Exhibit 10.8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 97-D-2214
LEE RASMUSSEN, minority shareholder of record; DOUG RICHMOND; JEFF T. COATES;
ERNEST REEVES; VERNON RASMUSSEN; SHEILA RASMUSSEN; BEVERLY DITTEMORE; CHRISTY
OLSEN, minority shareholders in street name;
Plaintiffs,
v.
SPURLOCK INDUSTRIES, INC., a Virginia corporation; HAROLD N. SPURLOCK; IRVINE R.
SPURLOCK; H. NORMAN SPURLOCK, JR.; PHILLIP S. SUMPTER; WARREN E. BEAM, JR.;
LLOYD PUTMAN, as individuals;
Defendants.
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STIPULATION AND SETTLEMENT AGREEMENT
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This derivative action was commenced initially by seven owners of the
common stock of Spurlock Industries, Inc., a Virginia corporation (such
corporation, its predecessors, subsidiaries and affiliates, hereinafter
collectively referred to as the "Corporation"), on behalf of the Corporation,
alleging that the Corporation had been damaged by the actions of certain of its
current and former directors and asserting that such claims should be pursued on
behalf of the Corporation. The Corporation was included as a nominal defendant.
An eighth plaintiff was added later.
Promptly following the filing of plaintiffs' complaint (the
"Complaint"), the Corporation's board of directors appointed a special
litigation committee (the "SLC") consisting of two independent outside directors
who were not named defendants in the Complaint. The
SLC was delegated all of the Board of Directors' corporate powers and authority
with respect to the lawsuit, including investigating the facts surrounding
plaintiffs' substantive allegations; determining whether maintaining the suit
was in the best interests of the Corporation and its shareholders; retaining
independent legal counsel to assist the SLC's investigation; and taking all
other action that the SLC might deem necessary or appropriate.
The SLC conducted an extensive investigation of the facts,
circumstances and transactions alleged in plaintiffs' Complaint. The SLC
examined and analyzed thousands of pages of documents produced by the
Corporation, interviewed numerous witnesses alleged to have knowledge concerning
the claims set forth in the Complaint, and employed an independent certified
public accounting firm to conduct an examination of the Corporation's books. The
SLC's findings as a result of the investigations are set out in the Report of
the Special Litigation Committee of Spurlock Industries, Inc. and the
Supplemental Report of the Special Litigation Committee of Spurlock Industries,
Inc., both of which reports have previously been filed with the Court in this
action. The SLC concluded that there was merit in certain claims which were
implicitly embodied within Claim Three of the Complaint; and the SLC vigorously
pursued such claims on behalf of the Corporation, resulting in a recovery by the
Corporation of cash, a judgment and a secured note totaling approximately
$500,000. The SLC further concluded that the remaining claims alleged in the
Complaint either had no merit or had resulted in no damage to the Corporation.
The plaintiffs also conducted their own investigation and interviewed
potential witnesses, and they have studied the reports of the SLC. They are
satisfied with the independence of the SLC and the scope and thoroughness of its
investigations. Accordingly, on the basis of their factual investigation, their
study of the reports filed by the SLC, and their assessment of the risks
and hazards of further litigation, plaintiffs have concluded that all damages
which the Corporation may have suffered by reason of certain matters alleged in
their Complaint have been recovered by the Corporation and that the Corporation
has suffered no damages as a result of the remaining allegations, even if those
allegations could be proved. Accordingly, plaintiffs have concluded that a
settlement of the litigation on the terms and conditions described below would
be fair, reasonable and adequate to plaintiffs and to the Corporation and its
shareholders. The defendants, while denying and disclaiming wrongdoing of any
kind whatsoever and denying any damage to the Corporation which has not been
fully repaid to or otherwise recovered by the Corporation, have nevertheless
agreed to enter into a settlement in order to recognize plaintiffs' efforts in
investigating, filing and prosecuting this derivative action which prompted a
thorough investigation by the SLC and resulted in a recovery by the Corporation
of approximately $500,000; to avoid the further expense of burdensome and
protracted litigation; and finally to put to rest the claims which have been
alleged in this litigation. Moreover, plaintiffs and defendants desire by this
settlement to facilitate, to the extent feasible, the potential sale of the
Corporation or all or a portion of its assets to persons who have expressed an
interest in purchasing same.
