According to the US District Court Civil Docket, on December 15, 2003 Lucent Technologies, Inc. received final court approval for the roughly $600 million settlement of the securities litigation pending against the company in the US District Court for the District of New Jersey. The settlement was originally announced in March 2003 and is one of the largest ever.
Beginning on January 7, 2000, numerous class action complaints alleging violations of the federal securities laws on behalf of purchasers of Lucent's common stock were commenced against Lucent and certain other defendants in the United States District Court for the District of New Jersey. These actions were consolidated pursuant to Orders of the Court. The Court appointed Teamsters Locals 175 & 505 D&P Pension Trust Fund, The Parnassus Fund and The Parnassus Income Trust/Equity Income Fund as Lead Plaintiffs for the consolidated action and the law firms of Milberg Weiss Bershad Hynes & Lerach LLP and Bernstein Litowitz Berger & Grossmann LLP as Co-Lead Counsel for plaintiffs and the Class. Lead Plaintiffs filed the Fifth Consolidated and Amended Class Action Complaint on July 10, 2001 (the "Complaint").
On February 14, 2001, plaintiff George Pallas ("Pallas") made a written demand on Lucent's Board of Directors to commence an action against several former Lucent executives, including inter alia, Richard A. McGinn and Deborah C. Hopkins. On May 22, 2002, Pallas filed a shareholder's derivative action on behalf of Lucent captioned George Pallas v. Henry Schacht, Case No. 02-2460 (the "Pallas Action").
Several months later, Pallas' counsel filed another shareholder's derivative action on behalf of plaintiff Eva Cooper ("Cooper") captioned Eva Cooper v. Henry Schacht, et al., No. 02-4260 (the "Cooper Action"). Pallas and Cooper shall be referred to as the "Representative Plaintiffs." Collectively, the Pallas and Cooper Actions are referred to herein as the "Federal Actions." Both Federal Actions were assigned to the Honorable Joel A. Pisano.
The Federal Actions sought to remedy the Defendants' alleged breach of fiduciary duties and waste of corporate assets related to, inter alia, their alleged gross mismanagement of the Company over a period of several years which allegedly caused Lucent to suffer substantial damages. The Federal Actions also challenged: (a) Defendants' disclosure practices and related violations of the federal securities laws; and (b) Defendants' proxy solicitations regarding the re-election of Lucent directors for a multi-year period.
Also, beginning in January of 2001, a number of shareholder derivative and related actions were filed in the Court of Chancery, New Castle County, Delaware. These actions include: Parillo v. Schacht, Case No. 18608-NC; Tuttleman v. Schacht, Case No. 18614-NC; Mainzer v. Schacht, Case No. 18617- NC; Mulholland v. Schacht, Case No. 18631-NC; Resnick v. Allarie, Case No. 19006 Salins v. Schacht, Case No. 19104-NC; Freund v. Lucent, Case No. 18893- NC (collectively, the "Delaware Actions"). The Delaware Actions were consolidated by such Court orders dated February 7, 2001 and February 1, 2002. Subsequent to such consolidation, on March 4, 2002, a substantially similar Delaware action was filed in the Delaware Court of Chancery, New Castle County, captioned Freund v. McGinn, Case No. 20184-NC. By operation of the foregoing Orders of such Court, the second Freund action is deemed consolidated with and part of the Delaware Actions.
Like Representative Plaintiffs in the Federal Actions, plaintiffs in the Delaware Actions alleged that members of Lucent's Board of Directors breached their fiduciary duties and wasted corporate assets under Delaware common law by failing to properly oversee and manage Lucent's business and operations. Among other things, Plaintiffs in the Federal and Delaware Actions both alleged that Lucent engaged in improper accounting and revenue recognition practices during fiscal years 1999 and 2000 which caused Lucent's published financial results to be materially misleading. Such Plaintiffs further alleged that the foregoing conduct proximately caused Lucent to suffer a near- collapse and significant damages. Collectively, the Federal Actions and the Delaware Actions shall be referred to as the "Action."
In the summer of 2002, the parties in the Federal Actions and the Delaware Actions agreed to coordinate their efforts going forward. The Court approved the Settlement described herein and entered the Order and Final Judgment on December 15, 2003 which dismissed the action or actions with prejudice, pursuant to the terms of the Stipulation. Excluded from the settlement was plaintiff Florida State Board of Administration, given that on December 18, 2003 the Court entered a 'De-Consolidation Order' in the matter Florida State Board of Administration (01-CV-3790) v. Lucent Technologies Inc. The court also entered a reassignment order submitted to Chief Judge Bissell reassigning action to Judge Pisano.
