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Settlement Report

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KEVIN M. PRONGAY EUGENE MIKOLAJCZYK JON W. BORDERUD PRONGAY & MIKOLAJCZYK 881 Alma Real Drive, Suite 211 Pacific Palisades, CA 90272 Telephone: (310) 573-3600


MARK C. RIFKIN GREENFIELD & RIFKIN 344 W. Lancaster Avenue Haverford, PA 19041 Telephone: (610) 649-3900


Co-Lead Counsel for Class Plaintiffs


[Names of Additional Counsel Appear on Signature Page]


IN THE UNITED STATES DISTRICT COURT


FOR THE CENTRAL DISTRICT OF CALIFORNIA


WESTERN DIVISION


In Re AST Research Securities ) MASTER FILE Litigation ) NO. CV 94-1370 SVW (SHx)
) ___________________________________
) CLASS ACTION
------------ This Document Relates to: )
) All Actions ) DATE: August 28, 1995
) TIME: 3:00 p.m.
) COURTROOM: Honorable
) Stephen V. Wilson
) ___________________________________


STIPULATION OF SETTLEMENT
-------------------------


This Stipulation of Settlement (the "Stipulation"), dated as of August 16, 1995, is made and entered into by and among the following parties (as defined further in Section (VI) hereof) to the above-entitled Litigation: (i) The Representative Class Plaintiffs (on behalf of themselves and each of the Settlement Class Members) as to the Class Claims, by and through their counsel of record in the Litigation; (ii) the Representative Derivative Plaintiff on behalf of AST Research, Inc. ("AST") as to the Derivative Claims by and through his counsel of record in the Litigation; and (iii) the Defendants, by and through their counsel of record in the Litigation. The Stipulation is intended by the Settling Parties to fully, finally and forever resolve, discharge and settle the Released Claims (as defined herein), upon and subject to the terms and conditions hereof.


I. THE LITIGATION
--------------


A. The Class Actions
-----------------


On and after March 3, 1994, the following actions were filed in the United States District Court for the Central District of California (the "Court") as class actions on behalf of persons who purchased AST common stock during a defined periods of time:


Action Class Period
------ ------------


Marschall v. Edwards, et al., 4/20/93 to 3/1/94 - ---------------------------- Case No.CV-94-1370 SVW (SHx)
Jones v. Edwards, et al., 4/20/93 to 3/1/94 - ------------------------ Case No. CV-94-1853 SVW (SHx)
Brenner v. Edwards, et al., 4/20/93 to 3/1/94 - -------------------------- Case No. CV-94-6718 SVW (SHx)
Kornfeld v. Forquer, et al., 6/20/94 to 8/31/94 - --------------------------- Case No. CV-94-6572 SVW (SHx).


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The Complaints filed in the above actions, asserted violations of Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, and (S)(S) 24500 and 25500 of the California Corporations Code.


By Orders dated May 9, 1994, and September 29, 1994, the Court ordered the consolidation of all of the above-listed actions and any related actions to be consolidated and captioned In re AST Research Securities Litigation, Master File
---------------------------------------- No. CV-94-1370 SVW (SHx). The foregoing actions, along with any further amendments to or consolidations involving such actions, are collectively referred to as the "Class Actions".


By Orders filed November 10, 1994, and December 21, 1994, the Court granted the motions for class certification and certified the Class Actions for purposes of the following classes (the "Class"):


All persons who purchased or otherwise acquired the common stock of AST
Research, Inc. between April 20, 1993 and March 1, 1994, inclusive, with a
subclass, for purposes of Plaintiffs claims under Cal.Corp. Code (S)(S)
25400 and 25500, defined as all persons who purchased or otherwise acquired
the common stock of AST Research, Inc. in the State of California;
excluding from the class and subclass the defendants named in the action,
and any entity in which any defendant named in the action has a controlling
interest.


or


All persons who purchased or otherwise acquired the common stock of AST
Research, Inc. between June 20, 1994 and August 31, 1994, inclusive, with
the exception of the defendants named in the action, the members of the
immediate family of each defendant named in the action, and any entity in
which any defendant named in the action has a controlling interest.


The Court approved the form of notice to be sent to Class members. On or about February 24, 1995, and pursuant to approval


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by the Court, counsel for Representative Plaintiffs in the Class Actions caused to be sent to all Class members who could reasonably be identified a Notice of Pendency of Class Action ("Pendency Notice") notifying Class members of, inter
----- alia, the pendency of the Class Actions, the certification of the Class Actions - ---- and the right of Class members to be excluded from the Class. Pursuant to such Pendency Notice, persons who are members of the Class have had an opportunity to request to be excluded from the Class.