IT IS, THEREFORE, STIPULATED AND AGREED by and among the parties in
this action that this action shall be settled and compromised, upon approval of
the Court, after notice to shareholders and a hearing pursuant to Fed. R. Civ.
P. 23.1, on the terms and conditions set forth below. This Stipulation and
Settlement Agreement shall hereafter be termed the "Agreement," "action" shall
mean the civil action captioned above, and certain other terms will be used as
defined in this Agreement.
1. The undersigned represent that they are authorized to execute this
Agreement and to take all steps which this Agreement contemplates to effectuate
the settlement of this action,
and the parties agree that they will take all steps which this Agreement
contemplates to effectuate the settlement of this action.
2. The intent and purpose of this Agreement are to effect the full and
final disposition of: (a) all claims, rights, or causes of action (state or
federal, including but not limited to claims arising under the federal
securities laws, any rules or regulations promulgated thereunder, or otherwise),
whether known or unknown, that are, could have been, or might in the future be
asserted by any of the plaintiffs, whether on behalf of themselves directly or
derivatively, representatively, or in any other capacity, against any of the
defendants, including the Corporation, (regardless of whether any such defendant
has been served or entered an appearance in this action) and their respective
present or former directors, officers, employees, general and limited partners
and partnerships, principals, agents, attorneys, subsidiaries, affiliates,
associates, parents, predecessors, successors, assigns, heirs, executors, and
administrators, or personal representatives (collectively, the "Released
Persons"), or against anyone else in connection with, or that arise now or
hereafter out of or are related to, the settlement (except for compliance with
the settlement) or any matters, transactions, circumstances or occurrences
referred to in the Complaint, or the fiduciary or disclosure obligations of any
of the Released Persons with respect to any of the foregoing; and (b) all
claims, rights, or causes of action, known or unknown, that are, could have
been, or might in the future be asserted on behalf of the Corporation or any
shareholder against any Released Person or against anyone else in connection
with, or that arise now or hereafter out of or are related to, the settlement or
any matters, transactions, circumstances or occurrences referred to in the
Complaint, or the fiduciary or disclosure obligations of any of the Released
Persons with respect to the any of the foregoing
(collectively, the "Settled Claims"). However, except as may be expressly
provided herein, this Agreement shall not affect any existing contract between
the Corporation and any defendant, nor shall it affect any existing judgment in
favor of the Corporation.
3. In consideration of paragraph 2 above, on or before the tenth
Business Day after the day upon which the order approving the settlement of the
lawsuit and dismissing with prejudice all claims brought in the derivative
action, through the date of this Agreement, shall have become a Final Order and
all appeal periods have run:
(a) the Corporation will pay to the plaintiffs out of the
amounts recovered by the SLC the sum of $22,500, representing reimbursement of
the plaintiffs' legal fees incurred in the investigation, preparation and filing
of the action, and the further sum of $75,000 in cash in recognition of the
benefits conferred upon the Corporation and its shareholders by virtue of the
investigation which was commenced by the Corporation as a result of plaintiffs'
lawsuit, which resulted in a recovery to the Corporation of approximately
$500,000 in cash, a judgment, and a secured note; and
(b) the Corporation will deliver to the plaintiffs 50,000
shares of the common stock of the Corporation, subject to the restrictions on
such stock hereinafter set forth.
4. By separate agreement (the "Spurlock Agreement") with the Spurlock
Family Limited Partnership (the "Family Partnership"), the plaintiff Lee
Rasmussen ("Rasmussen") and others (collectively, the "Rasmussen Group") have
compromised and settled for separate consideration the direct claims they
asserted on their own behalf in the Sixth Claim of the Complaint and all other
claims they may have individually, or as representatives of any other person, on
account of alleged conduct of any of the Corporation's present or former
directors, officers, employees, partners, principals, agents, attorneys,
subsidiaries, affiliates, predecessors
or their successors, assigns, heirs or personal representatives, none of which
claims is a derivative claim. The Family Limited Partnership/Rasmussen Group
separate settlement of non-derivative claims, which provides for Rasmussen to
receive 225,000 shares of common stock in the Corporation presently owned by the
Family Limited Partnership and for members of the Rasmussen Group to have the
right to "put" to the Family Limited Partnership certain shares, is at no cost
to and places no obligations on the Corporation. Harold N. Spurlock, Irvine R.
