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Plaintiffs’ and defense lawyers are pointing to the recent settlement of a stock-options backdating case � which featured options “givebacks” from executives � as a model likely to be followed in similar cases. The derivative case, involving Family Dollar Stores Inc., alleges that the retail chain, along with 13 current and former executives and officers, violated federal and state laws by diverting hundreds of millions of dollars of corporate assets to themselves by granting backdated stock options to company insiders. Claims against the defendants include breach of fiduciary duty, aiding and abetting, abuse of control, constructive fraud, corporate waste, unjust enrichment and gross mismanagement. In re Family Dollar Stores Inc. Derivative Litigation, No. 06-510 (W.D.N.C.). The June 22 settlement calls for four executives to relinquish a total of 210,000 unexercised stock options. The agreement calls for givebacks of 75,000 options by Chairman and Chief Executive Officer Howard R. Levine, 35,000 by President and Chief Operating Officer R. James Kelly, 80,000 by director and former General Counsel George R. Mahoney Jr. and 20,000 by Senior Vice President of Finance C. Martin Sowers. Family Dollar also agreed to various corporate governance reforms, including changes to its stock-options grant process, the director election process and adding two more independent directors. In addition, the company said it expects to record about $5.7 million in litigation costs during its third quarter of fiscal 2007, including a $3.5 million payment to the plaintiffs’ lawyers. A court hearing about the settlement is scheduled for Aug. 13. Givebacks a goal Robert B. Weiser of the Weiser Law Firm in Wayne, Pa., and a plaintiffs’ lawyer on the Family Dollar case, said settlements involving givebacks are “going to be a goal by the plaintiffs’ lawyers in a number of these cases.” “If that’s something we think is appropriate in given circumstances, that’s something we’re going to demand to resolve the cases,” Weiser said. “We’re in negotiations with a number of companies where this relief will become more prevalent.” Family Dollar and individual director and officer defendants were represented by lawyers from Hunton & Williams of Richmond, Va.; Rogers & Hardin of Atlanta; Brooks, Pierce, McLendon, Humphrey & Leonard of Greensboro, N.C.; and three Charlotte, N.C., firms: Hamilton Moon Stephens Steele & Martin; Helms, Mulliss & Wicker; and Robinson, Bradshaw & Hinson. Several lawyers declined to comment, and Robinson Bradshaw’s Mark W. Merritt referred questions to Family Dollar. Family Dollar declined to comment on the case. Plaintiffs’ law firm Labaton Sucharow & Rudoff in New York would look at similar settlements, said partner Barbara J. Hart. Labaton is involved in numerous stock-options backdating cases, but they are at a much earlier stage than Family Dollar, she added. “When we prosecute cases, defendants are interested in a settlement,” Hart said. “We would examine the appropriateness of unwinding the options award.” ‘A likely trend’ Defense lawyer Grant J. Esposito, a New York partner at Morrison & Foerster, also anticipates more stock-options givebacks or options re-pricing as the shareholder cases continue. Esposito’s firm is representing dozens of companies involved in stock-options litigation or internal or government investigations. “This is likely a trend that will continue,” Esposito said. “Having those options returned to the company seems to be a reasonable way to resolve the issue.” Plaintiffs’ lawyer Gerald H. Silk, a partner at New York’s Bernstein Litowitz Berger & Grossmann, said the issue is “on the table” in other cases, although many of the cases his firm is involved in are not yet at the settlement stage. “If you’ve been granted options outside of corporate process, there’s a strong claim and argument they should be rescinded and canceled,” Silk said. “There’s no question that’s on the table.” At a number of companies involved in backdating investigations, shareholders have fared well and it’s in the best interests of investors to keep the executives on board, Esposito said.

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