UPDATE 2-AriZona iced tea founders settle buyout dispute

(Updates with comment from Vultaggio’s lawyer)

NEW YORK, April 21 (Reuters) - The founders of the privately held producer of AriZona iced tea have reached a settlement resolving a long-running legal feud that had prompted a New York state judge to order the company to pay $1 billion to buy out a co-owner.

Domenick Vultaggio, Beverage Marketing USA Inc’s managing founder, and estranged partner John Ferolito have reached a deal resolving litigation that called into question the future of the top U.S. producer of ready-to-drink tea, their lawyers said Tuesday.

Exact terms were not disclosed. The settlement received preliminary approval on Tuesday from a state court judge in Mineola, New York.

“Settlements are always by definition compromises, and comprises are always bittersweet,” said Nicholas Gravante, Ferolito’s lawyer. “We believe, however, that the settlement preliminarily approved by the court today is in all parties’ best interest.”

The deal came ahead of a non-jury trial over the precise amount and terms of a $1 billion payment due to Ferolito and his son for their 50 percent stake following a judge’s ruling in October.

Louis Solomon, Vultaggio’s lawyer, said his client was “thrilled with the settlement,” which will allow for Ferolito’s stake to be bought while ensuring the company remains financially healthy.

Litigation had been ongoing since 2008 between Vultaggio and Ferolito, longtime partners whose falling out morphed into New York’s largest-ever corporate dissolution proceeding.

Their dispute centered on whether to keep the Woodbury, New York-based enterprise private or sell it to potential buyers including Tata Global Beverages Ltd, Nestlé SA and Coca-Cola Co.

Ferolito, who wanted to sell, said those companies had eyed acquisitions valuing the business for up to $4.5 billion.

But Vultaggio resisted selling a business that Solomon says has 1,000 employees and annual sales of $1 billion.

Under a 1998 agreement in which Vultaggio would operate the company while Ferolito moved to Florida, transferring stock to outsiders was restricted.

In 2008, Ferolito, wanting to sell his stake, asked a court to declare the restrictions unenforceable.

Following unfavorable rulings, Ferolito sought to dissolve Beverage Marketing. Vultaggio elected under state law to buy out Ferolito.

Subsequent rulings allowed Beverage Marketing itself to buy the stake. The case eventually encapsulated all AriZona entities.

In October, Nassau County Supreme Court Justice Timothy Driscoll said Ferolito and a trust benefiting his son were owed about $1 billion, after finding the value of the AriZona business and related companies approached $2 billion in 2010.

The case is Ferolito v. AriZona Beverages USA LLC, et al, New York Supreme Court, Nassau County, No. 004058-12. (Reporting by Nate Raymond; Editing by Chris Reese, Paul Simao and Lisa Shumaker)