As reported by the Company’s FORM 10-Q for the quarterly period ended July 2, 2004, the parties have entered into a settlement of the federal securities litigation under which all claims are dismissed, the defendants obtain releases of liability, and the litigation is terminated in exchange for a cash payment of $18 million by the defendants. The Company has paid $5 million of this amount, which reflects the Company’s contribution to the settlement, net of insurance. On July 26, 2004, following notice of the settlement to the members of the settlement class, the Court approved the settlement and entered final judgment and an order of dismissal with prejudice of the litigation.
According to the Notice of Settlement, a proposed settlement has been reached by the plaintiffs and defendants. The proposed settlement creates a fund in the amount of $18,000,000.00 in cash and will include interest that accrues on the fund prior to distribution. Based on Lead Counsel's estimate of the number of shares entitled to participate in the Settlement and the anticipated number of claims to be submitted by Class Members, the average distribution per share would be approximately $0.41 before deduction of Court-approved fees and expenses. If the Settlement is approved by the Court, counsel for the plaintiffs will apply to the Court for attorneys' fees of 25% of the settlement proceeds and reimbursement of out-of-pocket expenses not to exceed $550,000.00, to be paid from the settlement proceeds. If the amount requested by counsel is approved by the Court, the average cost per share would be $0.11.
As summarized by the same Notice of Settlement, on July 3, 2002, Lead Plaintiffs filed a Consolidated Class Action Complaint for Violations of Federal Securities Law alleging violations of §§10(b), 20(a) and 20(A) of the Securities Exchange Act of 1934and Rule 10b-5 promulgated thereunder and §§11, 12(a)(2) and 15 of the Securities Act of 1933, seeking to hold various defendants liable for misstatements and omissions in connection with the Infonet initial public offering and during the Class Period, concerning Infonet’s relationship with an entity known as “AUCS.” Thereafter, three groups of defendants filed motions to dismiss the Consolidated Class Action Complaint. On August 12, 2003, the Court granted Infonet The Court granted with prejudice the motions to dismiss filed. On October 3, 2003, Lead Plaintiffs filed the operative Amended Consolidated Class Action Complaint for Violations of Federal Securities Laws. The operative Amended Complaint alleges violations of §§11, 12(a)(2) and 15 of the 1933 Act and §§10(b) and 20(a) of the Exchange Act on behalf of all purchasers of the common stock of Infonet. On December 5, 2003, Defendants filed a motion to dismiss the Complaint. On December 10, 2003, after preliminary settlement discussions, the parties participated in mediation conducted by Antonio C. Piazza. As a result of this mediation, the parties reached an agreement in principle to settle the Litigation for the sum of $18,000,000.00.
In a press release dated September 2, 2003, Infonet Services Corporation announced a settlement, subject to final court approval, of a derivative lawsuit brought against certain of Infonet's directors and officers in a California state court in March 2002. Infonet also announced that the separate federal class action suit filed against Infonet and others on December 5, 2001 has been dismissed as to Infonet and its directors and officers with leave to file an amended complaint. All claims against Infonet's Class A stockholders and underwriters have been dismissed without leave to file an amended complaint.
The original complaint charges Infonet Services and certain of its officers and directors with violations of federal securities laws. Among other things, plaintiff claims that defendants' material omissions and the dissemination of materially false and misleading statements regarding the nature of Infonet Services' AUCS channel caused Infonet Services' stock price to become artificially inflated, inflicting enormous damages on investors.