In 1997, General Cigar Holdings Inc., a family-owned business since 1906, went public at an offering price of $18 per share of class a stock. The founding Cullman family retained control with super-voting class B shares that were entitled to ten votes per share. Share prices for the class A stock rose as high as $33, but by 1999, they had sunk to $5.

In 1999, tobacco giant Swedish Match AB offered to discuss acquiring a “significant stake” in General Cigar but indicated that it wanted Edgar Cullman Sr. and Edgar Cullman Jr. to remain in charge. General Cigar’s board of directors formed a special committee of independent directors, which hired legal counsel and an investment bank to conduct a fairness review of any resulting offer. Swedish Match proposed a transaction whereby the public shareholders would be cashed out at $15.25 per share, Swedish Match would buy one-third of the Cullman family’s equity interest at $15 per share, and General Cigar would be merged into a Swedish Match subsidiary. As a condition to continuing negotiations, Swedish Match required the Cullmans to enter into a lock-up arrangement or stockholders’ voting agreement providing that if the proposed merger of Swedish Match and General Cigar failed, the Cullmans would not sell their shares in any other merger and would vote against any other merger for the next eighteen months. What legal and ethical considerations should the Cullmans take into account when deciding whether to sign such an agreement? Would it be enforceable if a higher bidder surfaced later?

If the Cullmans did sign such an agreement and the independent committee decided in good faith, after informing itself about the value of General Cigar and unsuccessfully seeking higher bidders, that it was in the best interests of the public shareholders to enter into a merger agreement with Swedish Match, what, if any, nonprice terms would you recommend the board insist on including in the merger agreement? Should the General Cigar board agree to recommend the Swedish Match deal, to put it to a vote of the shareholders, or to use best efforts to consummate it? [Orman v. Cullman, 2004 Del. Ch. LEXIS 150 (Del. Ch. Oct. 20, 2004).]