A N.C. Business Court has tied up the last loose legal end on the 2016 shareholder lawsuit that tried to halt Krispy Kreme Doughnuts Inc.’s $1.35 billion sale to an affiliate of JAB Holdings Inc.
On Wednesday, Judge James Gale approved requiring Krispy Kreme to pay $150,000 in attorney fees for the eight plaintiffs. The attorneys had requested up to $500,000.
Gale did not approve providing funds for the attorneys’ expenses to litigate the complaint.
Krispy Kreme announced May 9, 2016, it had accepted the JAB offer, which took the company private as a member of JAB’s burgeoning food-service and restaurant portfolio.
Several complaints were filed in Forsyth Superior Court and the Middle District of the U.S. District Court. The complaints were consolidated into the Business Court on July 11, 2016.
The lawsuits shared similar claims: that Krispy Kreme’s preliminary proxy statement of May 30 failed to disclose pertinent financial projections; that the board engaged in a flawed process in evaluating potential offers; and that the $21 a share offer did not properly value the worth of Krispy Kreme.
Some analysts said Krispy Kreme could be valued at as much as $27 a share, representing a $336 million difference in sale price.
The company, as have several other corporations trying to push major deals through the shareholder approval process, agreed to provide the supplementary disclosures.
Gale ruled in favor of a settlement agreement in July 15, 2016, with the deal closing 12 days later. The shareholders’ legal settlement was completed Jan. 2, 2018.
The company said in filings that it “continues to believe that the (lawsuits) are without merit and that no further disclosure is required to supplement the proxy statement under applicable laws.”
“However, to eliminate the burden, expense and uncertainties inherent in litigation, and without admitting any liability or wrongdoing,” the company agreed to make the supplemental disclosures.
The disclosures also provided several years’ worth of financial projections if Krispy Kreme had remained a publicly traded company.
One shareholder plaintiff, James Graham, accused Krispy Kreme insiders of being motivated “by the prospect of potentially cashing out illiquid equity holdings (including stock options and restricted stock units) to reap immediate, if inadequate, benefits.” Illiquid is the state of an asset that is not readily convertible into cash.
The board disclosed that Krispy Kreme’s top four executives could walk away with a combined $13.58 million in cash and stock if their jobs were to be terminated without cause within two years of the sale. All four executives joined within the past 2½ years.
Graham’s lawsuit, and those of other shareholders, criticized the Krispy Kreme board’s willingness to agree to a “no-shop” clause that prohibited the board from taking any JAB offer to another potential buyer, as well as requiring the board to inform JAB if it received an unsolicited offer.
The board said in the narrative that accepting the no-shop clause was necessary to secure JAB’s $21 a share offer.
By Richard Craver Winston-Salem Journal
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