The opinion of the court was delivered by: RYAN
There are before us three applications for fees to be paid by the Futterman Corporation as provided in the Stipulation and Agreement of Compromise and Settlement, dated July 1, 1965, for professional services rendered to the named plaintiffs and all other persons similarly situated. Herman Odell, Esq., requests an allowance of $450,000.00 plus expenses of $2,275.13; Ferro Berdon & Co., accountants, request fees of $50,000.00; and the firm of Knapp & Berson, attorneys for objecting stockholders, seek counsel fees of $75,000.00.
This settlement is unusual in that the fees in suit are to be paid by the defendant, the Futterman Corporation, rather than out of a fund created for distribution to the plaintiff class. The Futterman Corporation does not question the applicants' right to compensation, but it contends that the fees to be paid should be substantially reduced to a maximum of $44,300 for Mr. Odell, $20,000 for Ferro Berdon & Co., and $5,000 for Knapp & Berson.
This action commenced in May 1963 is based on violations of the federal security laws administered by the Securities and Exchange Commission. After extended arms-length negotiations, a settlement was reached which, with certain modifications, was approved by the Court on September 20, 1965.
The parties basically agree on the factors which are to be considered by the Court in determining the fixation of fees, but they disagree on the value of settlement received by the plaintiff class and the proportion of this benefit which the Court should adopt as proper in the awarding of fees.
The terms of the settlement provide:
1. Futterman will issue up to 2,000,000 options to all shareholders who purchased Class A stock between July 19, 1960 and April 3, 1962, one option for each such share. No options will be issued to corporate insiders or certain securities dealers who profited from dealing in Futterman stock;
2. Each option will entitle the holder to put one share of Class A stock to Futterman for $6 during the last 10 days of the two years after its issuance;
3. Futterman may call the option at any time prior to its exercise for $1.25;
4. The holder of an option who sold the stock after April 3, 1962 and before July 8, 1965 may put the option to Futterman for 70 cents within thirty days of its issuance;
5. Certain holders of Class B stock will sell a total of 29,695 shares to Futterman at $1 per share, and the Estate of Robert Futterman will surrender for cancellation an additional 40,305 Class B shares without compensation;
6. Special releases will be given to the defendants for any conduct in connection with the public offerings of stock complained of; and a bar order against further similar actions will be entered.
About half of the 2,000,000 options will be issued to former stockholders of Class A stock who sold their stock after April 3, 1962 and before July 8, 1965. The parties agree that the value of these options is about $700,000. Where the parties differ is on the valuation of the approximately 1,000,000 options to be issued to those Class A stockholders who did not sell their stock prior to July 8, 1965. The defendant argues that, because the last day for taking an appeal from this Court's approval of the settlement agreement was November 20, 1965, that should be the date on which the value received by the benefited class should be computed; and furthermore that, since the market price of Futterman stock was $5.625 per share on that date and since the agreement called for a purchase price by the corporation two years hence at only $6.00 per share, the market price of the option would be approximately $.20 per option or a total of $200,000 for the 1,000,000 options.
The attorney for the plaintiff, however, contends that the options should be considered as "puts" (options to sell) and valued as such. A "put" on a relatively speculative stock for above present market price, exercisable two years hence, would have a value in excess of $1.25; but he continues since the defendant can buy the option for $1.25 at any time prior to its exercise and since Futterman Corporation would be likely to exercise its option because redemption of so much stock at $6 per share would be a tremendous strain on the corporation's resources, a value of $1.25 per option should be used in computing the value of the settlement. In addition, Mr. Odell contends, no great weight should be given to the market price of Futterman stock on November 20, 1965 because of the uncertainties of the stock ...