Stock Purchase Agreement, NBLLC has the right to
demand registration for resale of this Common Stock upon customary terms.
35. The intended effect of the issuance of the 139,535 new common shares in the
Private Placement was to increase the number of shares of common stock
outstanding to 4,718,518. Assuming arguendo that the Private Placement was
legal, after the issuance of the new shares in the Private Placement the Horejsi
Trusts no longer owned 10.22% of NRL's voting shares but instead now owned 9.92%
of NRL's voting shares.
36. According to NRL's SEC filings, "[b]ased on publicly available information,
immediately following the issuance of the shares pursuant to the Stock Purchase
Agreement, no person owned any `control shares' under the [Maryland] Control
Share Act...."
37. As its first Blocking Action, the next day, at its September
23, 2004, meeting, the NRL Board agreed to "adopt resolutions, to be effective
immediately after the issuance of shares to NBLLC pursuant to the Stock Purchase
Agreement, electing the Fund to be subject to both the Maryland Control Share
Acquisition Act...." (Emphasis added.)
38. The Maryland Control Share Acquisition Act, Md. Corps. & Ass'ns Code ss.
3-701, et seq. ("MCSA"), provides:
(a)(1) Control shares of the corporation acquired in a control share
acquisition have no voting rights except to the extent approved by the
stockholders at a meeting ... by the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter, excluding all
interested shares.
Id. at 3-702(a)(1). "Control shares" are defined in the MCSA as:
(d)(1) "Control shares" means shares of stock that ... would, if
aggregated with all other shares of stock of the corporation ... owned
by a person ... entitle that person ... to exercise ... voting power
of shares of stock ... in the election of directors within any of the
following ranges of voting power:
(i) One-tenth or more, but less than one-third of all voting power....
Id. at ss. 3-701(d). Thus, in a company subject to the MCSA, no shareholder who
owns more than 10% of the company may vote those shares above 10% without 2/3
approval from a Special Meeting of the other stockholders.
39. The MCSA
specifically provides, however:
(c) This subtitle does not apply to:
(4) A corporation registered under the Investment Company Act of
1940 as a closed end investment company unless its board of
directors adopts a resolution to be subject to this subtitle on
or after June 1, 2000, provided that the resolution shall not be
effective with respect to any person who has become a holder of
control shares before the time that the resolution is adopted.
Id. at ss. 3-702(c)(4) (emphasis added).
40. The Fund was incorporated in Maryland on September 11, 2002. It could have
chosen to become subject to the MCSA at any time between incorporation and
September 2, 2004, but did not do so. Notably, the Fund failed to disclose the
potential application of the MCSA to the Fund in its final prospectus filed with
the SEC on November 27, 2002, and the Statement of Additional Information filed
with the SEC on December 3, 2002, relating to the issuance of its common stock,
and in its final prospectuses filed with the SEC on February 5, 2003, and
October 27, 2003, relating to the issuance of its preferred stock.
41. On or about September 10, 2004, the Horejsi Trusts and Mr. Horejsi filed a
Schedule TO under the Exchange Act with the SEC. The Schedule TO showed that the
Horejsi Trusts together owned 468,100, or approximately 10.22%, of the
outstanding shares of common stock of NRL.
42. NRL has publicly admitted that the election to be subject to the MCSA was
"to be effective immediately after the issuance of [the Private Placement]
shares to NBLLC pursuant to the Stock Purchase Agreement." [T.O. 19]
43. NRL then concluded that "[b]ased on publicly available information,
immediately following the issuance of the shares pursuant to the Stock Purchase
Agreement, no person owned any "control shares" under the Control Share Act...."
Blocking Action # 2 -- The Rights Agreement or "Poison Pill"
44. At the September 23 meeting, the Board of NRL also adopted a so-called
Rights Agreement, commonly known as a "Poison Pill." Under the so-called Rights
Agreement, the Board "declar[ed] a dividend of one right for each outstanding
share of Common Stock. ... Each Right entitles the registered holder to purchase
from the Fund three shares of Common Stock at a price equal to the par value of
such shares," which is 1/100 of a cent ($0.0001 per share).
