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Stipulation of Settlement

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Sectors: Telecommunications
Governing Law: Colorado , View Colorado State Laws
Effective Date: January 22, 2003
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DISTRICT OF COLORADO


Civil Action No. 00-RB-1181(CBS) (Consolidated with Civil Action No. 00-RB-1198)


MICHAEL RASNER, et al., On Behalf of Themselves and All Others Similarly Situated,


Plaintiffs,


v.


VARI-L COMPANY, INC., DEREK L. BAILEY, JOSEPH H. KISER, DAVID G. SHERMAN and JON L. CLARK,


Defendants.


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


This Stipulation of Settlement dated as of January 22, 2003 (the "Stipulation"), is made and entered into by and among the following Settling Parties (as defined further in Section IV hereof) to the above-entitled Litigation: (i) the Lead Plaintiffs (on behalf of themselves and each of the Settlement Class Members), by and through Co-Lead Counsel of record in the Litigation; and (ii) 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 in Paragraph 1.17 hereof), upon and subject to the terms and conditions hereof.


I. THE LITIGATION


On and after June 9, 2000, the following actions (collectively, the "Litigation") were filed in the United States District Court for the District of Colorado, as securities class actions on behalf of purchasers of Vari-L Company, Inc. ("Vari-L" or the "Company") stock between December 17, 1997 and July 6, 2000, brought against Vari-L and certain of its present and former officers and directors:


Rasner v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1181


Furman v. Vari-L Company, Inc., et al.,
Civil Action No. 00-WY-1198


Pedersen v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1217


Rambo v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1238


Gonzalez v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1241


Paige v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1292


Bronner v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1395


Crescente v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1401


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Farina v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1409


Betts v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1460


Hoos v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1465


Cody v. v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1493


Bernstein v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1518


Schmidt v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1520


Rhodes v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1565


Striker v. Vari-L Company, Inc., et al.,
Civil Action No. 00-S-1690


The operative complaint (the "Complaint") is the Consolidated Amended Class Action Complaint, filed on October 9, 2001. The Complaint alleges claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated thereunder.


On September 6, 2000, the Court granted the motion of Columbus Circle Investors, Steven D. Thomas and Susan E. Thomas, and Abraham Kadisha, for appointment as lead plaintiffs under Section 21D(a)(3)(B) of the Exchange Act and approved Lead Plaintiffs' selection of Milberg Weiss Bershad Hynes & Lerach LLP, Schiffrin & Barroway, LLP, and Berman DeValerio Pease Tabacco Burt & Pucillo as Co-Lead Counsel pursuant to Section 21D(a)(3)(B)(v) of the Exchange Act.


II. DEFENDANTS' DENIAL OF WRONGDOING AND LIABILITY


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Defendants deny and continue to deny each and all of the claims and contentions alleged by the Lead 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 Lead Plaintiffs or the Settlement Class have suffered damage, that the price of Vari-L common stock was artificially inflated by reasons of alleged misrepresentations, non-disclosures or otherwise, or that the Lead Plaintiffs or the Settlement Class were harmed by the conduct alleged in the Complaint. Nothing in this Stipulation is intended, or should be construed, as an admission or concession of any of the claims and contentions alleged by the Lead Plaintiffs in the Litigation.


Nonetheless, the Defendants have concluded that 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. 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.


III. CLAIMS OF THE LEAD PLAINTIFFS AND BENEFITS OF SETTLEMENT


The Lead Plaintiffs believe that the claims asserted in the Litigation have merit and that the evidence developed to date supports the claims. However, counsel for the Lead 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 Lead Plaintiffs also have taken into account the uncertain outcome


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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 Lead Plaintiffs also are mindful of the inherent problems of proof under and possible defenses to the claims asserted in the Litigation. Counsel for the Lead Plaintiffs are also aware of the limited financial resources of the Defendants and of their inability to pay a large judgment. Counsel for the Lead Plaintiffs believe that the settlement set forth in the Stipulation confers substantial benefits upon the Settlement Class. Based on their evaluation, counsel for the Lead Plaintiffs have determined that the settlement set forth in the Stipulation is in the best interests of the Lead Plaintiffs and the Settlement Class.


IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT


NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among each of the Lead Plaintiffs (for themselves and the Settlement Class Members) and the Defendants, by and through their respective counsel or attorneys of record, that, subject to the occurrence of the events and conditions set forth in Paragraph 7.1 below, the Litigation and the Released Claims (as hereinafter defined) shall be finally and fully compromised, settled and released, and the Litigation shall be dismissed with prejudice, upon and subject to the terms and conditions of the Stipulation, as follows.


1. Definitions


As used in this Stipulation the following terms have the meanings
specified below:


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


1.2 "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.


1.3 "Claims Administrator" means the firm of Gilardi & Co. LLC.


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1.4 "Class Period" means the period commencing on December 17, 1997 through July 6, 2000, inclusive.


1.5 "Settlement Class Member" or "Member of the Settlement Class" mean a Person who falls within the definition of the Settlement Class as set forth in Paragraph 1.21 of the Stipulation.


1.6 "Defendants" means Vari-L Company, Inc., Joseph H. Kiser, David G. Sherman, Jon L. Clark, and Derek L. Bailey.


1.7 "Effective Date" means the first date by which all of the events and conditions specified in Paragraph 7.1 of the Stipulation have been met and have occurred.


1.8 "Escrow Agent" means the law firm of Milberg Weiss Bershad Hynes & Lerach LLP.


1.9 "Final" means (a) the date of final affirmance on an appeal of the Judgment, the expiration of the time for a petition for or a denial of a writ of certiorari to review the Judgment and, if certiorari is granted, the date of final affirmance of the Judgment following review pursuant to that grant; or (b) the date of final dismissal of any appeal from the Judgment or the final dismissal of any proceeding on certiorari to review the Judgment; or (c) 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 attached hereto; i.e., thirty (30) days after entry of the Judgment. Any proceeding or order, or any appeal or petition for a writ of certiorari pertaining solely to any Plan of Allocation and/or application for attorneys' fees or expenses, shall not in any way delay or preclude the Judgment from becoming final.


1.10 "Individual Defendants" mean Joseph H. Kiser, David G. Sherman, Jon L. Clark and Derek L. Bailey.


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


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1.12 "Lead Plaintiffs" mean Columbus Circle Investors, Steven D. Thomas and Susan E. Thomas, and Abraham Kadisha, appointed pursuant to this Court's Order of September 6, 2000.


1.13 "Person" means an individual, natural person, corporation, partnership, limited partnership, association, joint stock company, joint venture, 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.


1.14 "Plaintiffs' Settlement Counsel" means Ellen Gusikoff Stewart, Milberg Weiss Bershad Hynes & Lerach LLP, 401 B Street, Suite 1700, San Diego, CA 92101, Telephone 619/231-1058; Michael Yarnoff, Schiffrin & Barroway, LLP, Three Bala Plaza East, Suite 400, Bala Cynwyd, PA 19004, Telephone: 610/667-7706; and Norman Berman, Berman DeValerio Pease Tabacco, Burt & Pucillo, LLP, One Liberty Square, Boston, MA 02109, Telephone: 617/542-8300.


1.15 "Plan of Allocation" means a plan or formula of allocation of the Settlement Fund whereby the Settlement Fund shall be distributed to Authorized Claimants after payment of expenses of notice and administration of the settlement, Taxes and Tax Expenses and such attorneys' fees, expenses and interest as may be awarded by the Court. Any Plan of Allocation is not part of the Stipulation and Defendants and the Related Parties shall have no responsibility or liability with respect thereto.


