According to the docket posted, on May 28, 2003, the Court entered the Order and Final Judgments approving the settlements. The case is settled and closed.
By the Notice of Pendency and Proposed Settlement dated April 4, 2003, the parties reached an agreement-in-principle to settle the action. The following funds, with a combined minimum cash value of $15,335,250 (plus accrued interest) for the benefit of the Class and/or the Lindelow Subclass, have been established: (a) a fund for the settlement of all litigation against the Sabratek Settling Defendants, which includes a Class Settlement Fund consisting of a minimum of $5,800,250 in cash, plus interest, for the benefit of the Class herein; (b) a Subclass Settlement Fund for the settlement of the claims asserted in the Lindelow Action consisting of a minimum of $560,000 in cash, plus interest, for the benefit of the Lindelow Subclass; and (c) a $8,975,000 fund for the settlement of all Class Plaintiffs' claims against KPMG LLP (Sabratek's outside auditors).
A hearing will be held on May 20, 2003, to determine whether either or both of the two proposed settlements of the action as set forth in the Stipulation and Agreement of Settlement as to Certain Defendants dated December 3, 2002, and the Stipulation and Agreement of Settlement with KPMG LLP dated November 25, 2002, are fair, reasonable and adequate, and to consider the proposed Plan of Allocation for the proceeds of the Settlements and the application of Class Plaintiffs' Counsel for attorneys' fees and reimbursement of expenses. The Settlements also provide for the settlement of certain other litigation against the Defendants.
Earlier, the plaintiffs in the Chu Action filed the operative complaint in that action (the "Third Amended Chu Complaint") on November 17, 1999. By order dated June 12, 2000, the district court in the Chu Action dismissed in their entirety all of the Rocap Non-Disclosure Claims and Improper Revenue Recognition Claims against all defendants. The Court also granted the Chu Plaintiffs leave to replead, but provided that any amended complaint could not include any of the dismissed claims. The Chu Plaintiffs thereafter filed a motion to reconsider, which sought to reinstate the improper revenue recognition claims that the Court had dismissed. The Court denied the motion to reconsider on July 27, 2000. Thereafter, the Court dismissed the remaining portions of the Third Amended Chu Complaint, and the Chu Plaintiffs filed a timely appeal. However, the Seventh Circuit appeal was subsequently stayed, and the case was referred to mediation. On January 7, 2003, the Seventh Circuit remanded the Chu Action to the District Court to consider approval of the proposed Settlements and to hold a fairness hearing.
On January 21, 1999 and June 20, 2000, two class action complaints were filed in the U.S. District Court for the Northern District of Illinois. The first filed class action complaint is titled Chu, et al. v. Sabratek, Inc., et al., case number 99-CV-00351. The second class action complaint filed is titled Lindelow, et al. v. Hill, et al., case number 00-CV-03727. As summarized in the Notice of Pendency, the claims alleged in the Class Actions -- which all defendants deny -- allege that the Sabratek Settling Defendants were responsible for issuing materially false or misleading statements during the Class Period in violation of §§ 10(b) and 20 of the Securities Exchange Act of 1934. Plaintiffs allegations fall into four basic categories: (a) Rocap Non-Disclosure Claims. The Chu complaint alleges that certain Sabratek Settling Defendants failed to disclose certain alleged problems relating to its Rocap product line. For example, the Chu complaint alleges that certain Sabratek Settling Defendants allegedly knew but did not disclose that Sabratek's Rocap division was at serious risk of being shut down by the FDA, and that its noncompliance with FDA requirements allegedly rendered Sabratek's ability to obtain certain regulatory approvals for the manufacture of Rocap syringes doubtful. (b) Improper Revenue Recognition Claims. The Chu complaint also alleges that certain Sabratek Settling Defendants caused each of Sabratek's Class Period financial statements to materially overstate Sabratek's actual financial performance by causing Sabratek to recognize revenue on various transactions in violation of GAAP. These claims include allegations that certain Sabratek Settling Defendants allegedly caused Sabratek to violate GAAP by, inter alia, (i) reporting revenue on "sales" of products to entities that had allegedly not ordered Sabratek products; (ii) reporting revenue on consignment sales; and (iii) reporting the full invoice value of product sales on transactions where Sabratek had allegedly granted the buyer undisclosed credits, discounts and/or rebates. (c) Improper Capitalization of Expenses Claims. The Chu complaint also alleges that certain Sabratek Settling Defendants caused Sabratek's Class Period financial statements to materially overstate Sabratek's actual financial performance in violation of GAAP by capitalizing various cash expenditures, which plaintiffs allege should have been treated as expenses, in violation of GAAP. (d) OneMedPlace.com Claims. The Lindelow complaint alleges that certain Defendants made statements during the Lindelow Subclass Period (July 6, 1999 through October 6, 1999) that, according to plaintiffs, represented that Sabratek and/or its Unitron (a/k/a "MOON") subsidiary had tested their purported "OneMedPlace.com" internet portal product at trial sites and that Sabratek expected to "roll-out" the product later that year when, in fact, plaintiffs allege, no such testing had occurred and the product was a year or more from being ready to roll-out.
The Chu complaint (but not the Lindelow complaint) also alleges, with respect to the Improper Revenue Recognition Claims and Improper Capitalization of Expenses Claims noted above, that defendant KPMG knowingly or recklessly violated § 10(b) of the Securities Exchange Act by issuing clean audit opinions on Sabratek's year-end financial statements during the Class Period. KPMG denies these allegations.
Plaintiffs in the Chu and Lindelow Actions both allege that the full truth concerning Sabratek's actual financial condition, performance, product development efforts, and future prospects was not disclosed until October 7, 1999. On that date, Sabratek announced that it would be restating its previously reported financial results for the reporting periods between April 1, 1997 and March 31, 1999 and that the restatement related primarily to reclassifying intangible assets as expenses and accounting for amounts advanced to affiliated companies as expenses rather than as loans and would reduce previously reported pre-tax earnings for this two-year period by approximately $39 million. Following this announcement, the price of Sabratek common stock fell to $1.03 per share at the close of trading on October 7. On November 3, 1999, Sabratek common stock was delisted by NASDAQ, and in December 1999 Sabratek and certain of its subsidiaries (including MOON) filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.
Note: The class is constituted by all who purchased or otherwise acquired Sabratek Corporation common stock, or bought call options or sold put options in Sabratek common stock, or bought Sabratek 6% convertible notes due 2005 ("collectively, "Sabratek Securities") between February 25,1997 and October 6, 1999, inclusive, including those who (the "Lindelow Subclass") purchased or otherwise acquired Sabratek Securities between July 6, 1999 and October 6, 1999.