45. The Rights "are not exercisable until the Distribution Date." The
Distribution Date is the date "10 days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 11% or more of the outstanding shares of Common Stock" of NRL.
Thus, under the so-called Rights Agreement, ten days after the Horejsi Family
Trusts increase their holdings of common stock to 11% (from the 10.22% they had
before the Private Placement or the 9.92% they had after the Private Placement)
every other shareholder will be awarded three shares for every share they
already own for the price of 1/100th of a penny each.
46. Under the so-called Rights Agreement, however, the Horejsi shareholders will
have no "rights." Instead, according to a "Summary of Rights to Purchase Common
Shares" filed with the SEC by NRL, the so-called Rights Agreement provides:
In the event that any person or group ... becomes an Acquiring
Person, the Rights Agreement provides that ... each holder of a
Right, other than Rights beneficially owned by the Acquiring
Person in excess of the Rights associated with 11% of the Common
Shares outstanding ... will thereafter have the right to receive
... upon exercise three Common Shares. At any time after any
person or group becomes an Acquiring Person, the Board of
Directors of the Company may exchange the Rights (other than
Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of three Common
Share per Right (subject to adjustment).
Thus, under the so-called Rights Agreement, any shares owned by the Horejsi
Family Trusts above 11%, including any such shares acquired pursuant to the
Tender Offer, will immediately be diluted by a ratio of 3:1, rendering the
Horejsi shares, but no one else's, worth 1/4 of their prior value.
47. The Poison Pill was explicitly adopted as "one of several steps in [the]
board's plan to defend the fund and its stockholders against the unsolicited and
partial tender offer." In fact, NRL has stated that "because of this Rights
Agreement, [the NRL] board has a serious question about whether the Horejsi
Trusts will purchase common shares pursuant to the terms of the Horejsi [tender]
offer."
Blocking Action No. 3 -- The Self-Tender
48. At the September 23 meeting, the Board of NRL also voted to authorize NRL to
commence a "self tender offer" for 943,704 shares of NRL common stock at a price
of $20.00 per share. The Board stated that the "self tender" is "designed to
provide liquidity to the Fund's stockholders, if required, without requiring
them to tender" to the Horejsi Trusts.
49. Subsequently, NRL stated that the Self-Tender "is one of several steps in
your board's plan to defend the fund and its stockholders against the
unsolicited and partial tender offer."
50. At the same time, however, the Board recommended that stockholders not
tender into NRL's self tender offer. The Board noted that the self tender "will
be at a price less than the net asset value per share."
51. NRL has stated that the funds for the Self Tender "will be obtained from our
general corporate funds." Thus, NRL intends either (a) to use monies otherwise
available for investment or (b) be forced to liquidate appreciated assets and
thus accelerate a tax liability for its shareholders, solely for the purpose of
trying to defeat the Horejsi Trusts tender offer.
52. The Board stated, in SEC filings, that it determined the size of the self
tender based upon its belief that most stockholders would not tender their
shares.
53. NRL filed its Schedule TO with attached Exhibit (a)(1) "Offer to Purchase
dated October 1, 2004" (hereafter, the "Self-Tender Offer to Purchase") on
October 1, 2004. As described below, the Self-Tender Offer to Purchase contains
false and misleading statements.
54. One effect of the Self-Tender Offer is that, if successful, it will reduce
the size of the fund and the number of shares outstanding, and therefore likely
increase the per-share costs for the remaining shareholders. In its Self-Tender,
NRL and the counter-claim defendants failed to address whether per-share costs
for remaining shareholders will rise. Some costs are relatively fixed - i.e.,
audit costs, etc. - and necessarily will rise on a per shareholder basis. This
fact was not disclosed.
55. Counter-claim defendants failed to address whether NRL would be required to
sell investments and trigger tax obligations in order to fund the offer. In
fact, the Self-Tender is likely to require sale of investments and to trigger
some taxes, which fact was not disclosed.