B. The Derivative Claims
---------------------


On or about July 5, 1994, counsel for Clarence Cox, a holder of AST common stock, mailed to AST's Board of Directors a so-called "demand" letter, demanding that the Company commence legal proceedings against all responsible officers and directors of AST arising out of alleged violations of the federal securities laws and California state law relating to the allegations in the Class Actions. In response thereto, on August 1, 1994, the AST Board of Directors established an Independent committee of outside, non-officer AST directors. The Independent Committee was made up of Messrs. Richard Goeglein, Del Yocam and Jack Peltason (the "Independent Committee"). Mr. Goeglein was appointed as Chairman. The Independent Committee then began meetings to consider the matters raised in the July 5, 1994 letter, and in that regard interviewed and retained John Speigel, Esq. of Minger, Tolles & Olson as counsel. The Independent Committee and its counsel then actively monitored proceedings in the Class Action litigation referrred to above. The claims related thereto are referred to as the "Derivative Claims".


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The Class Claims and the Derivative Claims are referred to collectively as the "Litigation".


II. PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
----------------------------------------------------


Counsel for the Representative Plaintiffs have conducted extensive formal and informal discovery and investigation during the prosecution of the Litigation. This discovery and investigation has included, inter alia, (i)
----- ---- inspection of hundreds of thousands of pages of documents produced by Defendants, and certain non-party witnesses; (ii) inspection of documents produced by numerous non-party witnesses, including banking and market analyst companies; (iii) consultation with experts; (iv) review of AST's public filings, annual reports and other public statements; and (v) research of the applicable law with respect to the claims asserted in the various Complaints and the potential defenses thereto.


In addition, cross motions for summary judgment have been filed in the Class Actions. In connection therewith, the Court granted summary judgment as to certain defendants, and narrowed the issues for trial and against the remaining defendants. The Court also separated for trial in one action the claims asserted in the Marschall, Jones and Brenner actions, and ordered a
--------- ----- ------- separate trial of the claims asserted in the Kornfeld action.
--------
III. TRIAL OF THE CLASS ACTIONS
--------------------------


On August 8, 1995, trial commenced in the Marschall, Jones and Brenner
--------- ----- ------- actions. At the conclusion of proceedings on August 16, 1995 (and prior to the completion of plaintiffs' case in chief), the parties reached an agreement in principle for the settlement of the Litigation.


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Plaintiffs specifically represent that the claims asserted in the Litigation were brought in good faith and were believed by the Representative Plaintiffs, their counsel and their consultants and advisers to have a reasonable basis in fact and in the law. Neither the fact of the settlement may or can be used as evidence that the claims were not asserted in good faith or did not have a reasonable basis in fact or in the law.


IV. DEFENDANTS' STATEMENT AND DENIALS OF WRONGDOING
AND LIABILITY
-----------------------------------------------


The Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Representative Plaintiffs in the Litigation. The Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Litigation. The Defendants also have denied and continue to deny, inter alia, the allegations
----- ---- that the Representative Plaintiffs, the Classes and/or AST have suffered damage, that the prices of AST stock were artificially inflated by reasons of alleged misrepresentations, nondisclosures or otherwise, or that the Representative Plaintiffs or the Classes were harmed by the conduct alleged in the Litigation.


Nonetheless, the Defendants have concluded that the further conduct of the Litigation would be protracted and expensive and that it is desirable that the Litigation be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation in order to limit further exposure, expense, inconvenience and distraction; to dispose of protracted litigation, and to permit the operation of Defendants' business


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without further expensive litigation and the distraction and diversion of the Defendants' executive personnel with respect to the matters in issue in the Litigation. The Defendants also have taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like this Litigation. The Defendants have, therefore, determined that it is desirable and beneficial to them that the Litigation be settled in the manner and upon the terms and conditions set forth in this Stipulation.