This Settlement of this Action is part of a global settlement of several class actions (the "Global Settlement"). The terms and conditions of the Global Settlement are set forth in the Agreement re: Global Settlement of Lucent
Litigations dated as of September 19, 2003 (the "Cover Agreement"), the terms of which are incorporated in and are part of the Stipulation. The other actions being settled as part of the Global Settlement and the amounts allocated to each of those actions from the Global Settlement consideration are as follows:
"Lucent Common Stock Class Action" on behalf of persons who purchased Lucent common stock at any time between October 26, 1999 and December 20, 2000, which is being settled for a minimum of $113.4 million in cash; $246.75 million in Lucent common stock and/or cash; $24.0 million in common stock of Avaya, Inc.; warrants for the purchase of 200 million shares of Lucent common stock; and up to $5 million for notice and administration costs. For further information, contact: David J. Bershad, Esq., Milberg Weiss Bershad Hynes & Lerach LLP, One
Pennsylvania Plaza, New York, New York 10119, Telephone: (212) 594-5300, or Daniel L. Berger, Esq., Bernstein Litowitz Berger & Grossmann LLP, 1285 Avenue of the Americas, New York, New York 10019, Telephone: (212) 554-1400.
"Lucent Debt Securities Class Action," on behalf of persons who, between December 21, 2000 and March 27, 2001, purchased certain debt securities issued by Lucent, which is being settled for $3.75 million in cash. For further information contact: Olimpio Lee Squitieri, Esq., Squitieri & Fearon, LLP, 420 Fifth Avenue, New York, New York 10018, Telephone: (212) 575- 2092.
"ERISA Class Actions", on behalf of participants and beneficiaries of the Lucent Savings Plan (the "LSP") and the Lucent Technologies, Inc. Long Term Savings and Security Plan (the "LTSSP") (collectively "the Plans") at any time between December 31, 1999 through March 27, 2003 who made or maintained investments in the Lucent Stock Fund. This action is being settled for $69 million. For further information contact: Todd S. Collins, Esq., Berger & Montague, P.C., 1622 Locust Street, Philadelphia, PA 19103, Telephone: (215) 875-3000.
"Winstar Class Action," on behalf of persons and entities who were damaged as a result of purchases between March 10, 2000 and April 2, 2001 of Winstar Communications common stock or certain debt securities issued by Winstar, which is being partially settled for $12 million in cash. For further information contact: James P. Bonner, Esq., Shalov Stone & Bonner LLP, 485 Seventh Avenue, Suite 1000, New York, New York 10018, Telephone: (212) 239-4340.
"Lucent Note/Preferred Class Action," on behalf of persons who held certain notes and redeemable convertible preferred stock of Lucent at any time between April 13, 1999 and September 13, 2002, which is being settled for $4.6 million in cash. For further information contact: Robert I. Harwood, Esq., Wechsler Harwood LLP, 488 Madison Avenue, New York, New York 10022, Telephone: (212) 935-7400.
I. THE SETTLEMENT
(a) As a result of the filing, prosecution and settlement of the Action, the Lucent officer and director defendants are providing to Lucent, through payment by the applicable insurance proceeds, the settlement consideration of $14 million cash.
(b) In addition, as a result of the filing, prosecution and settlement of the Action, Lucent agreeded to implement the following corporate governance changes:
Lucent's Corporate Governance and Compensation Committee Charter shall be revised to provide that this Committee will have the authority, on its own initiative, to retain such advisors and consultants as the Committee deems advisable, and to set the compensation of such advisors and consultants.
Lucent's Audit Committee Charter of the Audit and Finance Committee of the Board of Directors shall be revised to
provide that this Committee will the sole authority to hire, fire, and set the compensation and other terms of retention of the Company's independent auditor.
These revisions shall remain effective for a period of not less than five (5) years.
II. DEFENDANTS' POSITION REGARDING SETTLEMENT
Defendants deny any wrongdoing whatsoever and the Stipulation shall in no event be construed or deemed to be evidence of or an admission or concession on the part of any of the Defendants with respect to any claim or of any fault or liability or wrongdoing or damage whatsoever, or any infirmity in the defenses that Defendants have asserted.
Defendants continue to deny that Plaintiffs or Lucent have suffered damages, that there has been any mismanagement of Lucent or waste of its corporate assets, that the price of Lucent common stock was artificially inflated due to the alleged misconduct, and that any of the Defendants or other Released Parties breached their professional or other fiduciary duties to Plaintiffs or Lucent. Defendants denied and continue to deny each and all of the claims and contentions alleged by any of the Plaintiffs in the Action. Defendants expressly 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 Action.