56. Counter-claim Defendants failed to disclose the costs of their defense
effort and the effects of those costs on the fund's expense ratio.
57. The Self-Tender
Offer disclosures fail to address whether any reduction in equity will impact
the fund's 1940 Act and rating agency asset coverage ratios, and/or other rating
agency obligations for the outstanding preferred stock it recently issued.
58. The Self-Tender Offer to Purchase states:
that the Fund has entered into an agreement to hedge its interest
rate exposure, which agreement may be terminated in the event of
certain change in control events, including the actions proposed
by the Horejsi Trusts if their Horejsi Offer is successful. If
the agreement terminates, the Fund would lose the benefit of the
interest rate hedge and could be responsible for substantial
termination costs.
This hedging agreement has never been filed or made public, making it impossible
for a shareholder to ascertain the significance of the agreement or the truth of
the statement in Self-Tender Offer to Purchase.
59. For example, Counter-claim Defendants also do not describe the allegedly
"substantial" costs or the change of control events, the term of the agreement,
and its impact on the fund. The hedging agreement should have been filed as an
exhibit to the Self-Tender Offer documents given the fact that NRL itself
alleges that it is "significant" and needs to be considered by shareholders in
determining whether to tender their shares to the Horejsi Trusts.
Blocking Action No. 4 -- This Lawsuit
60. As its Fourth Blocking Action the Board authorized the commencement of the
instant lawsuit against the Horejsi Trusts.
61. The NRL Board has stated that "[i]f the Horejsi Trusts do not sell in the
Fund [Self-Tender] Offer, your Board may consider additional actions, which may
include additional self tender offers or mergers with other funds."
COUNT ONE
(Declaratory Judgment -- Violation of the Maryland Control Share Act)
62. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
63. The Private Placement, followed by the Board's election to be subject to the
MCSA, was a device to evade the proviso in the MCSA that "the resolution
[electing to be subject to the MCSA] shall not be effective with respect to any
person who has become a holder of control shares before the time that the
resolution is adopted."
64. Because the Trusts already owned more than 10% of the voting shares of NRL
outstanding as of September 10, 2004, and thus had achieved "grand-fathered"
status under the MCSA, the purpose of the Directors of NRL in authorizing the
creation of 139,535 new unregistered common shares of NRL and the sale of those
shares to NBLLC, an affiliate of NRL, was simply to dilute the holdings of the
Horejsi Family Trusts to below 10% and thereby to attempt to extinguish the
Horejsi Family Trusts' statutory grand-fathered status under the MCSA.
65. The effective dilution described in the prior paragraph, and the subsequent
and consequent resolution of the Board to be subject to the MCSA was not
effective to void the statutory rights of the Horejsi Family Trusts as set forth
in Md. Corps. & Ass'ns Code ss. 3-702(c)(4) that "the resolution shall not be
effective with respect to any person who has become a holder of control shares
before the time that the resolution is adopted."
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the MCSA and the voting restrictions imposed upon
"control shares" in Md. Corps. & Ass'ns Code ss. 3-702(a)(1) shall not apply to
any shares owned by the Horejsi Family Trusts.
COUNT TWO
(Declaratory Judgment -- MCSA Opt-In
Invalid as Violation of the Investment Company Act of 1940)
66. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
67. Section 18(i) of the 1940 Act provides:
(i) Future issuance of stock as voting stock; exceptions
Except as provided in subsection (a) of this section, or as
otherwise required by law, every share of stock hereafter issued
by a registered management company ... shall be a voting stock
and have equal voting rights with every other outstanding voting
stock.... (emphasis added)
68. The action of NRL in deciding to "opt-in" to the MCSA (after first illegally
attempting to reduce the holdings of the Horejsi Family Trusts to less than 10%)
violates section 18(i) of the 1940 Act because the affect of the opt-in is the
"control shareholder" no longer has equal voting rights.