V. CLAIMS OF THE PLAINTIFFS AND BENEFITS OF SETTLEMENT
---------------------------------------------------


The Plaintiffs believe that the claims asserted in the Litigation have merit. Counsel for the Plaintiffs recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Litigation against the Defendants through trial and through appeals. Counsel for the Plaintiffs also have taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as this Litigation, as well as the difficulties and delays inherent in such litigation. Counsel for the Plaintiffs also are mindful of the inherent problems of proof under and possible defenses to the federal securities law violations and pendent claims asserted in the Litigation. Counsel for the Plaintiffs believe that the settlement set forth in the Stipulation confers substantial benefits upon the Settlement Class, each of the Settlement Class Members and upon AST in connection with the claims asserted on its behalf derivatively. Based on their evaluation, counsel for the Plaintiffs have determined that the settlement set forth in the Stipulation is in the best interests of the Plaintiffs and


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the Settlement Class, each of the Settlement Class Members and the Company.


VI. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
------------------------------------------------


NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Class Plaintiffs (for themselves and the Settlement Class Members), by counsel for Clarence Cox derivatively on behalf of AST for the Derivative Claims, and the Defendants, by and through their respective attorneys of record, that, subject to the approval of the Court, the Litigation and the Released Claims (defined below) shall be finally and fully compromised and settled, and the Litigation shall be dismissed on the merits and with prejudice, as to all Settling Parties, upon and subject to the terms and conditions of the Stipulation, as follows:


1. Definitions
-----------
As used in the Stipulation the following terms have the meanings specified below:


1.1 "AST" or "the Company" means AST Research, Inc. and all of its predecessors, successors, parents, subsidiaries, divisions and related or affiliated entities.


1.2 "AST stock" means each and all of the shares of common stock of AST issued at any time.


1.3 "Authorized Claimant" means any Settlement Class Member whose claim for recovery has been allowed pursuant to the terms of the Stipulation.


1.4 "Claimant" means any Settlement Class Member who files a Proof of Claim in such form and manner, and within such time, as the Court shall prescribe.


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1.5 "Settlement Class Period" means the separate periods between April 20, 1993, and including March 1, 1994, inclusive, or between June 20, 1994, and August 31, 1994, inclusive.


1.6 "Defendants" means AST, Bruce C. Edwards, Wai S. Szeto, Safi U. Qureshey, Richard P. Ottaviano, James T. Schraith, Carmelo J. Santoro and James L. Forquer. Defendants Bruce C. Edwards, Wai S. Szeto, Safi U. Qureshey, Richard P. Ottaviano, James T. Schraith, Carmelo J. Santoro and James L. Forquer are referred to as the "Individual Defendants".


1.7 "Effective Date" means the first date by which all of the events and conditions specified in (P) 8.1 of the Stipulation have been met and have occurred.


1.8 "Escrow Agent" means Eugene Mikolajczyk and Mark C. Rifkin or their successors.


1.9 "Final" means: (i) The date of final affirmance on an appeal, the expiration of the time for a petition for a writ of certiorari and, if certiorari be granted, the date of final affirmance following review pursuant to that grant; or (ii) the date of final dismissal of any appeal or the final dismissal of any proceeding on certiorari; or (iii) if no appeal is filed, the expiration date of the time for the filing or noticing of any appeal from the Court's judgment approving the Stipulation substantially in the form of Exhibit "B" hereto, i.e., thirty (30) days after entry of the Judgment. An appeal or
---- petition for a writ of certiorari pertaining solely to any plan of allocation and/or application for attorneys' fees, costs or expenses, shall not in any way delay or preclude the Judgment from becoming Final.


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1.10 "Judgment" means the judgment to be rendered by the Court, substantially in the form attached hereto as Exhibit "B."


1.11 "Person" means an individual, corporation, partnership, limited partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives, or assignees.


1.12 "Plaintiffs' Lead Counsel" means the following counsel for Representative Plaintiffs in the Class Action: Kevin M. Prongay, Esquire, Prongay & Mikolajczyk, 881 Alma Real Drive, Suite 211, Pacific Palisades, CA 90272, Telephone: (310) 573-3600; and Mark C. Rifkin, Esquire, Greenfield & Rifkin, 344 W. Lancaster Avenue, Haverford, PA 19041, Telephone: (610) 649-3900.


1.13 "Plan of Allocation" means a plan or formula of allocation of the Settlement Fund which shall be described in the "Notice of Settlement of Class Action" to be sent to Settlement Class Members in connection with the Settlement whereby the Settlement Fund shall be distributed to Authorized Claimants after payment of expenses of notice and administration of the Settlement, any taxes, penalties or interest or tax preparation fees owed by the Settlement Fund, and such attorneys' fees, costs, expenses and interest as may be awarded by the Court. Any Plan of Allocation is not part of the Stipulation.


