The Order and Final Judgment granting lead plaintiff motion for final approval of settlement as set forth in the Stipulation of Settlement dated May 11, 1999, was entered on July 23, 1999. The settlement of this class action became effective, in all material respects in September 1999. In accordance with the terms of the settlement, the Company paid $14.0 million, which was funded from insurance proceeds, to the class settlement fund for distribution to class members and issued 1.5 million shares of common stock for purposes of distribution to class members. The Former Majority Shareholder also transferred 8.7 million shares of the Company's common stock to certain former Champion shareholders and 1.2 million shares of the Company's common stock for purposes of distribution to class members. In addition, the Company made a payment of $1.0 million in cash and issued 1.0 million shares of common stock to terminate a contract with the Former Chairman.
Since October 11, 1996, eight complaints were filed against the Company by current or former stockholders of the Company, allegedly on behalf of all persons who received the Company's common stock through the Merger with Champion and who purchased common stock or a portion of the $325 million 10% Senior Subordinated Notes (the "Notes") between August 13, 1996 and October 9, 1996.
Five of these complaints were filed in the United States District Court for the Southern District of Texas, Houston Division. Two in the Superior Court of the State of California, County of Los Angeles, and one in the District Court of Harris County, Texas.
These complaints assert putative class actions on behalf of current and former holders
of the Company's securities for claims under federal and state statutes and the common law relating to the exchange offer for Champion stock in connection with the Merger, the August 1996 public offerings by the Company of common stock and subordinated notes, and trading in the Company's securities in the period between the Merger and October 9, 1996. In summary, the complaints allege that the Merger and public offerings proceeded on the basis of materially misleading disclosures and omissions by the Company and Champion, as well as certain of the Company's and Champion's officers, directors, and underwriters. The claims asserted include claims under section 11 of the Securities Act of 1933 and under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In March 1998, the federal district court dismissed claims
relating to the subordinated notes.
The federal consolidated complaint alleged violations of Federal securities laws. More specifically, the complaint alleged that during the class period, the named defendants disseminated materially misleading statements and omitted disclosing material facts about the Company and its business, specifically in the reporting and disclosure of reserves, bad debt expenses, collection expenses and facility closure costs and that the price of the Company's common stock was artificially inflated. The plaintiffs also alleged that the named defendants failed to make a reasonable investigation and did not possess reasonable grounds for the belief that the statements contained in the various registration statements and prospectuses filed during the class period were true, or that there was an omission of material facts necessary to make the statements contained therein not misleading.
The original complaint alleged that Paracelsus, certain of its officers and directors, Bear Stearns & Co., Inc., Smith Barney, Inc., and The Chicago Corporation, certain lead underwriters of Paracelsus's Aug. 13, 1996 offering of 4.6 million shares of common stock, with violations of the federal securities laws (Sections 11, 12(2) and 15 of the Securities Act of 1933), common law, and Texas securities laws, by among other things, misrepresenting and/or omitting material information concerning Paracelsus's financial internal controls and reported earnings during the Class Period.