1.16 "Related Parties" means each of a Defendant's past or present directors, officers, employees, partners, members, principals, agents, underwriters, insurers (including but not limited to Agricultural Excess and Surplus Insurance Company ("AESIC"), under Policy No. NSX2422135 ("Policy"), but excepting Reliance Insurance Company ("Reliance"), under Policy No. NDA0155834), co-insurers, reinsurers, controlling shareholders, attorneys, accountants or auditors, banks or investment banks, associates,


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personal or legal representatives, predecessors, successors, parents, subsidiaries, divisions, joint ventures, assigns, spouses, heirs, related or affiliated entities, any entity in which a Defendant has a controlling interest, any members of their immediate families, or any trust of which any Defendant is the settlor or which is for the benefit of any Defendant and/or member(s) of his family.


1.17 "Released Claims" shall collectively mean any and all claims (including Unknown Claims as defined in Paragraph 1.25 hereof), actions, demands, allegations, rights, liabilities and causes of action of every nature and description whatsoever, including but not limited to, claims for negligence, gross negligence, recklessness, breach of duty of care and/or breach of duty of loyalty, breach of fiduciary duty, fraud, misrepresentation, mismanagement, breach of contract, violations of any state or federal statutes, rules or regulations, known or unknown, whether or not concealed or hidden, that have been or could have been asserted against the Defendants and/or the Related Parties in the Litigation by or on behalf of the Representative Plaintiffs and/or Settlement Class Members arising out of, based upon or related to both the purchase of Vari-L common stock by the Representative Plaintiffs or by any other Settlement Class Member during the Class Period and any of the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were, could or might have been alleged in the Litigation.


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


1.19 "Representative Plaintiffs" means each plaintiff who has appeared in the Litigation.


1.20 "Representative Plaintiffs' Counsel" means counsel who have appeared for any of the Representative Plaintiffs in the Litigation.


1.21 "Settlement Class" means all Persons (except Defendants, present and former executive officers and directors of Vari-L and/or its subsidiaries, their heirs, successors,


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assigns and members of the immediate families of Defendants) who purchased Vari-L common stock during the period from December 17, 1997 through July 6, 2000, inclusive, excluding those Persons who timely and validly request exclusion from the Settlement Class pursuant to the "Notice of Pendency and Proposed Settlement of Class Action" to be sent to the class.


1.22 "Settlement Fund" means (a) the principal amount of Six Hundred Forty Four Thousand Dollars ($644,000) in cash (the "Cash Amount") to be paid to the Escrow Agent pursuant to Paragraph 2.1 of this Stipulation, plus all interest earned thereon; and (b) the Settlement Stock.


1.23 "Settling Parties" means, collectively, each of the Defendants and the Lead Plaintiffs on behalf of themselves and the Settlement Class Members.


1.24 "Settlement Stock" means Two Million (2,000,000) shares of Vari-L common stock, which shall be issued under Section 3(a)(10) of the Securities Act of 1933 exempt from registration, subject to the anti-dilution provisions set forth in Paragraph 2.4 hereof.


1.25 "Unknown Claims" means any Released Claims which any of the Representative Plaintiffs and/or Settlement Class Members do not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons which, if known by him, her or it, might have affected his, her or its settlement with and release of the Released Persons, or might have affected his, her or its 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, the Representative Plaintiffs shall expressly, and each of the Settlement Class Members shall be deemed to have, and by operation of the Judgment shall have, expressly waived the provisions, rights and benefits of California Civil Code Section 1542, which provides:


A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.


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Upon the Effective Date, the Representative Plaintiffs and each of the Settlement Class Members shall be deemed to have, and by operation of the Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law or international or foreign law, which is similar, comparable or equivalent to California Civil Code Section 1542. The Representative Plaintiffs and Settlement Class Members may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, but the Representative Plaintiffs shall expressly and each Settlement Class Member, upon the Effective Date, shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed, upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Settling Parties acknowledge, and the Settlement Class Members shall be deemed by operation of the Judgment to have acknowledged, that the foregoing waiver was separately bargained for and is a material element of the settlement of which this release is a part.


