According to the Company’s FORM 10-Q For The Quarterly Period Ended June 30, 2006, in June 2003, the Company elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. The Company understands that virtually all of the other non-bankrupt issuer defendants have also elected to participate in this proposed settlement. If ultimately approved by the court, this proposed settlement would result in the dismissal, with prejudice, of all claims in the litigation against the Company and against the other issuer defendants who have elected to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against the underwriter defendants. The proposed settlement provides that the insurers of the participating issuer defendants will guarantee that the plaintiffs in the cases brought against the participating issuer defendants will recover at least $1 billion. If recoveries totaling $1 billion or more are obtained by the plaintiffs from the underwriter defendants, however, the monetary obligations to the plaintiffs under the proposed settlement will be satisfied. In addition, the Company and the other participating issuer defendants will be required to assign to the plaintiffs certain claims that the participating issuer defendants may have against the underwriters of their IPOs. Consummation of the proposed settlement is conditioned upon obtaining approval by the court. On September 1, 2005, the court preliminarily approved the proposed settlement and directed that notice of the terms of the proposed settlement be provided to class members. Thereafter the court held a fairness hearing on April 24, 2006, at which objections to the proposed settlement were heard. After the fairness hearing, the court took under advisement whether to grant final approval to the proposed settlement.
As summarized by the same SEC filing, during the period from June 12 to September 13, 2001, four purported securities class action lawsuits were filed against Telaxis Communications Corporation, a predecessor company to Terabeam, Inc., in the U.S. District Court for the Southern District of New York. On April 19, 2002, the plaintiffs filed a single consolidated amended complaint which supersedes the individual complaints originally filed. These lawsuits have been assigned along with approximately 1,000 other lawsuits making substantially similar allegations against approximately 300 other publicly-traded companies and their public offering underwriters to a single federal judge in the U.S. District Court for the Southern District of New York for consolidated pre-trial purposes. On July 15, 2002, together with the other issuer defendants, Telaxis filed a collective motion to dismiss the consolidated amended complaint against the issuers on various legal grounds common to all or most of the issuer defendants. The underwriters also filed separate motions to dismiss the claims against them. In October 2002, the court approved a stipulation dismissing without prejudice all claims against the Telaxis directors and officers who had been defendants in the litigation. On February 19, 2003, the court issued its ruling on the separate motions to dismiss filed by the issuer defendants and the underwriter defendants. The court granted in part and denied in part the issuer defendants' motions. The court dismissed, with prejudice, all claims brought against Telaxis under the anti-fraud provisions of the securities laws. The court denied the motion to dismiss the claims brought under the registration provisions of the securities laws (which do not require that intent to defraud be pleaded) as to Telaxis and as to substantially all of the other issuer defendants. The court denied the underwriter defendants' motion to dismiss in all respects.
The complaint charges defendants with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) and Sections 11 and 15 of the Securities Act of 1933 for issuing a Registration Statement and Prospectus (the"Prospectus") that contained material misrepresentations and/or omissions. The Prospectus was issued in connection with the Telaxis IPO. The complaint alleges that the Prospectus was false and misleading because it failed to disclose (i) the Underwriter Defendants agreement with certain investors to provide them with significant amounts of restricted Telaxis shares in the IPO in exchange for exorbitant and undisclosed commissions; and (ii) the agreement between the Underwriter Defendants and certain of its customers whereby the Underwriter Defendants would allocate shares in the IPO to those customers in exchange for the customers' agreement to purchase Telaxis shares in the after-market at pre-determined prices.