Nonetheless, Defendants and their insurers concluded that further conduct of the Action would be protracted and expensive, and that it is desirable that the Action be fully and finally settled in the manner and upon the terms and
conditions set forth in this Stipulation.
III. PLAINTIFFS' POSITION REGARDING SETTLEMENT
Plaintiffs' Counsel conducted an investigation relating to the claims and the underlying events and transactions alleged in the Action as well as the current circumstances of Lucent including, inter alia, its financial condition,
the exposure to it of potential liability in certain related Action and the benefits that will be realized pursuant to the Settlement of the Action. Plaintiffs' Counsel analyzed the facts adduced to date and otherwise and have researched the applicable law with respect to the claims of Plaintiffs and Lucent against Defendants and other Released Parties and the potential defenses thereto. Further, Plaintiffs, by their Lead Counsel, have conducted protracted and substantively difficult discussions and arm's length negotiations with counsel for Defendants with respect to a compromise and settlement of the Action with a view to settling all of the issues in dispute and achieving the best relief possible, under prevailing circumstances, consistent with the interests of the Company. The Court actively participated in such negotiations.
Based upon their investigation as set forth above, Plaintiffs' Lead Counsel have concluded that the terms and conditions of the Stipulation are fair, reasonable and adequate to the Representative Plaintiffs and Lucent, and have
agreed to settle the claims raised in the Action pursuant to the terms and provisions of this Stipulation, after considering: (a) the substantial benefits that Lucent will receive from the Settlement of the Action; (b) the attendant
risks of the Action; and (c) the desirability of permitting the Settlement to be consummated as provided by the terms of the Stipulation.
IV. ATTORNEYS' FEES AND EXPENSES
Lucent, in consideration of the benefits of the Settlement described herein, upon approval by the Court, has agreed to pay Plaintiffs' Lead Counsel (to be allocated by them among themselves and other Plaintiffs' Counsel) up to $3,500,000 in attorneys' fees and the expenses incurred in connection with the Action (the "Fees and Expenses"). To date, Plaintiffs' Counsel have not been paid any fee by any party, nor have they been reimbursed for their out-of- pocket expenses. The Fees and Expenses requested by Plaintiffs' Lead Counsel would compensate counsel for their efforts in achieving the benefits described herein and for their risk in undertaking this representation on a contingency basis.
Securities Class Action Filings' Original Allegations:
First Filing:
The complaint charges Lucent and certain of its officers with violations of federal securities laws by making misrepresentations about the Company's business, earnings growth, and financial statements, as well as its ability to continue to achieve profitable growth. The complaint alleges that during the Class Period, Lucent led the market to believe that its plan to restructure its operations into four divisions would produce consistently more profitable results. Based significantly on guidance provided by the Company, the price of Lucent stock continued to rise throughout the Class Period, reaching a high of over $84.00 per share on December 9, 1999. Then, on January 6, 2000, Lucent revealed that results for the first fiscal quarter of 2000 would fall materially short of analysts' expectations. The complaint alleges that, contrary to the Company's representations during the Class Period, demand for Lucent's products and the Company's profit margins were declining, its costs were increasing, and it had failed to supply products in sufficient quantities to meet market demand. These revelations caused the price of Lucent common stock to fall to $52.19, a decline of 38% from its Class Period high.
Debt Securities Filing:
The Complaint charges Lucent and individuals defendants with violating the federal securities laws by misrepresenting and concealing material facts concerning the Company's operations, including the state of its Agere business and Lucent's vendor financing program. Plaintiff alleges that defendants failed to disclose that Lucent's vendor financing program had crippled Lucent's financial condition and that their efforts to refinance Lucent's debt and to realize the highest possible price for Lucent's Agere business were in risk.
The Complaint explains that plaintiff purchased the Lucent 7.25% Notes due July 15, 2006 and alleges that he was damaged by defendants' misconduct. Plaintiff brings the case on behalf of purchasers of Lucent's 7.25% notes due July 15, 2006 as well as the purchasers of Lucent's other debt securities, including the 6.9% Notes due July 15, 2001, the 6.50% Debentures due January 15, 2028, the 5.50% Notes due November 15, 2008 and the 6.45% Debentures due March 15, 2029.
The plaintiffs allege that the defendants concealed material adverse information about Agere's financial condition prior to Agere's IPO and about our vendor financing portfolio. Specifically, plaintiff claims that defendants made misrepresentations of material fact in the statements from December 21, 2000 to February 20, 2001.
This lawsuit was filed on behalf of purchasers of Lucent Technologies, Inc.'s common stock (NYSE:LU) and debt securities (LU7G06, LU5K08, LU6A28, LU6C29)