69. To the extent Md. Corps. & Ass'ns Code ss. 3-702(c)(4) is interpreted to
permit NRL to "opt-in" to that section at this time, following the issuance of
new shares in the Private Placement to reduce the Horejsi Trusts to less than
10%, it is preempted by Section 18(i) of the 1940 Act and under the Supremacy
Clause of the United States Constitution.
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the MCSA and the voting restrictions imposed upon
"control shares" in Md. Corps. & Ass'ns Code ss. 3-702(a)(1) shall not apply to
any shares owned by the Horejsi Family Trusts.
COUNT THREE
(Declaratory Judgment -- MCSA Resolution
Inconsistent with NRL Corporate Charter)
70. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
71. Article Sixth, Section G of NRL's Charter, provides as follows:
Unless otherwise provided in these Articles, on each matter
that is submitted to a vote of the stockholders, each holder
of a share of capital stock of the Corporation shall be
entitled to one vote for each such share registered in such
holder's name on the books of the Corporation, irrespective
of the class of such share, and all shares of all classes of
capital stock shall vote together as a single class....
Nothing in these Articles shall be deemed to prohibit the
Board of Directors, through articles supplemental
establishing the rights and privileges of any class, from
granting to one or more classes the exclusive right to elect
one or more directors of the Corporation. (emphasis added)
72. The resolution of the Board opting-in to the MCSA is ultra vires and not
permitted by the Charter of NRL, which provides that all shares shall have one
vote.
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the September 23, 2004 resolution of the Board of NRL
opting in to the MCSA was and shall be invalid, and that the concomitant voting
restrictions imposed upon "control shares" in Md. Corps. & Ass'ns Code ss.
3-702(a)(1) shall not apply to any shares owned by the Horejsi Family Trusts.
COUNT FOUR
(Declaratory Judgment -- Rights Agreement/Poison
Pill Invalid as Violation of ss. 18(d) the Investment
Company Act of 1940)
73. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
74. Section 18(d) of the 1940 Act provides:
(d) Warrants and rights to subscription
It shall be unlawful for any registered management company to
issue any warrant or right to subscribe to or purchase a security
of which such company is the issuer, except in the form of
warrants or rights to subscribe expiring not later than one
hundred and twenty days after their issuance and issued
exclusively and ratably to a class or classes of such company's
security holders; except that any warrant may be issued in
exchange for outstanding warrants in connection with a plan of
reorganization. (emphasis added)
75. "Ratably" means "proportionately." The issuance of rights pursuant to the
Rights Plan is disproportionate since the only purpose of such a plan is to
treat a greater-than-11% shareholder differently from other shareholders. The
Horejsi Trusts will be prohibited from exercising or trading its rights when a
triggering event occurs -- indeed, rights it owns in shares above the 11%
threshold will be declared "void." The effect is the same as if the rights were
issued disproportionately.
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the Rights Agreement shall not be enforceable insofar as
Section 11(a)(iii) of the Rights Agreement purports to make "void" any rights
held by an Acquiring Person "in excess of the Rights associated with 11%" of the
shares of NRL.
COUNT FIVE
(Declaratory Judgment -- Rights Agreement/Poison
Pill Invalid as Violation of ss. 23(b) of the Investment
Company Act of 1940)
76. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
77. Section 23(b) of the 1940 Act provides:
(b) Sale of common stock at price below current net asset value
No registered closed-end company shall sell any common stock of which
it is the issuer at a price below the current net asset value of such
stock ... except (4) upon the exercise of any warrant outstanding on
August 22, 1940, or issued in accordance with the provisions of
section 18(d)....
78. According to NRL's Summary of the terms of the Rights Agreement, NRL has
issued "a dividend of one right for each outstanding share of common stock, par
value $.0001 per share (the "Common Shares"), of the Company. ... Each Right
entitles the registered holder to purchase from the Company three Common Shares
at a price equal to the aggregate par value of such Common Shares (the "PURCHASE
PRICE")...."
79. Thus, each new share under the Rights Agreement will be issued at $.0001, or
1/100th of a cent.