2. THE SETTLEMENT


a. THE SETTLEMENT FUND


2.1 The Cash Amount will be transferred to the Escrow Agent as follows:


(a) Within fifteen (15) days of receiving an order granting preliminary approval of the settlement, the Individual Defendants shall pay or cause to be paid $394,000, in an allocation previously agreed upon by the Individual Defendants, in accordance with


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instructions provided by the Escrow Agent to be placed into an interest-bearing escrow account to be maintained by the Escrow Agent. Of the $394,000, $115,000 shall be paid by AESIC and the remainder shall be paid or caused to be paid by the Individual Defendants without any recourse to AESIC under the Policy or otherwise, in the allocation previously agreed upon by the Individual Defendants. Each Individual Defendant is solely responsible for his agreed upon contribution. Defendants Kiser and Clark shall take all reasonable steps to request that the Securities and Exchange Commission ("SEC") pay the agreed-upon disgorgement funds to the Escrow Agent for the benefit of the Settlement Class.


(b) Within fifteen (15) days of receiving an order granting preliminary approval of the settlement, Vari-L shall pay $100,000 in accordance with instructions provided by the Escrow Agent to be placed in an interest-bearing escrow account to be maintained by the Escrow Agent.


(c) The remaining cash payment of $150,000, plus interest at a rate of five percent (5%) per annum to begin accruing on the date of the order granting preliminary approval of the settlement, shall be paid by Vari-L on or before thirty-five (35) days after entry of the Judgment, in accordance with instructions provided by the Escrow Agent to be placed in an interest-bearing escrow account to be maintained by the Escrow Agent. This payment shall be made regardless of whether any appeal is taken to any aspect of the Final Judgment and Order, subject to the provisions of Paragraph 2.12 herein.


2.2 Vari-L shall deliver or cause to be delivered the Settlement Stock to Authorized Claimants and Representative Plaintiffs' Counsel in accordance with the instructions provided to the Vari-L transfer agent by Plaintiffs' Settlement Counsel or the Claims Administrator, subject to the limitations contained in Paragraph 2.3. Each and all shares of Settlement Stock shall be exempt from registration under Section 3(a)(10) of the Securities Act of 1933, freely tradeable and free from any liens and encumbrances upon delivery to Authorized Claimants and Representative Plaintiffs' Counsel. Upon entry of the Final Order and Judgment, Vari-L


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shall take all steps reasonably necessary to prepare for the contribution of the Settlement Stock to the Settlement Fund, such that the shares will be available for distribution within thirty-five (35) days after the Effective Date.


2.3 Within five (5) days of the Effective Date, Vari-L's transfer agent will be provided with a list identifying each Authorized Claimant and Representative Plaintiffs' Counsel who are entitled to receive Settlement Stock and the number of shares of Settlement Stock to be issued to each such Person ("Distribution List"). No fractional shares of Settlement Stock will be issued, and thus, the calculation of the number of shares to be distributed will be rounded up or down to the nearest whole share. In addition, the Settlement Stock will be distributed to Authorized Claimants who reside in states where the Settlement Stock is exempt from registration or qualification under applicable "Blue Sky" laws. For Authorized Claimants who reside in states where the Settlement Stock is not exempt, appropriate adjustments will be made by the Escrow Agent, Plaintiffs' Settlement Counsel or the Claims Administrator to equalize the value of their distribution under the Plan of Allocation, however, said appropriate adjustments shall not increase any Defendants' contribution to the Settlement Fund or Vari-L's contribution of the Settlement Stock. Vari-L shall direct its transfer agent to distribute certificates for shares of Vari-L common stock within thirty-five (35) days of receipt of the Distribution List to the Persons and in the amounts shown on said Distribution List in a transaction exempt under Section 3(a)(10) of the Securities Act of 1933. All costs associated with the delivery of the Settlement Stock shall be borne by Vari-L. Nothing herein shall require Vari-L or its transfer agent to distribute said shares to Authorized Claimants or any other Person who, in the opinion of Vari-L's legal counsel, reside in states where the Settlement Stock is not exempt from registration or qualification under applicable "Blue Sky" laws.


