Reynolds Agrees to Pay Attorney Fees in Trust Lawsuit

Source from:  Winston-Salem Journal 02/22/2016

A N.C. Business Court judge has approved a partial settlement agreement in a lawsuit involving a shareholder trust and Reynolds American Inc.'s board of directors.

The Beatrice Corwin Living Irrevocable Trust attempted to block Reynolds' $29.25 billion purchase of Lorillard Inc., which was completed June 12.

The trust sued Reynolds' board - which includes chief executive Susan Cameron - and British American Tobacco Ltd. (BAT) for breach of fiduciary duty in the deal announced July 15, 2014.

Reynolds has agreed to pay $415,000 in attorney fees and expenses to the trust's counsel, Mullins Duncan Harrell & Russell PLLC. The firm initially sought $842,876 in fees and expenses.

The partial settlement does not affect the trust's appeal of a dismissal of part of its lawsuit by Judge James Gale on Aug. 4. Gale ruled the plaintiff failed to state a claim that proved BAT controlled the deal. He said the Reynolds board did not breach fiduciary duties.

As part of the four-party transaction that closed June 12, BAT spent $4.7 billion to maintain a 42 percent ownership stake in Reynolds. Legacy non-BAT Reynolds shareholders now hold 43 percent and legacy Lorillard shareholders 15 percent.

The trust claimed in its lawsuit, filed in August 2014, that non-BAT shareholders of Reynolds stock may be shortchanged related to potential international revenue streams from innovative products, such as electronic cigarettes Vuse and blu eCigs and heat-not-burn cigarette Revo. Reynolds has since put on hold plans for Revo.

On Dec. 1, R.J. Reynolds Tobacco Co. signed a vapor technology sharing and licensing agreement with a subsidiary of BAT. The agreement, which runs through Dec. 31, 2022, enables Reynolds and Nicoventures to collaborate on next-generation vapor products, conduct joint research and development activities, and cooperate on regulatory, scientific and manufacturing issues.

Reynolds spokesman David Howard said that although the focus of the Reynolds-BAT sharing agreement will be on developing vapor technologies going forward, the companies will share technologies on current products, such as Reynolds' top-selling electronic cigarette, Vuse, and four Vuse product extensions - Port, Pro, Connect and Fob.

A partial settlement reached in January allowed Imperial Tobacco Group Plc, Lorillard and Reynolds shareholders to approve their parts of the deal. Imperial spent $7.1 billion to buy four traditional cigarette brands and blu eCigs from Reynolds.

Reynolds and Lorillard agreed to provide additional "highly material" financial data and projections to thousands of shareholders ruled eligible for settlement notification.

Those disclosures included Reynolds and Lorillard revenue projections through 2022, as well as the increased financial and regulatory risk associated with menthol flavoring that Reynolds would assume by acquiring Newport, the top-selling U.S. menthol traditional cigarette and No. 2 overall brand.
Reynolds acknowledged that more than 50 percent of overall revenue would come from menthol after acquiring Newport.

The trust said that if the deal is completed before the lawsuit is settled, the plaintiff wants rescissory damages of more than $25,000. Rescissory damages are awarded to restore plaintiffs to the financial position they held prior to a decision affecting their stock holdings. Enditem