1.14 "Related Parties" means each of a Person's past or present directors, officers, employees, partners, principals, agents, underwriters, controlling shareholders, issuers, insurers, co-insurers, reinsurers, attorneys, accountants,


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auditors, advisors, consultants, expert witnesses, personal representatives, predecessors, successors, parents, subsidiaries, divisions, assigns, spouses, heirs, associates, related or affiliated entities or any members of their immediate families.


1.15 "Released Claims" means and includes any and all claims (including "Unknown Claims" as defined in (P) 1.22 hereof), demands, rights, liabilities, and causes of action of every nature and description whatsoever, known or unknown, asserted or that might have been asserted, including, without limitation, claims for negligence, gross negligence, breach of duty of care and/or breach of duty of loyalty, fraud, breach of fiduciary duty, or violations of any state or federal statutes, rules or regulations, by the Settlement Class Members, any present AST shareholder, or any of them, against the Defendants or any of their Related Parties based upon, related to, or in connection with the purchase and/or ownership of AST stock by the Settlement Class Members during the Settlement Class Period and/or present AST shareholders and based on the facts, transactions, events, occurrences, acts, statements, omissions or failures to act, which were or could have been alleged in the Litigation.


1.16 "Released Persons" means each and all of the Defendants and their Related Parties.


1.17 "Representative Plaintiffs" means class representatives Frank E. Marschall, Saul Jones, Lisa Brenner and Steven Kornfeld, and, in the case of the Derivative Claims, Clarence Cox.


1.18 "Settlement Class" means the Class as previously certified by the Court pursuant to Orders filed November 10, 1994, and December 21, 1994, as follows:


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All persons who purchased or otherwise acquired the common stock of AST
Research, Inc. between April 20, 1993 and March 1, 1994, inclusive, with a
subclass, for purposes of Plaintiffs claims under Cal.Corp. Code (S)(S)
25400 and 25500, defined as all persons who purchased or otherwise acquired
the common stock of AST Research, Inc. in the State of California;
excluding from the class and subclass the defendants named in the action,
and any entity in which any defendant named in the action has a controlling
interest.


or


All persons who purchased or otherwise acquired the common stock of AST
Research, Inc. between June 20, 1994 and August 31, 1994, inclusive, with
the exception of the defendants named in the action, the members of the
immediate family of each defendant named in the action, and any entity in
which any defendant named in the action has a controlling interest.


and excluding therefrom all persons who have timely and validly requested exclusion from the Class pursuant to the Pendency Notice sent pursuant to the Court's approval.


1.19 "Settlement Class Member" or "Member of the Settlement Class" means a Person who falls within the definition of the Settlement Class as set forth in (P) 1.18 of the Stipulation.


1.20 "Settlement Fund" means: the total principal amount of Twelve Million, Five Hundred Thousand Dollars ($12,500,000.00) plus any and all accrued interest, in cash to be paid pursuant to (P) 2.1 of the Stipulation and delivered by wire transfer to the Escrow Agent pursuant to the terms set forth in (P) 2.1 of the Stipulation. In connection therewith, AST will be entitled to receive from or on behalf of the Individual Defendants the sum of Two Million Dollars ($2,000,000.00) in settlement of the Derivative Claims. AST, in turn, will contribute all of the Two Million Dollars ($2,000,000.00) as part of the total Settlement Fund in settlement of the Class Actions and for the benefit of


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the Settlement Class; provided that such contribution by AST shall be reduced by any additional amount of attorneys fees or costs that AST is required by the Court to pay directly to counsel for Representative Derivative Plaintiff Clarence Cox in settlement of the Derivative Claims. Counsel for Clarence Cox represents that it intends to file no petition or request for separate fees or costs.


1.21 "Settling Parties" means, collectively, each of the Defendants and the Representative Class Plaintiffs on behalf of themselves and the members of the Settlement Class and Representative Derivative Plaintiff Clarence Cox derivatively on behalf of AST.


1.22 "Unknown Claims" means any Released Claims which any Settlement Class Member or present AST shareholder does not know or suspect to exist in his or her favor at the time of the release of the Released Persons which, if known by him or her, might have affected his or her settlement with and release of the Released Persons, or might have affected his or her decision not to object to this settlement. With respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, each of the Settlement Class Mem
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