Spurlock and H. Norman Spurlock, Jr., as evidenced by their signatures hereto,
agree that neither the Corporation nor its insurers nor any other person shall
be required to, and that they will not seek to have the Corporation, its
insurers, or any other person, indemnify, reimburse or hold harmless any of them
for any liabilities, losses, costs, damages, injuries, claims, demands and
expenses, including legal expenses, arising from or related to the settlement
between the Spurlock Family Limited Partnership and the Rasmussen Group; and
Harold N. Spurlock, Irvine R. Spurlock and H. Norman Spurlock, Jr. hereby
expressly waive and release any claim thereto.
5. As soon as practicable after the execution of this Agreement,
counsel shall submit this Agreement to the Court for approval of submission of
its terms by notice to all shareholders of record of the Corporation's stock,
and shall submit to the Court a proposed order containing the following
provisions, which are hereby consented to by the parties signatory hereto:
(a) Approving the appropriate forms of notice to be given to
shareholders ("Notice") and the manner of giving such Notice, and directing that
such Notice be given by the Corporation on or before a date certain (the "Notice
Date"), as well as containing the manner for filing proof of the giving of such
Notice and such other provisions as shall be appropriate with respect to Notice.
(b) Directing that a hearing be held to determine the
fairness, reasonableness, and adequacy of the settlement and whether it should
be approved by the Court; fixing a date for such hearing; and providing that any
shareholder who objects to the approval of this settlement or to the judgment to
be entered as a result of its approval may appear at the hearing, upon
conditions stated, and show cause why the settlement should not be approved as
fair, reasonable and adequate and why final judgments pursuant to Rule 54(b)
should not be entered.
(c) Requiring that the objection of any person must be made in
writing and that such objection together with any supporting papers must be
filed with the Court more than ten (10) days prior to the hearing set by the
Order and served on counsel designated in the Order.
(d) Providing that, upon approval of the settlement, all
shareholders and the Corporation shall forever be barred from prosecuting the
Settled Claims.
6. In advance of the hearing at which final approval by the Court of
the Settlement is sought, counsel for plaintiffs and counsel for defendants
shall jointly file a motion for an Order, which shall constitute a final
judgment pursuant to Rule 54(b) as to all claims on behalf of the Corporation
and its shareholders:
(a) Finding that adequate notice has been given, approving
this Agreement and the Settlement and adjudging the terms hereof to be fair,
reasonable and adequate and directing consummation of the Settlement in
accordance with the terms and conditions of this Agreement.
(b) Dismissing the Complaint, all claims therein, and all
related claims on the merits, without costs, in favor of the defendants and with
prejudice to plaintiffs, individually, and on behalf of the Corporation and its
shareholders; and
(c) Providing that all shareholders and the Corporation shall
forever be barred from prosecuting the Settled Claims.
7. With respect to any shares of stock delivered to any plaintiff under
the Settlement (the "Shares"), each plaintiff hereby represents and warrants to
the Corporation and all other defendants that:
(a) Each plaintiff is acquiring the Shares as an investment
for his/her own account, as principal, and not with a view towards the resale or
distribution thereof; he/she has no intention, agreement or arrangement to
divide his/her interest in the Shares with others or to assign, transfer or
otherwise dispose of any or all of the Shares unless and until the Shares are
registered or an exemption from such registration is available under applicable
federal and state securities laws.
(b) Each plaintiff, either alone or together with his/her
representatives, has such knowledge and experience in financial and business
matters that he/she is capable of evaluating the Corporation and the merits and
risks of an investment in the Shares.
(c) Neither the Corporation nor any person acting on behalf of
the Corporation made any offer of the Shares by means of any form of general
solicitation or general advertising.
(d) Each plaintiff has been furnished with a copy of the
Corporation's Form 10-K for the fiscal year ended December 31, 1997, and copies
of the Corporation's Form 10-Q for the quarters ended March 31, 1998, June 30,
1998, and September 30, 1998, and has been afforded the opportunity to obtain
any additional information necessary to make an informed investment decision on
the Shares.