b. ANTI-DILUTION PROVISIONS OF THE SETTLEMENT STOCK


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2.4 With respect to any issuance of New Equity Securities (as defined below) at any time between January 22, 2003, and the later of December 31, 2003 or three (3) months after distribution of the Settlement Stock to the Settlement Class, the Settlement Class shall be entitled to receive an amount of Assessment Security (defined below) upon the terms and conditions set forth below:


(a) Until the later of December 31, 2003, or the date that is three (3) months after the date of distribution of the Settlement Stock to the Settlement Class, Vari-L may sell equity securities, securities that are convertible at any time into one or more equity securities, and securities that provide for the purchase at any time of one or more equity securities (collectively "New Equity Securities") without being required to issue any Assessment Security (as defined below) to the Settlement Class if, and only if, one or more of the following conditions is satisfied:


(i) the sale of such security is made as a rights offering to all holders of the Company's outstanding common stock;


(ii) in the case of shares sold in a private financing or PIPES transaction, the sale of such security is made at a per-common-share price equal to or greater than the average closing price of Vari-L's common stock for the ten (10) consecutive trading days ending two (2) trading days before such transaction is priced;


(iii) such security is sold at a price per share not less than the Deemed Value (as defined below) of the shares issued to the Settlement Class and the Company makes public disclosures of such sale;


(iv) the holders of the Company's common stock approve of such issuance at a Meeting of Shareholders by the affirmative vote of a majority of shares represented at such meeting (excluding the shares of such Person or Persons participating in the issuance which is the subject matter of the vote); or


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(v) the Company receives at the time of the sale of such security the signed opinion or report of a nationally-recognized investment banking firm that is independent of the Company and independent of all proposed purchasers of each such security to the effect that the price at which such security is being sold is fair to the Company and its shareholders from a financial point of view. The term New Equity Securities shall not include (1) any shares of common stock, or rights or options to purchase common stock, issued pursuant to the Company's existing stock option plan or employee stock purchase plan or any new plan approved by shareholders, or (2) shares issued in an underwritten public offering. The term "Deemed Value" shall be the average closing sale price of Vari-L's common stock for the ten (10) trading days preceding October 3, 2002, or $0.51.


(b) Until the later of December 31, 2003, or the date that is three (3) months after the date of distribution of the Settlement Stock to the Settlement Class, any New Equity Securities that are sold without meeting one or more of the conditions in Paragraph 2.4(a) shall be designated as an "Assessment Security."


(c) With respect to any Assessment Security, the Settlement Class shall be entitled to receive, without making payment, a number of shares of the Assessment Security being sold in an amount determined in accordance with the following formula:


Where: A = Number of Assessment Security shares to be issued


-- --
| NP + FD |
A = S |1- [-------] |
| ND + FD |
-- --


S = Number of shares originally issued to the Settlement Class
(2,000,000), as adjusted for stock splits, stock dividends,
etc.


N = Number of New Equity Securities issued


P = Price (on a common equivalent basis) of the New Equity
Securities


F = Fully diluted shares of common stock outstanding immediately
prior to issuance of New Equity Securities


D = Deemed Value of hares issued to the Settlement Class (based on
market price of Vari-L's stock on October 3, 2002), as adjusted


Upon any adjustments in accordance with the foregoing, D will be adjusted for the purpose of any future adjustments in accordance with the following, where DN represents the new


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Deemed Value and DO is the Deemed Value immediately prior to the issuance of the Assessment Security.


D(N) = D(O) x S
---
S+A


The total number of shares to be contributed to the Settlement Fund will be adjusted to reflect any changes due to stock splits, stoc
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