80. Net asset value per share of NRL is approximately $21.00.
81. The rights have not been issued in accord with section 18(d) of the 1940
Act.
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the Rights Agreement shall not be enforceable insofar as
Section 11(a)(iii) of the Rights Agreement purports to make "void" any rights
held by an Acquiring Person "in excess of the Rights associated with 11%" of the
shares of NRL or insofar as the Rights Agreement purports to issue new shares at
less than Net Asset Value to any shareholder.
COUNT SIX
(Declaratory Judgment -- Rights Agreement/Poison
Pill Invalid as Violation of ss. 18(i) of the Investment
Company Act of 1940)
82. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
83. Section 18(i) of the 1940 Act provides:
(i) Future issuance of stock as voting stock; exceptions
Except as provided in subsection (a) of this section, or as otherwise
required by law, every share of stock hereafter issued by a registered
management company ... shall be a voting stock and have equal voting
rights with every other outstanding voting stock.... (emphasis added)
84. The issuance of "rights" pursuant to the Rights Agreement violates ss. 18(i)
of the 1940 Act because after the Rights Agreement / Poison Pill is triggered
and the rights are exercised, the greater-than-11% shareholder no longer has
equal voting rights. The effect would be the same as if the fund issued a class
of stock with super-majority voting power. Issuance of such a class would not be
permitted under Section 18(i).
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that the Rights Agreement shall not be enforceable insofar as
Section 11(a)(iii) of the Rights Agreement purports to make "void" any rights
held by an Acquiring Person "in excess of the Rights associated with 11%" of the
shares of NRL.
COUNT SEVEN
(Tortious Interference With Prospective Business)
85. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
86. The acts of NRL in adopting the Rights Agreement and opting in to the MCSA,
with the intent to block the Horejsi Trusts' tender offer to other NRL
shareholders, were intentional and wilful.
87. The acts of NRL in adopting the Rights Agreement and opting in to the MCSA
were calculated to cause damage to the Horejsi Trusts in their lawful business.
88. The acts of NRL in adopting the Rights Agreement and opting in to the MCSA
were done with an unlawful purpose to cause damage and loss to the Horejsi
Trusts without right or justifiable cause on the part of NRL.
89. The Horejsi Trusts have suffered actual damage and loss as a result of the
wrongful or unlawful conduct of NRL.
90. WHEREFORE Counter-Claimants seek (i) that this Court enter a declaratory
judgment that the Rights Agreement shall not be enforceable insofar as Section
11(a)(iii) of the Rights Agreement purports to make "void" any rights held by an
Acquiring Person "in excess of the Rights associated with 11%" of the shares of
NRL; (ii) that this Court enter a declaratory judgment that the resolution of
the NRL Board opting-in to the MCSA shall not be enforceable as against the
Horejsi Trusts, and; (iii) such damages as have been caused by NRL's tortious
conduct.
COUNT EIGHT
(Violation of Section 14(e) of the 1934 Exchange Act re: Self-Tender)
91. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
92. Section 14(e) of the 1934 Exchange Act, 15 U.S.C. ss. 78(e), states, in
pertinent part, that:
It shall be unlawful for any person to make any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made, not misleading, or to engage in any
fraudulent, deceptive, or manipulative acts or practices, in
connection with any tender offer or request or invitation for tenders,
or any solicitation of security holders in opposition to or in favor
of any such offer, request, or invitation.
93. As set forth in paragraphs 48-59 above (Blocking Action # 3: The
Self-Tender), in the Self-Tender Offer to Purchase, the Defendants made numerous
false statements and omissions in connection with the self-tender.
94. These false statements and omissions are material.
95. The Counter-Defendant made these misstatements and omissions with actual
knowledge as to their falsity and/or with recklessness as to their truth or
falsity. The Counter-Defendant had both the motive and the opportunity to commit
securities fraud, due to their desire to entrench themselves, to continue to
control the Neuberger Berman Fund Complex, and to continue to control all of the
investment advisory and management fees derived therefrom.