8. Each plaintiff agrees that the Shares will bear a restrictive legend
prohibiting transfers thereof except in compliance with applicable federal and
state securities laws and will not be transferred of record except upon adequate
evidence of compliance therewith. The Corporation may require that each
plaintiff provide the Corporation with an opinion of counsel satisfactory to the
Corporation that such transfer complies with applicable federal and state
securities laws. Stop transfer instructions will be issued to the Corporation's
transfer agent with respect to the Shares.
9. The plaintiffs hereby unconditionally release the Corporation and
all current, past and future officers, directors, employees and agents of the
Corporation, whether or not named, from any and all liability that may arise out
of any breach, default or claim under the separate agreement with the Spurlock
Family Limited Partnership, including but not limited to any liability arising
out of the transfer of the Corporation's common stock to any plaintiff or the
fulfillment of the obligations of the Spurlock Family Limited Partnership under
such separate agreement relating to any rights related to those securities by
any of the plaintiffs. The Corporation in no way guarantees the performance of
the obligations set forth in the separate agreement with the Spurlock Family
Limited Partnership, and each plaintiff agrees that his or her remedies for any
breach, claim or default thereunder shall be exclusively against the parties to
such agreement and not against the Corporation, its officers, directors and
employees, or any successor of the Corporation.
10. In the event that the orders of the Court contemplated in
Paragraphs 4 and 5 not be entered, or be entered but reversed or modified on
appeal, then this Agreement shall have no further force and effect, and shall be
without prejudice to the claims, defenses, rights and contentions of the
defendants or plaintiffs.
11. Neither this Agreement nor any proceedings hereunder shall in any
event be construed as or deemed to be evidence of any admission on the part of
any of the Corporation's present or former directors, officers, employees,
partners, principals, agents, attorneys, subsidiaries, affiliates, or
predecessors or successors of any liability or wrongdoing whatsoever, or of the
truth of the averments of the Complaint in this action or an admission of any
lack of merit in their defenses, nor shall this Agreement, or any of the terms
hereof, or any of the negotiations or proceedings connected herewith, be offered
or received in evidence for any purpose other than for purposes of the
Settlement and its effectuation and the dismissal order which it contemplates,
and, without limitation, they shall not be used as an admission of any wrongful
or illegal activity on the part of any person or of any liability whatsoever by
any of the defendants, or as an admission of damage to any person, including the
Corporation, or as an admission of any of the averments contained in the
Complaint in this action.
12. This Agreement is to be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the Commonwealth
of Virginia (without giving effect to any laws or rules relating to conflicts of
laws that would cause the application of the laws of any jurisdiction other than
the Commonwealth of Virginia). All parties hereby consent to and accept the
exclusive jurisdiction of the federal and state courts serving the Commonwealth
of Virginia in all disputes arising from this Agreement, including without
limitation the interpretation, performance, termination of this Agreement.
13. This Agreement may be executed in counterparts by the parties
hereto, each of which shall be deemed an original and which together shall
constitute one and the same instrument.
DATED as of December 2, 1998.
PLAINTIFFS:
/s/ LEE RASMUSSEN
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LEE RASMUSSEN
/s/ DOUG RICHMOND
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DOUG RICHMOND
/s/ JEFF T. COATES
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JEFF T. COATES
/s/ ERNEST REEVES
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ERNEST REEVES
/s/ VERNON RASMUSSEN
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VERNON RASMUSSEN
/s/ SHEILA RASMUSSEN
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SHEILA RASMUSSEN
/s/ BEVERLY DITTEMORE
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BEVERLY DITTEMORE
/s/ CHRISTY OLSEN
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CHRISTY OLSEN
DEFENDANTS:
SPURLOCK INDUSTRIES, INC.,
a Virginia corporation
By: /s/ Phillip S. Sumpter
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Phillip S. Sumpter
Chairman and CEO
/s/ HAROLD N. SPURLOCK
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HAROLD N. SPURLOCK
/s/ IRVINE R. SPURLOCK
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IRVINE R. SPURLOCK
/s/ H. NORMAN SPURLOCK, JR.
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H. NORMAN SPURLOCK, JR.
/s/ PHILLIP S. SUMPTER
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PHILLIP S. SUMPTER
/s/ WARREN E. BEAM, JR.
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WARREN E. BEAM, JR.
/s/ LLOYD PUTMAN
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LLOYD PUTMAN