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The final piece of the sprawling Sunbeam shareholder fraud class action settlement has finally fallen into place. Last week, after a marathon mediation in New York City led by Miami lawyer Bruce W. Greer, two insurers that provided the company directors and officers, or D&O, liability coverage agreed to pay $25 million to an odd coalition of shareholders, bondholders and former Sunbeam executives. The investors claimed they were defrauded by executives, including former Sunbeam chief executive “Chainsaw” Al Dunlap. Executive Risk Indemnity Inc. and Federal Insurance Co., both acquired recently by the Chubb Group, agreed to pay the $25 million to settle $60 million in claims by shareholders, bondholders, Dunlap and other ex-Sunbeam executives against excess directors and officers liability coverage held by Sunbeam. Previously, the two insurance companies had refused to pay, arguing they were duped into providing that coverage by Sunbeam’s misrepresentations about its financial condition. About $13.5 million of the pot will go to shareholders if the deal is approved by U.S. District Judge Donald M. Middlebrooks at an Aug. 9 fairness hearing in Miami. That would place the grand total recovered for nearly 10,000 class action shareholders at about $141 million. The sum includes $110 million obtained last year from Sunbeam’s embattled accounting firm, Arthur Andersen, along with $15 million from Dunlap personally. “This was the last remaining source of recovery,” says Robert N. Kornreich, a partner at Wolf Popper in New York City. Kornreich explained that Dunlap and the other defendant officers and directors, who were covered under the D&O policy, would receive part of the payment to cover their legal costs. “The defendants get some of their costs covered under the policy, and we get the other portion.” But how the total recovery in the class action stacks up against enormous losses incurred by Sunbeam’s investors remains unclear. “The final numbers haven’t come in,” says Boca Raton, Fla., lawyer Abraham Rappaport, a co-lead counsel for the shareholders class. “The total market losses by some accounts were as high as $800 million. Other accounts by defense experts put them as low as $400 million.” Rappaport is a partner at Milberg Weiss Bershad Hynes & Lerach. FRAUD CASE PENDING Sunbeam, with a line-up of well-known consumer products branded with the names Oster, Mr. Coffee, First Alert, Coleman and Health O Meter, filed for Chapter 11 protection in U.S. Bankruptcy Court in February 2001. It cited its huge bank debt of $1.7 billion. Earlier, the company was forced to restate financial information for the six quarters before Dunlap was fired in June 1998. Lawsuits and an investigation by the Securities and Exchange Commission followed. Dunlap and four other former Sunbeam executives — Russell A. Kersh, Robert J. Gluck, Donald R. Uzzi and Lee B. Griffith — still face a civil securities fraud complaint. The SEC is seeking penalties from them and accountant Phillip E. Harlow, the former managing partner of Arthur Andersen’s now-closed Fort Lauderdale, Fla., office, who also is a defendant in that fraud complaint. The defendants are contesting the SEC allegations. A trial is set for mid-January. Federal Insurance had resisted paying out on the D&O policies because its lawyers, for example, said the carrier issued a coverage binder protecting Sunbeam’s directors and officers from liability the day before Sunbeam announced its first quarterly loss in April 1998. Federal said it issued the policy only after a Sunbeam official signed a misleading financial statement. “Sunbeam’s April 3 disclosure resulted in a 25 percent one-day decline in Sunbeam’s stock price,” said court papers filed by Lori Piechura, a partner in the Miami office of Hogan & Hartson who represents Federal. “Sunbeam’s management was aware that the announcement would be followed by a lawsuit or multiple lawsuits by Sunbeam shareholders.” GRUELING MEDIATION The settlement was reached June 4 at a mediation at Milberg Weiss’ New York City office. According to Rappaport, the climax came after 12 grueling hours of mediation led by Greer. The teams of lawyers were separated into different rooms. Greer shuttled back and forth between them like a Middle East diplomat. “We traveled a long way during the course of the day,” Rappaport says. “By then, [Greer] was trying to help us find out what the number was. Finally he said, ‘Look, I’ve listened to you all day. I’ve assessed where the strengths and weaknesses of your case are. Would you agree that if I pick a number and tell it to you, and you both agree, that you will settle on that number?’” Slips of paper with “$25 million” on them were passed to both sides. Rappaport says no one objected. The deal was done. DAMAGES AND LEGAL FEES Class shareholders will receive $13.5 million. Some $4 million will be paid on behalf of Dunlap, ex-vice chair Russell A. Kersh and other Sunbeam executives to the former Sunbeam executives’ lawyers. Sunbeam bondholders and a group of Texas banks that held Sunbeam shares but opted out of the class action will get $3.5 million each. The initial refusal of the insurance companies to pay on the directors and officers liability policies put the class action shareholders in the curious position of having to take sides in court with Dunlap, the man they blame for their huge losses. “There is a bit of irony there,” Rappaport says. “Still, there was a difference in terms of our legal positions.” Legal fees to be split by the 37 law firms for the plaintiffs have yet to be finalized, but the total will probably be 25 percent of the $141 million recovery. That’s the percentage Judge Middlebrooks already has set aside for the lawyers out of the $110 million paid by Arthur Andersen last year. The four lead plaintiff law firms will get most of that money. They are Milberg Weiss, Wolf Popper and two Philadelphia-based firms, Berger & Montague and Barrack Rodos & Bacine. PERELMAN v. ANDERSEN Judicial approval of the class action settlement won’t end the Sunbeam litigation. Besides the SEC civil case against Dunlap and the others, additional suits are pending. One of the most interesting is a claim in Palm Beach Circuit Court filed by financier Ronald O. Perelman. Perelman, the chairman of Revlon Inc., is demanding almost $2 billion in compensatory and punitive damages from Arthur Andersen, Arthur Andersen Worldwide SC, and other units of Arthur Andersen in England, Canada, Mexico, Venezuela and Hong Kong that allegedly participated in audits of Sunbeam. Perelman’s suit contends that Arthur Andersen’s audit failures and fraud helped force Sunbeam into bankruptcy. Perelman sold Coleman Co., the camping products manufacturer, to Sunbeam in 1998 for 14 million shares of Sunbeam, then valued at $600 million, that later became worthless. “Hopefully, Arthur Andersen will have some money by the time we’re done, but we know that Andersen Worldwide and the others have money,” says Chicago attorney Jerold S. Solovy, who is representing Perelman. “There are plenty of dollars to respond to what we are seeking.” Solovy, chairman of Chicago-based powerhouse Jenner & Block, says Perelman previously settled with Sunbeam. He would not disclose the terms. Solovy will argue the Palm Beach Circuit Court case with Jack Scarola, a partner at Searcy Denney Scarola Barnhart & Shipley in West Palm Beach. No trial date has been set.

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