96. Injunctive relief is warranted here because Counter-Claimants and other NRL
shareholders will suffer irreparable harm as a result of the Counter-Defendant's
misleading statements.
97. Counter-Claimant has no adequate remedy at law.
WHEREFORE, Counter-Claimant respectfully requests that:
A. the Court preliminarily and permanently enjoin the
Counter-claim Defendants, their respective officers, agents,
employees, attorneys, affiliates and all other persons acting directly
or indirectly, for, on behalf of or in concert with them from
consummating the Self-Tender Offer; and
B. the Court award Counter-Claimants the costs and disbursements
of this proceeding, together with reasonable attorneys' fees, and such
further relief as the Court considers just and proper.
COUNT NINE
(Violation of 17 C.F.R. ss. 240.14e-3(a), (d) -- Private Placement)
98. The facts set forth in the preceding paragraphs are incorporated herein by
reference as if set forth in full.
99. Rule 14e-3, promulgated under ss. 14(e) of the 1934 Exchange Act and
codified at 17 C.F.R. 240.14e-3, provides:
(a) If any person has taken a substantial step or steps to
commence or has commenced, a tender offer (the `offering
person'), it shall constitute a fraudulent, deceptive or
manipulative act or practice within the meaning of section 14(e)
of the Act for any other person who is in possession of material
information relating to such tender offer which information he
knows or has reason to know has been acquired directly or
indirectly from:
(1) the offering person,
(2) the issuer of the securities sought or to be sought by
such tender offer, or
(3) any officer, director, partner or employee or any other
person acting on behalf of the offering person or such
issuer,
to purchase or sell or cause to be purchased or sold any of such
securities ... unless within a reasonable time, prior to any purchase
or sale such information and its source are publicly disclosed by
press release or otherwise. (emphasis added)
100. On September 21, all of the NRL directors, including the directors who are
"Interested Persons" within the meaning of the 1940 Act and who also serve as
officer or managers or members of NBLLC, had been briefed "as to ... proposed
actions."
101. NRL and NBLLC, the two parties that engaged in the Private Placement, share
common officers and directors. For instance, Peter E. Sundman, who is Chief
Executive Officer and Chairman of the Board of Directors of NRL, is also the
Executive Vice President of NBLLC
102. NBLLC purchased the shares in the Private Placement on September 22, 2004,
based on knowledge it had learned from the issuer or a director of the issuer.
This information was material information relating to such tender offer and had
not been publicly disclosed by press release or otherwise.
103. Rule 14e-3(d) provides that "it shall be unlawful for any person described
in paragraph (d)(2) of this section to communicate material nonpublic
information relating to a tender offer to any other person under circumstances
in which it is reasonably foreseeable that such communication is likely to
result in a violation of this section . . ." 17 C.F.R. 240.14e3(d)(1).
104. Persons described under paragraph (d)(2) include officers, directors,
partners, employees, or advisors of the entity engaging in a tender offer.
105. NRL and its interested directors violated Rule 14e-3(d) by communicating
material nonpublic information to NBLLC.
WHEREFORE Counter-Claimants respectfully request that this Court enter a
judgment declaring that NRL has violated Rule 14e-3(a) and Rule 14e-3(d) by
engaging in the Private Placement with an affiliated company based on material
non-public information, and that the MCSA and the voting restrictions imposed
upon "control shares" in Md. Corps. & Ass'ns Code ss. 3-702(a)(1) shall not
apply to any shares owned by the Horejsi Family Trusts.
Respectfully submitted,
/s/ Donald B. Mitchell, Jr.
-----------------------------------
James H. Hulme, Bar No. 00875
Donald B. Mitchell, Jr., Bar No. 22944
Kate Briscoe, Bar No. 26807
ARENT FOX, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
T: (202) 857-6000
F: (202) 857-6395
Attorneys for Defendants/counter-Claimants
Lola Brown Trust No. 1B,
Ernest Horejsi Trust No. 1B, and
Badlands Trust Company,
as trustee for the Lola Brown Trust No. 1B
Dated: October 7, 2004