Stipulation of Settlement (2013)Full Document 

Start of Preview

IN THE COURT OF COMMON PLEAS

OF LACKAWANNA COUNTY

LORI GRAY,
derivatively on behalf of
FIRST NATIONAL COMMUNITY CIVIL ACTION – LAW
BANCORP.
BANCORP, INC.
Plaintiff,
vs.
LOUIS A. DENAPLES, et al.,
2012-CIV-3228
Defendants,
FIRST NATIONAL COMMUNITY
BANCORP, INC.
Nominal Defendant.

STIPULATION OF SETTLEMENT

This Stipulation of Settlement (“Stipulation”), dated as of November 27, 2013, is entered into, by and through their respective undersigned counsel, by (i) Lori Gray and Frank Lombardo (collectively, the “Settling Plaintiffs”), (ii) Louis A. DeNaples, Michael J. Cestone, Jr., Joseph Coccia, Dominick L. DeNaples, Joseph J. Gentile, William P. Conaboy, John P. Moses, Michael Conahan, J. David Lombardi (collectively, the “Individual Defendants”), Louis A. DeNaples, Jr., Michael G. Cestone, Steven R. Tokach and Thomas J. Melone, the latter two both individually and as the Special Committee (collectively, the “Additional Directors”), First National Community Bancorp, Inc. (“FNCB” or the “Company”) and FNCB’s subsidiary, First National Community Bank (the “Bank”) (the Individual Defendants, the Additional Directors, FNCB and the Bank are collectively referred to herein as the “Settling Defendants,” and the Settling Plaintiffs and the Settling Defendants are collectively referred to herein as the “Settling Parties”). This Stipulation is intended by the Settling Parties to fully, finally, and forever compromise, resolve, discharge, and settle the Released Claims (as defined herein) and this Derivative Litigation (as defined herein) in accordance with the terms and conditions set forth below, subject to the approval of the Court.

WHEREAS, by letter dated December 19, 2011, Plaintiff Gray, through her undersigned counsel, made a pre-suit demand upon the Board of Directors (“Board”) of the Company to take action against certain current and former officers and directors of the Company alleging they had breached their fiduciary duties in various respects (the “Demand Letter”);

WHEREAS, on January 11, 2012, in response to the Demand Letter, the Board, on behalf of the Company, passed a resolution appointing a Special Committee consisting of FNCB Board members Steven R. Tokach and Thomas Melone to investigate the matters outlined in the Demand Letter (the “Investigation”);

WHEREAS, in February 2012, the Special Committee retained Alexander Kerr, Esquire and Michael M. Horn, Esquire, of the law firm McCarter & English, LLP, to assist with the Investigation;

WHEREAS, Plaintiff Gray and shareholder Lombardo, through their respective counsel, have raised serious substantive issues with respect to, inter alia, the activities of the Special Committee and its counsel and their independence;

WHEREAS, on May 24, 2012, Ms. Gray, through her undersigned counsel, commenced an action (the “Gray Action”) by filing a Verified Shareholder Derivative Complaint for Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, and Professional Negligence (the “Complaint”) against the Individual Defendants and Demetrius & Company, LLC (“Demetrius”);

2

WHEREAS, the Special Committee thereafter completed its Investigation and on March 27, 2013 issued its Report (the “Report”), which contains certain non-public information of the Office of the Comptroller of the Currency (“OCC”);

WHEREAS, the Company has requested and obtained the OCC’s consent to release the Report to the parties to the Gray Action, as well as the Court in the Gray Action, subject to certain redactions and conditions (the “Redacted Report”);

WHEREAS, the Company provided the Redacted Report on August 1, 2013 to counsel for the Settling Parties and Demetrius subject to a Court-approved protective order;

WHEREAS, on or about April 4, 2013, Plaintiff Gray filed a motion to amend the Complaint by including claims against Robert L. Rossi & Company (“Rossi”) and attached a proposed Verified Amended Shareholder Derivative Complaint for Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Breach of Contract, Negligent Misrepresentation, Unjust Enrichment, Corporate Waste, Abuse of Control, and Professional Negligence (the “Proposed Amended Complaint”);

WHEREAS, in or about June 2012, certain of the Settling Defendants were advised that Frank Lombardo, a current FNCB shareholder, through his counsel, Richard D. Greenfield, Esq., was contemplating filing a substantially similar, but broader shareholder derivative complaint against the Individual Defendants and others (the “Lombardo Complaint”), drafts of which were provided to certain Settling Defendants’ counsel (the Demand Letter, Complaint, Proposed Amended Complaint, and Lombardo Complaint are collectively referred to as the “Pending and Threatened Litigation”);

WHEREAS, counsel for the Settling Plaintiffs and counsel for the Individual Defendants engaged in arms’ length negotiations regarding a potential resolution of certain claims asserted in the Pending and Threatened Litigation;

3

WHEREAS, it is acknowledged by Plaintiff Gray and Mr. Lombardo and their counsel that Louis DeNaples took a leave of absence from the Company on February 6, 2008 and, thereafter, did not serve as an officer or Director of the Company during the time the conduct alleged in the Pending and Threatened Litigation occurred;

WHEREAS, Plaintiff Gray and Mr. Lombardo in the Pending and Threatened Litigation have, inter alia, claimed that the Individual Defendants, in the operation of the Company and the Bank, have failed to provide the necessary oversight, prudence and governance required of them pursuant to their fiduciary duties, applicable law and banking rules and regulations;

WHEREAS, the Settling Plaintiffs maintain that the risk oversight function of the boards of directors of banks and bank holding companies, and of FNCB and the Bank in particular, has never been more critical and challenging than it is today;

WHEREAS, Plaintiff Gray and Mr. Lombardo recognize and recommend that such oversight at FNCB and the Bank can and should be enhanced by, inter alia, improved governance practices and procedures, improved oversight by FNCB’s Board and the establishment of a risk management regimen at FNCB and the Bank.

