According to a press release dated October 25, 2002, Optical Cable Corporation announced that the consolidated class action securities lawsuit filed against Optical Cable Corporation, its former Chairman, CEO & President Robert Kopstein, and certain other officers and directors of the Company brought in the United States District Court for the Western District of Virginia (the "Court") has been dismissed with prejudice and the previously announced agreed upon settlement is final and binding. The settlement with members of the shareholder class, initially announced on June 26, 2002, provides for Optical Cable to pay $700,000 in cash, a portion of which was funded by insurance, and issue warrants to purchase 250,000 shares of common stock at an exercise price of $4.88 per common share (reflecting adjustments for the reverse split effected July 31, 2002). On September 23, 2002, U.S. District Judge James C. Turk entered an Order and Final Judgment approving the settlement and dismissing the shareholder class action lawsuit with prejudice. The Order and Final Judgment was subject to appeal for 30 days after being entered. Since no appeal was filed with the Court within 30 days, the settlement has become final and binding.
The original complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that during the Class Period, defendants issued to the investing public false and misleading information that materially misstated the Company's condition and prospects. Moreover, the Company failed to disclose material information necessary to make its prior statements not misleading. The complaint alleges that defendants violated the federal securities law by engaging in a conspiracy and/or course of conduct pursuant to which they made a series of materially false and misleading statements and failed to make and/or omitted necessary, required, accurate, and material statements concerning the business and financial operations of Optical Cable, Optical Cable common stock, and the holdings of Kopstein, with the intent and having the effect of substantially inflating the price of Optical Cable common stock. Specifically, the defendants made numerous positive statements as to the business and financial health of Optical Cable prior to and during the Class Period yet failed to disclose to the investing public Kopstein's use of his stock as collateral for margin loans with various brokerage accounts he maintained to speculate in technology stocks. Given Kopstein's control of 96% of the Company's common stock, his use of his Optical Cable stock as collateral created a significant risk that large numbers of these shares could be seized and sold on the open market by brokerage firms to cover Kopstein's trading losses. According to the complaint, Kopstein had been cautioned by at least one brokerage firm to not speculate by borrowing money against his Optical Cable stock to invest in other technology company securities. Kopstein's speculation in other technology companies securities led to the margin calls which then resulted in significant losses to the plaintiffs when the brokerage firms seized Kopstein's Optical Cable stock and dumped millions of shares on the market at the same time,
resulting in the severe depression of the Company's stock price.