According to the Company’s Form 10-Q for the quarterly period ended October 2, 2004, the settlement provides for the payment of $2 million into a settlement fund, an amount within the limits of the Company’s directors and officers liability policy, $1.5 million of which is covered under such policy. This payment is being made in exchange for a full and complete release of any and all claims against defendants and a dismissal of the lawsuit with prejudice. There having been no objections to the terms of the settlement, the Court finally approved the settlement by Order and Final Judgment dated September 10, 2004. The Order and Final Judgment became final and nonappealable on October 12, 2004.
Earlier, as reported by the same SEC form, the Company and several of its officers had been named as defendants in two substantially similar complaints alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. These actions were consolidated in a lawsuit in the United States District Court for the Western District of Pennsylvania in a case captioned In Re Black Box Corporation Securities Litigation (Civil Action No. 03-CV-412). On October 3, 2003, the plaintiffs in this action filed a Consolidated Class Action Complaint. The Company subsequently filed a Motion to Dismiss plaintiffs’ consolidated complaint. During the pendency of this motion, the parties entered into a Stipulation and Agreement of Settlement.
In a press release dated May 19, 2004, the Company has entered into a Stipulation and Agreement of Settlement in the case captioned In Re Black Box Corporation Securities Litigation (Civil Action No. 03-CV-412). This preliminary settlement provides for the payment of $2 million into a settlement fund, an amount within the limits of the Company's directors' and officers' liability policy, most of which will be covered under such policy. This payment is in exchange for a full and complete release of any and all claims against defendants. The settlement is subject to (1) plaintiffs' counsel determining, through limited confirmatory discovery, that the settlement is fair, reasonable and adequate, (2) the notice and hearing procedures that pertain to federal court class actions and (3) final approval of the court. A hearing will be held before the Honorable William L. Standish, United States District Judge, at the United States Courthouse for the Western District of Pennsylvania, on September 10, 2004, for the purpose of approving or rejecting the proposed settlement.
The original Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between October 15, 2002 and March 11, 2003, thereby artificially inflating the price of Black Box securities. Throughout the Class
Period, as alleged in the Complaint, defendants failed to disclose and
misrepresented the following material adverse facts: (a) that the
Company's European operations were not performing well and would have to
be scaled down significantly and staffing levels reduced accordingly;
(b) that the Company was improperly delaying the write down of a
material amount of uncollectible receivables, thereby overstating its
financial results; and (c) that the Company was experiencing declining
demand for its products and services and was not performing according to
its internal plans.
The complaint further alleges that on or around March 11, 2003, Black Box shocked the market when it announced that it expects earnings for the fourth quarter, the period ending March 31, 2003, to be between 53 cents and 54 cents, prior to one-time charges - as compared to analysts earnings estimates of 74 cents per share. The Company further reported that it
would be recording a $9 to $10 million one-time pre-tax charge, or 29
cents to 32 cents per share. In response to this announcement, the price
of Black Box common stock dropped from $39.14 per share to $26.78 per
share, a decline of 31%, on extremely heavy volume. During the Class
Period, Black Box insiders sold their personally-held shares of Black
Box common stock generating proceeds of more than $5 million.