WHEREAS, Plaintiff Gray and Mr. Lombardo believe and recommend that oversight of risk management will be enhanced by the appointment of an officer of the Bank who is assigned specific responsibility for risk management.

WHEREAS, the Individual Defendants and Additional Directors, in connection with the Pending and Threatened Litigation, have denied and continue to deny that they have committed or aided or abetted in the commission of any unlawful or wrongful act alleged in the Pending and Threatened Litigation, and maintain that they diligently and scrupulously complied with their respective fiduciary and/or other duties to the Bank, to FNCB, and to FNCB’s shareholders, and the Individual Defendants and the Additional Directors are entering into this Stipulation solely because the proposed Settlement (defined below) provided for herein will eliminate the potential burden of distracting and costly litigation and it is expected to generate substantial benefits to FNCB and the Bank;

4

WHEREAS, as of August 29, 2013, the Settling Parties entered into a Memorandum of Understanding (the “MOU”) preliminarily providing for the settlement of the Pending and Threatened Litigation, subject to the execution of a definitive stipulation of settlement, notice to FNCB’s shareholders, and approval by the Court;

WHEREAS, upon the execution of this Stipulation, the MOU shall be considered null and void and without effect;

WHEREAS, Plaintiff Gray and Mr. Lombardo do not, by entering into this Stipulation, admit that any of the allegations and claims in the Pending and Threatened Litigation lack merit, or lack foundation in law or fact, or in any way were alleged for an improper purpose, and they are entering into this Stipulation solely because the proposed Settlement provided for herein will facilitate the effective and efficient resolution of all of their claims against the Released Parties (as defined below);

WHEREAS, the Settling Parties recognize that the time and expense they would each incur by further litigation related to the Pending and Threatened Litigation and the uncertainties inherent in such litigation, particularly the potential diversion of attention of certain of the Individual Defendants and Additional Directors from overseeing the operations of the Company and the Bank;

WHEREAS, the Settling Parties agree that the Settlement set forth herein is the full and final resolution of all potential or actual claims by, between and/or among the Settling Parties arising from the facts alleged in the Pending and Threatened Litigation, believe settlement is in their best interests, and therefore wish to settle and resolve the claims, both potential and actual, alleged or threatened in, or related to, the Pending and Threatened Litigation with respect to any Settling Party;

5

WHEREAS, FNCB, the Bank and the Individual Defendants believe that they may have valid claims against Demetrius, John Demetrius, and/or Rossi related to events alleged in the Pending and Threatened Litigation, and they are considering whether any such claims should be pursued;

WHEREAS, this Stipulation is not intended to resolve, and does not resolve, any claims that FNCB, the Bank, and/or the Individual Defendants may have against Demetrius, John Demetrius, and/or Rossi, irrespective of whether said claims are, or are not, asserted or proposed to be asserted or may be asserted in the Pending and Threatened Litigation;

NOW, THEREFORE, without any admission or concession on the part of Plaintiff Gray and Mr. Lombardo of any lack of merit of the Pending and Threatened Litigation whatsoever, and without any admission or concession on the part of the Settling Defendants as to the merits of the Pending and Threatened Litigation or as to any liability or wrongdoing whatsoever,

IT IS HEREBY STIPULATED AND AGREED, by and among the Settling Parties, through their respective counsel, that, subject to the approval of the Court, in consideration of the mutual agreements set forth herein, the Released Claims shall be finally and fully compromised, settled, and released and the Pending and Threatened Litigation shall be dismissed with prejudice as to the Released Parties (identified below).

6

I. THE INDIVIDUAL DEFENDANTS’ AND ADDITIONAL DIRECTORS’ DENIALS OF WRONGDOING AND LIABILITY

A. The Individual Defendants and Additional Directors have denied and continue to deny each and every one of the claims and contentions alleged in the Pending and Threatened Litigation. The Individual Defendants and Additional Directors also have denied and continue to deny all allegations that FNCB has suffered damage by or as a result of the conduct alleged in the Pending and Threatened Litigation. In order to benefit FNCB and the Bank and to eliminate the potential burden, expense, and risks inherent in the litigation, the Settling Defendants have determined that it is desirable that the Pending and Threatened Litigation be settled in the manner and upon the terms and conditions set forth herein.

B. Neither this Stipulation, nor any of its terms or provisions, nor entry of the Judgment (defined below), nor any document or exhibit referred or attached to this Stipulation, nor any action taken to carry out this Stipulation, may be construed or used as evidence of the validity of any of the Released Claims, or an admission by or against the Settling Defendants of any fault, wrongdoing or concession of liability whatsoever.

C. Neither this Stipulation nor the attached exhibits shall be offered or received into evidence in any action or proceeding in any court or other tribunal for any purpose whatsoever other than to enforce the provisions of this Stipulation, except that this Stipulation and the attached exhibits may be filed as evidence of the Settlement or in any action against the Released Parties to support a defense of res judicata, collateral estoppel, release or other theory of claim or issue preclusion or similar defense or in any action against Demetrius, John Demetrius, and/or Rossi. Notwithstanding the foregoing, the Settling Parties may use this Stipulation as evidence of the Settlement in connection with any litigation with the insurance carriers providing directors’ and officers’ liability insurance coverage to the Settling Defendants, or any of them.

II. THE DERIVATIVE CLAIMS AND THE BENEFITS OF SETTLEMENT

A. Based on their review and analysis of the relevant facts, allegations, defenses, and controlling legal principles, the Settling Parties believe that the Settlement set forth herein confers substantial benefits upon, and is in the best interests of the Bank, FNCB,

End of Preview